ESG Sustainability Investing

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>>> 7 Socially Responsible ETFs to Buy Now


These top ESG funds are for investors concerned about environmental, social and governance issues.

By Jeff Reeves

June 17, 2020

U.S. News & World Report


https://money.usnews.com/investing/funds/slideshows/socially-responsible-etfs-to-buy-now


Socially responsible ETFs to buy:

iShares MSCI KLD 400 Social ETF (DSI)
Vanguard ESG U.S. Stock ETF (ESGV)
iShares ESG MSCI EAFE ETF (ESGD)
SPDR SSGA Gender Diversity Index ETF (SHE)
Invesco Solar ETF (TAN)
SPDR S&P 500 Fossil Fuel Reserves Free ETF (SPYX)
iShares MSCI USA ESG Select ETF (SUSA)


Investors and businesses around the world are expressing growing concerns over social issues such as climate change or diversity in the workplace. While Wall Street is chiefly concerned with profits, many executives understand climate change comes with real financial risks. Furthermore, the recent global protests against racism show that discriminating against certain customers is unacceptable. Many public corporations are now focused on ESG issues – that is, environmental, social and governance characteristics. Meanwhile, some index providers have begun to rank companies based on how ethically they operate, and there are accessible and affordable exchange-traded funds for people who want to invest without sacrificing their principles. Here are seven socially responsible ETFs that allow you to invest with ESG principles in mind.

iShares MSCI KLD 400 Social ETF (ticker: DSI)

At nearly $2 billion in assets, this iShares fund is not just one of the most popular socially responsible investment plays, but it's also a substantial fund across all categories with serious size and volume. Benchmarked to an index of about 400 large U.S. companies that includes Microsoft Corp. (MSFT) and Facebook (FB), this fund is designed to feature companies that post above-average ratings on ESG characteristics. Investors should be aware that this socially responsible ETF is pretty biased toward technology stocks; roughly 45% of holdings are either in information tech or communications. That may be good or bad, depending on your personal goals, but is worth noting.

Vanguard ESG U.S. Stock ETF (ESGV)

Though smaller in size than DSI with about $1.3 billion in total assets under management, this socially responsible ETF from Vanguard is tied to a much larger group of holdings with nearly 1,500 total components. It has a similar focus to the prior fund, as it includes U.S. companies with above-average ESG ratings; however, it includes a bunch of smaller names given the depth of the lineup of stocks. That may appeal to some investors, since top holdings remain old favorites such as Apple (AAPL). But further down the list are a host of relatively unknown stocks across all sectors of the U.S. economy.

iShares ESG MSCI EAFE ETF (ESGD)

This is another solid option as socially responsible ETFs go, but it excludes companies in the U.S. and Canada to take a more global approach to the ESG investing strategy. The result is a diverse group of almost 500 companies across geographies and sectors, including Swiss consumer giant Nestle (SWX: NESN) and Japanese automaker Toyota Motor Corp. (TYO: 7203). Investors should know that some companies in regions like Europe are even more progressive in their environmental, social and corporate governance efforts given greater regulation. For instance, in 2017, the U.K. enacted legislation that requires any business with 250 or more employees to publicly report its gender pay gap.

SPDR SSGA Gender Diversity Index ETF (SHE)

Perhaps best known for its 2016 debut that featured the "Fearless Girl" statue of a ponytailed tyke staring down Wall Street's famous bronze bull, this socially responsible ETF focuses on companies that feature better-than-average female representation on their executive committees compared with others in their industry. This doesn't mean a perfect balance of men and women, however. Top position PayPal Holdings (PYPL) has only four women on its leadership team of 11 people, for instance. That said, this ratio is better than its peers. And as representation of women in leadership continues to improve, so will the gender diversity of constituent stocks in this ETF.

Invesco Solar ETF (TAN)

With more than a decade of trading history, this solar energy ETF is among the oldest options for individual investors looking to invest in a more socially responsible way. With top stocks in this narrow subsector such as First Solar (FSLR) and SolarEdge Technologies (SEDG), TAN is a great way to gain exposure to the solar energy trend without going all-in on a single company. Of course, a laser focus on a group of 28 specialized holdings with basically the same business model is not without its risks. Solar sales are prone to volatility from year to year, and so is this ETF.

SPDR S&P 500 Fossil Fuel Reserves Free ETF (SPYX)

If you care about going green but also want a broader range in your portfolio beyond renewable energy stocks, the SPDR S&P 500 Fossil Fuel Reserves Free ETF is a good option. SPYX simply takes all the oil, gas and fossil fuel companies from the list of stocks out of the popular S&P 500. That leaves the ESG investor with about 460 stocks that make up a typical index fund, save for the exclusion of energy giants such as Exxon Mobil Corp. (XOM). It's an interesting approach that incorporates a more diverse group of companies.

iShares MSCI USA ESG Select ETF (SUSA)

This socially responsible ETF is growing fast in popularity because of its "select" strategy, through which it places stricter requirements on components. With only 145 holdings in its portfolio, investors are not simply getting an S&P 500 fund that excludes Big Oil and Big Tobacco – you'll instead find a top cut of the biggest companies that truly take ESG issues seriously. Big tech names such as Apple are well-represented, with about 29% of assets in that sector, but there are also some names that may surprise you. For example, take home-improvement company Home Depot (HD) or consulting firm Accenture (ACN). This gives you a shorter list, but it's a decently diversified one to avoid relying on just the top few holdings alone.

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