The Best ESG Funds for Responisble Investors Like You!

The best ESG funds are those that invest in companies with a solid commitment to the environment. These funds tend to be more expensive than their conventional counterparts, but they can offer investors better returns over time because of this extra focus on sustainability. Read our guide to find out which fund is right for you.

ESG investing is an investment strategy based on environmental, social, and governance factors. It's about making sure your investments have positive impacts beyond financial ones. This means looking at how businesses operate from a broader perspective than just focusing on profit alone.


For example, it might look into whether workers get paid moderately or if there's been any negative impact on local communities due to business decisions. You may also want to consider what kind of products these companies sell and where they source them from.

There are many different types of ESG funds available, so we've picked some of the most popular options below. We'll tell you all you need to know about each one, including when to buy, fees, and how much money you could potentially make by investing in them.

Best ESG funds - UK & US

  • FTSE4Good All - Share Index Fund: £0.05 per share multi-asset class index fund designed to track the performance of the FTSE4good All-Share Index. The FTSE4good Index measures corporate responsibility across four dimensions – people, planet, prosperity, and purpose. Companies included in the index must meet specific criteria relating to human rights, labor practices, climate change policies, and other issues such as diversity and gender pay gaps.


  • MSCI ACWI Social Investing ETF: 0.10% per annum this fund tracks the MSCI ACWI Socially Responsible Global Equity IndexesSM, which includes stocks from developed markets worldwide. Stocks are selected using strict eligibility requirements and then rated according to their level of alignment with the principles outlined above.

  • iShares S&P 500 Environmental Industry Exclusion SM: 0.15% per year One way to reduce exposure to fossil fuels without having to go fully green would be to exclude energy firms from the benchmark used to price your shares. That's exactly what happens here. In addition to being free from oil and gas giants like ExxonMobil, Chevron Corporation, BP plc, and Royal Dutch Shell PLC, this fund will also avoid tobacco producers Altria Group Inc.

  • Vanguard Natural Resources Shares ETF: 0.20% per annum Vanguard has created two separate indexes tracking natural resources companies. One covers mining and exploration, while the second focuses on production and refining. Both use rigorous selection processes to ensure only high-quality companies are represented.


  • SPDR Gold Trust ETF: 0.25% per annum Gold prices have been up nearly 20 percent since early January, mainly driven by worries about slowing global growth and trade tensions between China and the U.S., among others. Investors who believe gold should continue rising in value are likely happy holding GLD.

  • PowerShares DB Agriculture ETF: 0.30% per annum agriculture sector is often overlooked, but its importance can't be understated. According to the UN Food and Agricultural Organisation, food security accounts for more than half of the total greenhouse gases emitted globally. So buying agricultural stocks makes sense even though they're not always easy to find.

  • Proshares Short North American REIT ETF: 0.35% per annum Short North America Reit, a real estate investment trust that invests primarily in office properties in Canada and the United States, provides an exciting opportunity for investors looking for income through property rentals. This fund uses short selling to profit off falling stock prices.

  • First Trust ISE Emerging Markets Dividend Growth ETF: 0.40% per annum First Trust's emerging market dividend fund seeks long-term capital appreciation via investments in securities issued by companies domiciled or listed in developing countries. It aims to provide current income and potential future gains through dividends paid out quarterly.


  • Vanguards International Developed Market Bond ETF: 0.50% per annum International bonds have been hit hard recently due to concerns over economic slowdown and geopolitical risks. But there are still plenty of opportunities to invest overseas. Here you'll get access to some of the best performing international bond indices available today.

  • Fidelity Contrafund Long/Short Equity Fund: 1.00% per annum this fund takes advantage of the fact that many large-cap US equities pay higher yields when viewed as short positions. The strategy works well because it allows investors to benefit from both sides of the coin: Shareholders make money when a company pays a good yield; when a company fails to deliver earnings, shareholders lose money.

Benefits of ESG Funds

  1. They help protect against inflationary pressures. As mentioned above, most traditional asset classes tend to rise with inflation. However, environmental factors such as pollution levels and water usage do not increase as much as other costs. Therefore, investing in these types of assets helps keep returns steady during periods of rapid inflation.

  2. They offer diversification benefits. By owning multiple different kinds of environmentally friendly businesses, you spread risk across several industries. If one company goes down, your portfolio will remain relatively stable.

  3. They allow you to participate in sustainable markets. Many people think sustainability means only green technology and products. In reality, however, this type of thinking has led us into unsustainable practices like deforestation and climate change. Sustainable investments also include socially responsible financial instruments, which seek to improve communities around the world. These types of assets may seem less exciting than tech startups, but their impact on society could prove much greater.

  4. They can be used to reduce tax liabilities. Some governments impose taxes on certain forms of income, including interest earned on bank accounts. Because they're considered "passive" investments, these stocks often don't fall under those rules. That's why so many wealthy individuals use them to avoid paying high rates of taxation.

  5. They can boost retirement savings. One way to save for retirement is to put away 10 percent of each paycheck before taxes. This amount might sound small, but if you were able to sock away $100 every two weeks without any trouble, you'd end up saving more than $52,000 throughout your lifetime! Investing in an index fund instead would require far fewer dollars saved.

  6. They can help build wealth over time. Over decades, compounding effects mean that even modest amounts invested early on can grow substantially more significantly. For example, let's say you start with just $500 and earn 5 percent annually. After 20 years, you've increased your initial investment by nearly 4,200%. On top of that, you now own shares worth thousands of times what you started with.

  7. They can provide peace of mind. While we all want our portfolios to perform well, sometimes bad things happen, no matter how big or small. A stock market crash, natural disaster, or terrorist attacks are examples of events that can cause significant losses. But having some form of insurance can give you confidence knowing that you won't suffer financially if something unexpected happens.

Cons

  1. You have to pay a fee to invest in them. The costs associated with ESGs vary widely depending on the company offering them. For instance, Vanguard charges 0.05% per year while BlackRock charges 1.50% per year. Fees aren't always disclosed upfront either, making it difficult to know precisely how much money you'll need to spend.

  2. There isn't necessarily a lot of liquidity available when buying them. There’s usually plenty of supply when you purchase individual securities because companies sell lots of shares at once. However, most ESGs trade as baskets of other assets rather than individually. As such, demand tends to exceed supply during periods of volatility.

Bottom Line

If you're looking for ways to diversify your portfolio, consider investing in ESG-focused mutual funds. Not only will they offer exposure to different sectors within the economy, but they'll also make sure you get paid fairly for doing good work.