3 + 1 Top ESG ETFs to buy

Updated: Dec 27, 2020

The following provides 3 top ESG ETFs (SUCL, ESGV, DSI) to invest in for passive investors, plus one ESG ETF that is focused on diversity and women, WOMN"

Key Takeaways:

  1. What is an ETF?

  2. What is Environmental Social Governance (ESG) ETF?

  3. Top Environmental Social Governance (ESG) ETFs.

  4. Top ESG ETF focused on women investors.

By: Allan R Kirby

What is an ETF?


An ETF (Exchange-Traded Fund) is a security that contains a collection of investments, usually stocks and bonds, that can be bought and sold on the stock exchange. The investments could be a collection of stocks in the same industry or one that tracks an index such as the Dow Jones Industrial Average (DJIA), S&P 500 Index, or the Nasdaq Composite Index. One caution with ETFs is that they are similar to mutual funds and come with expenses however the expense of managing an ETF is much lower than what a mutual fund would charge.


There are many benefits to investing in an ETF which includes the following:


1. ETFs can be a great way to invest in a sector without the need to do a lot of research.

2. ETFs are diversified so the risk is reduced because you are not investing in a single stock.

3. you are automatically diversified.

4. Expense fees to run the ETF are very low.

5. It's easy to buy and sell ETF's.

6. Great investment for the more passive investor who does not want to be active with their investing [1].


Environmental, Social and Governance (ESG) ETF


ESG investing entails researching and using an ESG Rating system or even an investor's own metrics on environmental, social, and governance when looking at investing in a company, in addition to the other traditional method such as the companies financials. The same applies to an ESG ETF? It's an investment fund that invests in high-quality companies with a high ESG rating or based on the ETF's own set of metrics.


Why is ESG investing growing?


Today many investors are factoring in environmental, social, and governance issues when it comes to their investments. This is in part because investors want to invest in companies that have a positive social impact as well as focus on sustainability to protect the environment. Today over 17 trillion is invested in ESG positive companies.


Why ESG Investing? Investors and businesses around the world are expressing growing concerns over environmental and social issues such as climate change, diversity in the workplace and corporate governance.

What are some of the most popular ESG Companies?


Some of the more common companies that have a high ESG rating as well as being popular with ESG ETFs include:

  • Apple.

  • Amazon.com Inc.

  • Tesla.

  • Alphabet Inc

  • Microsoft Corporation.

What are the best ESG funds to buy?

  • iShares ESG MSCI USA Leaders ETF (SUSL)

  • Vanguard ESG US Stock ETF (ESGV)

  • iShares MSCI KLD 400 Social ETF (DSI)

  • Impact Shares YWCA Women's Empowerment ETF (WOMN)


ESG ETF's to buy


#1 iShares ESG MSCI USA Leaders ETF (SUSL)


Expense Ratio: .10% (Very Low)


The iShares ESG MSCI USA Leaders ETF seeks to track the investment results of an index composed of U.S. large and mid-capitalization stocks of companies with high environmental, social, and governance performance relative to their sector peers as determined by the index provider. The metrics are based on MSCI ESG Fund Ratings and with 2.7 billion, this is a liquid fund. Learn more here


What is excluded in ESG ETF?


As part of its investment objective, this fund seeks to track an index that applies the following business involvement screens: alcohol, civilian firearms, controversial weapons, conventional weapons, fossil fuel extraction, gambling, nuclear power, nuclear weapons, thermal coal, and tobacco.


Top Holdings include:


Microsoft Corporation.

Alphabet Inc C.

Alphabet Inc A.

Tesla Inc.

Johnson & Johnson.

Visa Inc.

Procter & Gamble.

NVIDIA Corp.

Walt Disney.

Master Card Inc Class A.

#2 Vanguard ESG US Stock ETF (ESGV)


Expense Ratio: .12% (Very Good)


Vanguard ESG U.S. Stock ETF seeks to track the performance of a benchmark index that measures the investment return of large-, mid-, and small-capitalization stocks of companies and is screened for certain environmental, social and corporate governance criteria. Employs a passively managed, full-replication approach. Learn more here


What is excluded in ESG ETF?


Specifically excludes stocks of certain companies in the following industries: adult entertainment, alcohol, tobacco, weapons, fossil fuels, gambling, and nuclear power.*

Excludes stocks of certain companies that do not meet standards of U.N. global compact principles and companies that do not meet certain diversity criteria.*


Top Holdings


Apple Inc.

Microsoft Corp.

Amazon.com Inc.

Alphabet Inc.

Facebook Inc.

Tesla Inc.

JPMorgan Chase & Co.

Visa Inc.Procter & Gamble Co.

UnitedHealth Group Inc.

#3 iShares MSCI KLD 400 Social ETF

Expense Ratio: .25% (Good)

The iShares MSCI KLD 400 Social ETF seeks to track the investment results of an index composed of U.S. companies that have positive environmental, social, and governance characteristics as identified by the index provider.


What is excluded in ESG ETF?


As part of its investment objective, this fund seeks to track an index that applies the following business involvement screens: adult entertainment, alcohol, civilian firearms, controversial weapons, conventional weapons, gambling, genetically modified organisms (GMOs), nuclear power, nuclear weapons, and tobacco.


Top Holdings

Microsoft Corporation.

Facebook Class A Inc.

Alphabet Inc C.

Alphabet Inc A .

Tesla Inc.

Visa Inc.

Procter & Gamble.

NVIDIA Corp.

Walt Disney.

Master Card Inc Class A.


"What ETF is designed for women? Impact Shares YWCA Women's Empowerment ETF which tracks the Morningstar Women’s Empowerment Index, It's designed to provide exposure to companies who's policies support of women’s empowerment and gender equality"

#1 Impact Shares YWCA Women's Empowerment ETF (WOMN)


Expense Ratio: .76% (High) - See note*


This is one of the few ETF's that looks at diversity, the objective of the fund is to track the Morningstar Women’s Empowerment Index, which is designed to provide exposure to companies worldwide with strong policies and practices in support of women’s empowerment and gender equality.

The ETF is designed to provide broad market exposure to U.S. Large and Mid-Cap companies, comparable to that of the Russell 1000 Index. With WOMN, investors may achieve broad equity market returns while driving social change.

The ETF includes companies that align with the YWCA’s vision of how corporations can advance women’s empowerment and gender equality.

*Expense Ratio is high but Impact Shares is a 501(c)(3) non-profit organization, that donates all net advisory profits from WOMN’s ETF management fee to the YWCA. This provides an additional funding source for the YWCA’s mission to eliminate racism, empower women, and promote peace, justice, freedom, and dignity for all.

Top Holdings


Amazon.com, Inc.

Enphase Energy, Inc.

Microsoft Corporation.

Apple Inc.

SolarEdge Technologies, Inc.

First Solar, Inc.

Johnson & Johnson.

Visa Inc. Class A.

Alphabet Inc. Class A.

Alphabet Inc. Class C.


Does ESG affect investing?


There is no question that there was a time when socially responsible investing was brushed off as a strategy used by so-called left-wing tree huggers but this is no more, ESG or impact investing is serious business and does affect the investing decisions of individual investors. The US SIF Foundation's 2020 biennial “Report on US Sustainable and Impact Investing Trends,” shows that sustainable investing assets now total $17.1 trillion, that's a 42% increase over the 2018 total. These are not small numbers and most companies need to take ESG seriously.


We also found the report highlights that climate change remains the most important specific ESG issue considered by money managers in asset-weighted terms. The assets to which this criterion applies increased 39 percent from 2018 to 2020 to $4.2 trillion. As a result, companies have been working hard to show how they are reducing their carbon footprint and show good corporate governance with regard to the environment.


Are ESG funds worth it?


Yes, The incredible growth in ESG investing has also resulted in the growth of ESG index funds with over 250 billion being placed into ESG ETFs such as the ones provided above. It is likely that ESG Exchange-traded funds will continue to grow over the coming years and this is a great opportunity to get into one today. It does not hurt that ESG funds have provided a higher return than the stock market as a whole.


Like all investments, these investments may or may not be for you, however, take the time, do your research and see if these three ESG ETFs plus the Impact Shares YWCA Women's Empowerment ETF are for you.

Notes:

  1. Passive Investors are investors who prefer to buy and hold stocks but are not actively involved with the securities they hold. Passive investors do take care of their overall investment strategies, however, they tend to hold their investments over a longer period of time. Most passive investors invest their money into ETF's and Mutual Funds as these types of investments do not require investors to be actively involved. But many passive investors can and do invest in single stocks as well.


Stocks to buy is a segment of the MySmallBank.com blog written by Allan R Kirby, who writes and produces investment and personal finance articles and videos.

Disclosure: mysmallbank.com nor the author received any compensation from the mentioned securities for this article. The article is our opinion only and is written to help readers learn more about the ETFs mentioned in this article. Consider this as basic information only and utilize professional services and additional sources before making an investment decision.