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For those looking to align their values with their money, an ethical exchange-traded fund (ETF) is a good place to start.
Australia has more than a dozen ethical-themed ETFs listed on the Australian Securities Exchange (ASX). Each follows its own set of environmental, social and governance (ESG) criteria, but it is important to note that there is no universal definition for ESG investing. This means that different funds focus on different metrics. While some focus on sustainable practices, others prioritise social impact such as weapons, tobacco or gambling.
This guide explains how 10 popular ESG funds work, how they've performed and what their fees are. If you're looking to invest directly in stocks, check out some of the companies on our guide on renewable energy stocks.
|ASX code||Fund name||Fees (% p.a)||1-year return||Sector|
|IMPQ||eInvest Better Future Fund (managed fund)||0.99||-8.56%||Australian small/mid-cap shares|
|FAIR||BetaShares Australian Sustainability Leaders ETF||0.49||-0.18%||Australian shares|
|GRNV||VanEck Vectors MSCI Australian Sustainable Equity ETF||0.35||5.08%||Australian shares|
|INES||Intelligent Investor Ethical Share Fund (managed fund)||0.97||-0.86%||Australian shares|
|RARI||Russell Australian Responsible Investment ETF||0.45||9.42%||Australian shares|
|ESGI||VanEck Vectors MSCI International Sustainable Equity ETF||0.55||-3.20%||Global shares|
|ETHI||BetaShares Global Sustainability Leaders ETF||0.59||-9.97%||Global shares|
|VESG||Vanguard Ethically Conscious International Shares Index ETF||0.18||-11.15%||Global shares|
|GBND||BetaShares Sustainability leaders Diversified Bond ETF – Currency Hedged||0.49||-11.59%||Global fixed income|
|VEFI||Vanguard Ethically Conscious Global Aggregate Bond Index ETF (hedged)||0.26||-10.45%||Global fixed income|
|E200||SPDR S&P/ASX 200 ESG Fund ETF (hedged)||0.13||17.17%||Global fixed income|
|VETH||Vanguard Ethically Conscious Australian Shares ETF||0.17||8.87%||Australian shares|
|ERTH||BetaShares Climate Change Innovation ETF||0.65||-12.80%||Global shares|
|HETH||BetaShares Global Sustainability Leaders ETF – Currency Hedged||0.62||-10.34%||Global shares|
|DBBF||BetaShares Ethical Diversified Balanced ETF||0.39||-7.98%||Mixed asset|
|DGGF||BetaShares Ethical Diversified Growth ETF||0.39||-7.77%||Mixed asset|
|DZZF||BetaShares Ethical High Growth ETF||0.39||-6.60%||Mixed asset|
|AEAE||Australian Ethical High Conviction Fund (managed fund)||0.80||-0.00%||Australian shares|
|Source: ASX,CBOE | Period ending: 31 January 2023|
Ethical ETFs are investment funds that track companies based on ESG criteria.
Crucially, there are no hard rules around which companies should be added or excluded or what ethical criteria to follow.
In some instances, ESG is based on exclusion. In other cases, it is about working with businesses to reduce their impact.
For example, most ethical funds screen companies that directly engage in the production of fossil fuels. However, as of 2019, there are around half a dozen listed funds in Australia that ignore this factor (Update: These funds have since been delisted from the ASX).
How much exposure a company should be allowed to have to fossil fuels is also up for debate. Some funds such as FAIR and IMPQ exclude Australia's major banks because they finance the oil and mining sector, but most ethical funds do not.
In no particular order, below is a description of the strategies taken by each of the ESG-focused ETFs listed above along with their top stock holdings to help you decide which is right for you.
When you're looking at sustainable ETFs, you need to be clear on what sustainability criteria or frameworks have been applied. What are the filters being used to construct the ETFs?
There are both negative filters, which screen out investments that don't meet sustainability criteria (for example, tobacco companies or fossil fuel producers) and also positive filters which include companies that are, for example, committed to having more women involved at the board level.
Depending on how the ETF is being managed, these filters can become quite subjective and actively managed, which is something to bear in mind when making any decisions. Consider diversification too.
This holds global company stocks that it identifies as "climate leaders" based on their low carbon footprint. It excludes companies with significant exposure to the fossil fuel industry and screens for those engaged with gambling, tobacco, weaponry, nuclear energy, animal cruelty, pornography, environmental destruction and human rights concerns.
Top holdings: Visa, NVIDIA, Home Depot, Apple, Mastercard
The Finder Green Awards identify the companies leading the way on sustainability in the sectors that we compare. The BetaShares Global Sustainability ETF (ETHI) won the ETF category through a proactive approach to identifying sustainable investments as well as offering strong financial returns in the judging period.
Compared to some funds that only screen out companies that are bad for the environment, this BetaShares ETF looks for companies that are "climate leaders" who have passed screens. It excludes businesses with direct or significant exposure to fossil fuels or engaged in activities deemed inconsistent with responsible investing.
The finalist in this category was eInvest Better Future Fund.
It's an actively managed fund that invests in small Australian and New Zealand companies (less than $50 million cap) that are contributing positively to the environment and society, such as renewable energy and health foods. It filters out any companies engaged with fossil fuels, alcohol, tobacco, weapons, deforesting, gambling and unhealthy fast food.
This fund also won our Green ETF of the Year award in 2021's Finder Green Awards so it's a great option if climate change is a major concern for you.
Top holdings: Meridian Energy, Spark New Zealand Ltd, Chorus, NIB Holdings, KMD Brands
This is a diverse portfolio of Australian companies involved in sustainable business activities. Exclusions are companies exposed to fossil fuels, tobacco, alcohol, junk foods, gambling, weaponry, nuclear energy, animal cruelty, environmental destruction, pornography, recent significant fines or convictions, human rights concerns and lack of gender diversity at the board level.
Top holdings: Telstra, Brambles, CSL, Goodmans, Suncorp
It's a broad mix of large Australian companies excluding any that own fossil fuel reserves or are engaged in the mining of coal, oil and gas (although it includes mineral miners such as gold). It prioritises those with high ESG ratings in line with global research agency MSCI ESG Research.
Top holdings: Telstra, CSL, Fortescue Metals, Westpac, Transurban
This actively managed fund screens companies based on a list of problematic industries including non-renewables such as nuclear, coal and oil, as well as gambling, alcohol, tobacco, pornography, junk food, weapons and payday lending. It primarily invests in Australian companies and cash.
Top holdings: (must request from the provider)
Primarily weighted towards dividend-paying companies that show positive ESG characteristics, it says it also excludes companies that manufacture or distribute alcohol, tobacco, gambling, weapons and pornography. Companies with direct exposure to fossil fuel production may also be removed. The fund invests in Australian shares and trusts.
Top holdings: Commonwealth Bank, CSL, NAB, Westpac, ANZ
It's a diversified portfolio of sustainable international companies from developed markets, excluding Australia. It excludes companies that own fossil fuel reserves or earn revenue from oil and gas activities.
Top holdings: Novo Nordisk, Adobe, Home Depot, Amgen, AIA Group
This fund holds stocks in some of the world's biggest companies listed in major developed markets. Stocks are diversified across a range of sectors but it excludes those with significant exposure to fossil fuels, alcohol, gambling, tobacco, weaponry, nuclear power and pornography.
Top holdings: Apple, Microsoft Corp, Amazon, Alphabet, NVIDIA
A diversified portfolio of global and Australian bonds, it includes a significant portion of green bonds used to fund environmental projects. Company bonds are screened to avoid the fossil fuel industry.
Top holdings: French Republic Government, European Union, Treasury Corp of Victoria, Netherlands Government Bonds, Western Australia Treasury Corp
Bonds issued by global governments and investment-grade companies. It excludes companies with significant exposure to fossil fuels, tobacco, gambling, alcohol, weapons, nuclear power and pornography.
Top holdings: United States Treasury, Japan, France, Germany, Canada
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