We detail the best ESG ETFs based on comparative performance against the S&P 500 on both a 1-year and 5-year benchmark. You will see the inevitable move to clean energy and social and ethical investment has begun, and how you can get on board.
ESG investing is surging right now, and we are bearing witness to the end of the oil age. The Economist reported, ” Investment in oil supply has collapsed” this is due to the fundamental paradigm shift to remote working and a more climate aware population. This has inevitably lead to a surge of capital into clean energy stocks in 2020 & 2021.
What is ESG Investing?
ESG investing (Environmental, Social & Governance) enables ethical investors to channel their capital to companies that demonstrate environmental sustainability, social responsibility, and good corporate governance. ESG investing can be done by investing in specific companies or by investing in some of the new ESG funds.
ESG Investing Definition & Principles
| Environment | Social | Governance |
| Air Quality | Labor Policy | Executive Pay |
| Green Energy | Community Impact | Ethical Practices |
| Waste Mgt | Equal Employment | Transparency |
| Hazardous Materials | Equal Opportunity | Accounting & Taxes |
5 Reasons to Invest In ESG ETFs
In case you did not realize it, Ethical & Social investing (ESG) is hot at the moment. Looking logically at the overall market, we see potent fundamental factors pushing these sectors forward.
Market Outperformance
Let the numbers speak for themselves. The majority of ESG ETFs Beat the S&P 500 Returns. In the ESG ETF list below, you can see that 19 of the 21 ESG ETFs on the US exchanges outperformed the S&P 500 index in 2020. Not only that but 10 of the ETF significantly performed, beating the S&P500 by more than 20%.
Climate Change & Sustainability
Climate change and the sustainability of our lives and our ecosystem are becoming top of mind for consumers, and this reflects on the profitability of ESG companies. More and more people are opting for organic produce, and diet shifting towards vegetarianism. More people want to buy electric cars or even avoid commuting altogether. The governmental push towards solar, winds, and other forms of renewable energy is undeniable.
ESG Companies Are A Safer Bet
ESG is not solely about the external environment; it is also concerned with good corporate governance. ESG investors try to encourage responsible corporate governance by only investing in corporations they consider ethical. These investors look for ethical business practices. Many ESG investors refuse to invest in tobacco companies or weapons manufacturers, for instance.
Some “Ethical Business Practices” are easily understood. Refusing to engage in bribery or break the law, for instance. If a company has an ESG policy that it actively pursues, this reduces your risk as an investor, as ultimately, there are less risk of scandals and corruption charges that could affect the business.
Supporting a Fairer More Equal Society
Not engaging in discrimination is a basic tenet of ESG investing. Companies that offer equal opportunities regardless of race, sex, religion, and sexual orientation are responsible. The obvious example of equal employment is the number of women, people of color, and minorities working at a company. Another sign of equal opportunity is a lack of discrimination lawsuits. An example of equal opportunity is McDonald’s (NYSE: MCD) efforts to make franchise opportunities available to minorities.
Many American companies encourage diversity by offering college scholarships to people of color. McDonald’s is one of many American companies that offer scholarships to minority employees. Having a strong diversity policy will not guarantee social responsibility. A socially responsible company enforces and practices its diversity policy.
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Best ESG ETFs List
| Ticker | ETF Name | 1-Year Return vs. S&P 500 | 5-Year Return vs. S&P 500 | Expense Ratio | Net Assets ($M) |
| TAN | Invesco Solar ETF | 131.60% | 56.00% | 0.71% | $1,547 |
| PBW | Invesco WilderHill Clean Energy ETF | 125.40% | 136.40% | 0.70% | $742 |
| QCLN | First Trust NASDAQ Clean Edge Green Energy Index Fund | 119.10% | 150.60% | 0.60% | $546 |
| PBD | Invesco Global Clean Energy ETF | 84.00% | 40.00% | 0.75% | $106 |
| ICLN | iShares Global Clean Energy ETF | 76.50% | 39.60% | 0.46% | $1,541 |
| SMOG | VanEck Vectors Low Carbon Energy ETF | 73.30% | 49.30% | 0.62% | $157 |
| FAN | First Trust Global Wind Energy ETF | 28.10% | 7.50% | 0.62% | $205 |
| PZD | Invesco Cleantech ETF | 23.30% | 39.70% | 0.65% | $295 |
| SDG | iShares MSCI Global Impact ETF | 21.60% | – | 0.49% | $183 |
| NULG | Nuveen ESG Large-Cap Growth ETF | 20.10% | – | 0.35% | $348 |
| NUMG | Nuveen ESG Mid-Cap Growth ETF | 19.20% | – | 0.40% | $181 |
| LRGE | ClearBridge Large Cap Growth ESG ETF | 15.20% | – | 0.59% | $114 |
| CACG | ClearBridge All Cap Growth ETF | 8.10% | – | 0.54% | $181 |
| SUSA | iShares MSCI USA ESG Select ETF | 7.50% | 10.70% | 0.25% | $1,743 |
| ESGU | iShares ESG Aware MSCI USA ETF | 3.80% | – | 0.15% | $8,814 |
| DSI | iShares MSCI KLD 400 Social ETF | 2.40% | 1.50% | 0.25% | $2,157 |
| ESG | FlexShares STOXX US ESG Impact Index Fund | 1.60% | – | 0.32% | $87 |
| SPYX | SPDR S&P 500 Fossil Fuel Reserves Free ETF | 1.40% | – | 0.20% | $667 |
| CATH | Global X S&P 500 Catholic Values ETF | 0.70% | – | 0.29% | $387 |
| PHO | Invesco Water Resources ETF | 0.00% | 5.40% | 0.60% | $1,097 |
| ETHO | Etho Climate Leadership U.S. ETF | -0.30% | – | 0.47% | $90 |
Table: Top 21 Performing ESG ETFs. All Data & Research Performed With Stock Rover, Our Favorite Stock & ETF Research, Screening & Portfolio Management Tool. Read the Stock Rover Review
Top 6 Best Performing ESG ETFs
Invesco Solar ETF
- 1-Year Return vs. S&P 500: +131%
- 5-Year Return vs. S&P 500: +56%
- Morningstar Rating: ★
- Net Assets ($M): $1,547
- Average Volume (3m): 1,036,571
- Expense Ratio: 0.71%
- Manager Tenure: 2.47 years
- Issuer: Invesco
Invesco Solar ETF Performance Chart
Invesco Solar ETF Details
The Invesco Solar ETF seeks to track the investment results (before fees and expenses) of the MAC Global Solar Energy Index (the “underlying index”). The fund will invest at least 90% of its total assets in the securities (including ADRs and GDRs) that comprise the underlying index.
The underlying index is designed to provide exposure to companies listed on exchanges in developed markets that derive a significant amount of their revenues from the following business segments of the solar industry: solar power equipment producers, including ancillary or enabling products. It is a socially responsible index fund.
Invesco WilderHill Clean Energy ETF
- 1-Year Return vs. S&P 500: +125%
- 5-Year Return vs. S&P 500: +136%
- Morningstar Rating: ★
- Net Assets ($M): $742
- Average Volume: (3m) 240,394
- Expense Ratio: 0.70%
- Manager Tenure: 13.34 years
- Issuer: Invesco
Invesco WilderHill Clean Energy ETF Performance Chart
Invesco WilderHill Clean Energy ETF Details
The Invesco WilderHill Clean Energy ETF seeks to track the investment results (before fees and expenses) of the WilderHill Clean Energy Index (the “underlying index”). The fund generally will invest at least 90% of its total assets in the securities that comprise the underlying index. The underlying index comprises stocks of publicly-traded companies in the United States that are engaged in the business of the advancement of cleaner energy and conservation.
Stocks are included in the underlying index based on the index provider’s evaluation that such companies will substantially benefit from a societal transition toward the use of cleaner energy and conservation. It is a socially responsible index fund.
First Trust NASDAQ Clean Edge Green Energy Index Fund
- 1-Year Return vs. S&P 500: +119%
- 5-Year Return vs. S&P 500: +150%
- Morningstar Rating: ★★
- Net Assets ($M): $546
- Average Volume (3m): 227,814
- Expense Ratio: 0.60%
- Turnover Ratio: 26.0%
- Manager Tenure: 13.65 years
- Issuer: First Trust
First Trust NASDAQ Clean Edge Green Energy Index Fund Chart
First Trust NASDAQ Clean Edge Green Energy Index Fund Details
The First Trust NASDAQ Clean Edge Green Energy Index Fund seeks investment results that generally correspond to the price and yield (before the fund’s fees and expenses) of an equity index called the NASDAQ Clean Edge Green Energy IndexSM. The fund will normally invest at least 90% of its net assets (including investment borrowings) in the common stocks and depositary receipts that comprise the index.
The index is designed to track the performance of small, mid, and large-capitalization clean energy companies that are publicly traded in the United States.
Invesco Global Clean Energy ETF
- 1-Year Return vs. S&P 500: +84%
- 5-Year Return vs. S&P 500: +40%
- Morningstar Rating: ★
- Net Assets ($M): $106
- Average Volume: (3m) 49,672
- Expense Ratio: 0.75%
- Manager Tenure: 13.31 years
- Issuer: Invesco
Invesco Global Clean Energy ETF Performace Chart
Invesco Global Clean Energy ETF Details
The Invesco Global Clean Energy ETF seeks to track the investment results (before fees and expenses) of the WilderHill New Energy Global Innovation Index (the “underlying index”). The fund generally will invest at least 90% of its total assets in the securities that comprise the underlying index, as well as American depositary receipts (“ADRs”) and global depositary receipts (“GDRs”) that represent securities in the underlying index.
The underlying index is comprised primarily of companies whose technologies focus on the generation and use of cleaner energy,
iShares Global Clean Energy ETF
- 1-Year Return vs. S&P 500: +77%
- 5-Year Return vs. S&P 500: +40%
- Morningstar Rating: ★
- Net Assets ($M): $1,541
- Average Volume (3m): 2,337,813
- Expense Ratio: 0.46%
- Turnover Ratio: 42.0%
- Manager Tenure: 12.28 years
- Issuer: iShares
iShares Global Clean Energy ETF Performance Chart
iShares Global Clean Energy ETF Details
The iShares Global Clean Energy ETF seeks to track the S&P Global Clean Energy IndexTM. The fund generally invests at least 90% of its assets in the component securities of the index and in investments that have economic characteristics that are substantially identical to the component securities and may invest up to 10% of its assets in certain futures, options, and swap contracts, cash, and cash equivalents, as well as in securities not included in the index.
VanEck Vectors Low Carbon Energy ETF
- 1-Year Return vs. S&P 500: +73%
- 5-Year Return vs. S&P 500: +49%
- Morningstar Rating: ★
- Net Assets ($M): $157
- Average Volume (3m): 6,277
- Expense Ratio: 0.62%
- Turnover Ratio: 40.0%
- Manager Tenure: 13.42 years
- Issuer: VanEck
VanEck Vectors Low Carbon Energy ETF Performance Chart
VanEck Vectors Low Carbon Energy ETF Details
The VanEck Vectors Low Carbon Energy ETF seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the Ardour Global IndexSM (Extra Liquid). The fund normally invests at least 80% of its total assets in stocks of low carbon energy companies.
Such companies may include small- and medium-capitalization companies and foreign issuers.
ESG ETF Investing Summary
The move has started; the oil industry’s near-collapse, the rise of the electric car, and the focus on Wind, Solar, and clean air are driving the ESG investing capital inflows. In addition to that, investing in ESG stocks is not only profitable but also the right thing to do to help push more companies into cleaning up their operations and treating workers and communities with respect.
I’m looking for an international (or foreign) ESG fund into which I want to invest $10,000 per month over the next 18 months.
Suggestions?
Not really. The US funds are more advanced with ESG reporting.
Good luck with your search.