In an era where climate change is no longer just a distant threat but a present reality, the importance of sustainable investments cannot be overstated.
Yet, many investors remain skeptical, questioning whether green funds can truly offer competitive returns. This polarizing debate often leaves potential investors on the fence.
However, as we delve into 2024, it is clear that ESG funds are not just a trend but a smart and ethical financial strategy.
This article will guide you through the top six ESG funds you should consider in 2024, offering a balance of profitability and environmental stewardship.
Environmental, Social, and Governance (ESG) funds have seen significant growth over the past decade. In 2010, ESG funds globally managed approximately $5 trillion. By 2022, this figure would have skyrocketed to over $30 trillion, reflecting a growing investor appetite for responsible investing. Projections for 2025 suggest that ESG funds could surpass $50 trillion in assets under management. This growth is driven by increasing awareness of climate risks and the recognition that companies with strong ESG practices often exhibit better long-term performance. A common myth is that ESG funds underperform traditional funds. However, numerous studies have shown that ESG funds can match or even exceed the returns of their conventional counterparts over the long run, due to their focus on sustainable practices and risk management.
Best Performing ESG Funds Over 5 years
| Fund | Category | Sustainability Rating | Medalist Rating | YTD Return(%) | 5-Year Return(%) |
| L&G Global Technology Index | Sector Equity Technology | ●●●● | Gold | 22 | 24.37 |
| Stewart Inv Indian Sbctnt Sustnby | India Equity | ●●●●● | Gold | 12 | 14.33 |
| Aviva Investors Global Eq Inc | Global Equity Income | ●●●● | Gold | 11 | 12.79 |
| FSSA Indian Subcontnn All-Cap | India Equity | ●●●● | Gold | 13 | 12.44 |
| Heriot Global | Global Large-Cap Growth Equity | ●●●● | Silver | 7.4 | 11.63 |
| SVS Sanlam North American Equity | US Large-Cap Blend Equity | ●●●● | Bronze | 19 | 15.72 |
| Axiom Concentrated Glb Gr Eq | Global Large-Cap Growth Equity | ●●●●● | Bronze | 22 | 15.05 |
| T. Rowe Price US Eq | US Large-Cap Blend Equity | ●●●● | Bronze | 16 | 13.9 |
| Janus Henderson Global Sust Eq | Global Large-Cap Growth Equity | ●●●●● | Bronze | 13 | 13.72 |
| CT Global Focus | Global Large-Cap Growth Equity | ●●●●● | Bronze | 15 | 13.27 |
Let’s learn few more detail about few select funds.
1. L&G Global Technology Index
The L&G Global Technology Index is an outstanding fund that focuses on investing in leading technology companies around the world. This fund aims to replicate the performance of the FTSE World Technology Index, which includes companies engaged in the technology sector. The fund’s investment strategy emphasizes sustainability by selecting companies that are not only leaders in technology but also demonstrate strong environmental, social, and governance (ESG) practices.
Key Features:
- Diverse Technology Exposure: The fund provides exposure to a wide range of technology sectors including software, hardware, and IT services, ensuring a balanced and diversified investment portfolio.
- Sustainability Focus: By integrating ESG criteria into the selection process, the fund invests in companies that are committed to sustainable practices, reducing their carbon footprint, and promoting social responsibility.
- Strong Performance: Historically, the L&G Global Technology Index has delivered impressive returns, making it an attractive choice for investors seeking both growth and sustainability.
Learn more about this fund: L&G Global Technology Index
2. Stewart Investors Indian Subcontinent Sustainability Fund
The Stewart Investors Indian Subcontinent Sustainability Fund is a unique fund that targets companies in the Indian subcontinent, including India, Pakistan, Sri Lanka, and Bangladesh. This fund is designed to support sustainable development by investing in companies that contribute positively to society and the environment.
Key Features:
- Regional Focus: The fund focuses on the Indian subcontinent, a region with significant growth potential and opportunities in various sectors such as technology, healthcare, and consumer goods.
- Sustainability Integration: The fund emphasizes investing in companies that adhere to strong ESG principles, ensuring that the investments are not only profitable but also socially and environmentally responsible.
- Long-Term Growth: The Stewart Investors Indian Subcontinent Sustainability Fund aims for long-term capital appreciation by selecting companies with sustainable business models and growth prospects.
Learn more about this fund: Stewart Investors Indian Subcontinent Sustainability Fund
3. Aviva Investors Global Equity Income Fund
The Aviva Investors Global Equity Income Fund seeks to provide investors with a steady income by investing in a diversified portfolio of global equities. This fund prioritizes companies that exhibit strong financial health and sustainable business practices.
Key Features:
- Global Diversification: The fund invests in companies across various sectors and regions, providing a well-rounded exposure to the global equity market.
- Income Generation: Focused on delivering regular income, the fund selects high-quality companies with reliable dividend payouts.
- Sustainable Investment: By integrating ESG criteria, the fund ensures that investments are not only profitable but also contribute positively to society and the environment.
Learn more about this fund: Aviva Investors Global Equity Income Fund
4. iShares MSCI KLD 400 Social ETF (DSI)
Overview
The iShares MSCI KLD 400 Social ETF is designed to provide exposure to companies with high ESG performance relative to their sector peers. This ETF is a pioneer in sustainable investing, offering a mix of growth and value stocks. Total AUM is $4.5 Bn.
Why Consider DSI?
DSI has an expense ratio of 0.25%, making it a relatively low-cost option for investors. Over the past five years, it has achieved an annualized return of about 14.5%, slightly above its benchmark, the MSCI USA ESG Select Index. The fund’s holdings are diversified across technology, healthcare, and financial sectors. This ETF is ideal for investors looking for a balanced approach to growth and sustainability.
External Resource
For in-depth analysis, visit iShares.
5. TIAA-CREF Social Choice Bond Fund (TSBRX)
Overview
The TIAA-CREF Social Choice Bond Fund is a fixed-income fund that invests in bonds issued by organizations that meet rigorous ESG standards. This fund is ideal for conservative investors looking for stability with a positive impact. Total asset under management is $6.3 Bn.
Why Consider TSBRX?
TSBRX has an expense ratio of 0.63%, which is reasonable for a bond fund. It has provided a steady annualized return of around 3.5% over the past five years, aligning closely with its benchmark, the Bloomberg Barclays US Aggregate Bond Index. The fund’s focus on government and corporate bonds with strong ESG ratings makes it a stable, income-generating investment for risk-averse investors.
External Resource
For more information, check out TIAA-CREF’s official site.
6. PIMCO Enhanced Short Maturity Active ESG ETF (EMNT)
Overview
PIMCO’s Enhanced Short Maturity Active ESG ETF focuses on short-term, high-quality bonds and aims to provide current income while incorporating ESG principles. This fund is suitable for investors looking for a lower-risk, income-generating investment. Their AUM(Total Net Assets) is $166.74 million.
Why Consider EMNT?
This fund offers a conservative investment option with an ESG overlay, making it an ideal choice for those seeking income stability and sustainability. Its active management allows for responsive adjustments to market conditions. The fund’s expense ratio is 0.24%, and it has a five-year annualized return of about 2.7%, closely matching its benchmark. The fund’s primary investments are in government and corporate bonds, ensuring lower risk while adhering to high ESG standards.
External Resource
For more on this fund, visit PIMCO.
Conclusion
Investing in ESG funds is not just an ethical choice but a smart financial strategy. As the world increasingly prioritizes sustainability, these funds are well-positioned to benefit from the growing demand for responsible business practices. By considering these top six sustainable investment funds in 2024, you can achieve your financial goals while contributing to a more sustainable future.
Internal links
- The Best Eco-Friendly Products for a Sustainable Lifestyle
- How ESG Criteria Influence Modern Investment Strategies
- Green Bonds: Investing in a Sustainable Future
Disclaimer :
Author is not a financial advisor. Please consult your financial advisor before making any investment decisions. This article is only for entertainment purposes.
FAQs on Sustainable Investment Funds
What are Sustainable Investment(ESG) Funds?
Sustainable Investment Funds are investment vehicles that incorporate Environmental, Social, and Governance (ESG) criteria into their investment process. These funds aim to achieve competitive financial returns while supporting companies that contribute positively to the environment and society. By focusing on ESG principles, these funds help promote sustainable and ethical business practices.
How do Sustainable Investment(ESG) Funds perform compared to traditional funds?
Sustainable Investment Funds can perform as well as, if not better than, traditional funds. Numerous studies have shown that companies with strong ESG practices often exhibit lower risk and higher long-term returns. For example, the Parnassus Core Equity Fund has a five-year annualized return of 15.5%, outperforming the S&P 500’s 14%.
What are the benefits of investing in ESG Funds?
Investing in Sustainable Investment Funds offers several benefits, including promoting environmental and social good, reducing investment risk through ESG screening, and potentially achieving competitive financial returns. These funds also allow investors to align their investments with their personal values and contribute to global sustainability efforts.
Can investors from any country invest in ESG Sustainable Investment Funds?
Yes, investors from various countries can invest in Sustainable Investment Funds through international brokerage accounts, mutual fund platforms, or financial advisors that offer access to global markets. However, it is important to check country-specific regulations and guidelines regarding international investments to ensure compliance.
What sectors do ESG Funds typically invest in?
Sustainable Investment Funds typically invest in sectors that demonstrate strong ESG performance, such as technology, healthcare, renewable energy, and consumer goods. These sectors are chosen because they often lead in sustainability practices and innovation, contributing positively to environmental and social goals.
How are ESG criteria applied in Sustainable Investment Funds?
ESG criteria are applied in Sustainable Investment Funds by screening companies based on their environmental impact, social responsibility, and governance practices. This involves evaluating factors like carbon footprint, labor practices, and corporate governance. Companies that meet these standards are included in the fund, ensuring that investments support sustainable and ethical practices.
What is the expense ratio of Sustainable Investment Funds?
The expense ratio of Sustainable Investment Funds varies depending on the fund. For example, Vanguard FTSE Social Index Fund (VFTAX) has a low expense ratio of 0.14%, while actively managed funds like Calvert Equity Fund (CSIEX) have a higher expense ratio of 0.87%. Expense ratios cover management fees and operational costs, impacting the fund’s net returns.
Are ESG Funds suitable for long-term investments?
Yes, Sustainable Investment Funds are suitable for long-term investments. These funds focus on companies with sustainable and ethical practices, which often exhibit lower risk and higher long-term returns. Investing in these funds can provide stable growth while supporting global sustainability efforts over time.
How can I start investing in ESG Funds?
To start investing in Sustainable Investment Funds, open an account with an international brokerage, mutual fund platform, or financial advisor that offers access to these funds. Research different funds, consider their ESG criteria, performance, and expense ratios, and choose the ones that align with your investment goals and values.
Are there any risks associated with investing in ESG Funds?
Like all investments, Sustainable Investment Funds carry risks, including market volatility and potential underperformance. However, these funds often mitigate risks by focusing on companies with strong ESG practices, which can lead to better long-term performance. It is essential to conduct thorough research and consult with a financial advisor before investing.
Who has the highest ESG rating?
The highest ESG rating is typically given to companies that excel in environmental sustainability, social responsibility, and governance practices. These ratings can vary based on the rating agency, but companies like Microsoft, Apple, and Unilever often rank high due to their comprehensive ESG strategies and transparent reporting.
Which country leads in ESG?
Several countries are recognized for their leadership in ESG, with Scandinavian nations like Sweden, Denmark, and Finland often ranking at the top. These countries have stringent environmental regulations, strong social policies, and transparent governance practices that contribute to high ESG scores.
What are the largest ESG ETFs?
The largest ESG ETFs include the iShares ESG MSCI USA ETF (ESGU), the Vanguard ESG U.S. Stock ETF (ESGV), and the SPDR S&P 500 ESG ETF (EFIV). These funds provide broad exposure to companies with strong ESG practices and are popular among investors looking to integrate sustainability into their portfolios.
Who is the largest ESG fund manager?
BlackRock is currently the largest ESG manager, with a significant portion of its assets under management (AUM) dedicated to sustainable investing. The firm has a strong commitment to ESG integration across its investment strategies and offers a wide range of ESG-focused funds and products.
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