Special Report: Your Guide to ESG ETFs

As investors focus on ESG (environmental, social and governance) issues has increased, sustainability reporting has gone mainstream.  While Wall Street is mainly concerned with profits, many executives understand climate change comes with real financial risks.  

Bank of America Securities recently found that 90% of companies in the S&P 500 publish corporate social responsibility (CSR) reports, up from 20% in 2011.  And it’s not just that these companies are folding under societal pressures.  As it turns out, it pays to be green.  “We see higher multiples for low emissions, net zero targets, and water efficiency.”  Said Bank of America Securities equity strategist Sativa Subramanian.

Even during the pandemic, ESG was an outperformer.  Global sales of sustainable bonds in general jumped more than 27% to more than $196 billion in 2020.  Sustainable strategies attracted more than $36 billion of net new money last year, surpassing the then record $21.4 billion they attracted in 2019.  

One easy way to cash in while keeping your investments in sync with your values is through a socially responsible ESG ETF.  Our research team has done some of the legwork for you by putting together this list of some of our favorite funds that focus on highly rated ESG companies. 

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iShares MSCI USA ESG Select ETF (SUSA)

SUSA is notable because of its “select” strategy, through which it places stricter requirements on components.  With only 145 holdings in its portfolio, investors are not just getting an S&P 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 like Apple are well-represented, but there are also some names that may surprise you.  For example, take home-improvement company Home Depot (HD) or consulting firm Accenture (ACN).  SUSA gives you a shorter list, but diversified enough to avoid relying on just the top few holdings alone.

• Weighted Average Market Cap  $378.26B
• Price / Earnings Ratio   35.77
• Price / Book Ratio  5.23
• YTD Daily Total Return  14.17%
• Yield  1.06%
• Expense Ratio  0.25%
• Net Assets   3.06B
• Number of Holdings  211

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Vanguard ESG U.S. Stock ETF (ESGV)

This fund is designed to feature U.S. companies that post above-average ratings on ESG characteristics.  It’s tied to a large group of holding, with nearly 1,500 total components. Given the depth of the lineup of stocks, it includes a bunch of smaller names as well.  This fund may appeal to some investors since top holdings include old favorites such as Apple, but further down the list are a host of relatively unknown stocks across all sectors of the U.S. economy.

• Weighted Average Market Cap  $480.91B
• Price / Earnings Ratio   35.29
• Price / Book Ratio  4.78
• YTD Daily Total Return  8.31%
• Yield  1.02%
• Expense Ratio  0.12%
• Net Assets   4.23B
• Number of Holdings  1,466

iShares ESG MSCI EAFE ETF (ESGD)

This ETF 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.  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.

• Weighted Average Market Cap  $75.49B
• Price / Earnings Ratio   21.43
• Price / Book Ratio  1.95
• YTD Daily Total Return  12.16%
• Yield  0.97%
• Expense Ratio  0.2%
• Net Assets   4.69B
• Number of Holdings  476

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