If you're looking to align your values and your invests, an ethical ethical exchange traded funds (ETFs) is a good place to start.
Australia has more than a dozen ethical-themed (ETFs) listed on the Australian Securities Exchange (ASX). Each of these follow their own set of ESG (environmental, social and governance) criteria. 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 renewable energy stocks page.
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ASX Ethical ETFs
|ASX code||Fund name||Fees (% p.a)||1-year return||Sector|
|IMPQ||eInvest Better Future Fund (Managed Fund)||0.99||-4.96%||Australian small/mid cap shares|
|FAIR||BetaShares Australian Sustainability Leaders ETF||0.49||-0.16%||Australian shares|
|GRNV||VanEck Vectors MSCI Australian Sustainable Equity ETF||0.35||2.68%||Australian shares|
|INES||Intelligent Investor Ethical Share Fund (Managed Fund)||0.97||7.34%||Australian shares|
|RARI||Russell Australian Responsible Investment ETF||0.45||4.75%||Australian shares|
|ESGI||Vaneck Vectors MSCI International Sustainable Equity ETF||0.55||0.17%||Global shares|
|ETHI||BetaShares Global Sustainability Leaders ETF||0.59||-0.21%||Global shares|
|VESG||Vanguard Ethically Conscious International Shares Index ETF||0.18||-0.77%||Global shares|
|GBND||BetaShares Sustainability leaders Diversified Bond ETF - Currency Hedged||0.49||-10.27%||Global fixed income|
|VEFI||Vanguard Ethically Conscious Global Aggregate Bond Index (Hedged) ETF||0.26||-8.36%||Global fixed income|
|E200||SPDR S&P/ASX 200 ESG Fund (Hedged) ETF||0.13||7.71%||Global fixed income|
|VETH||SVanguard Ethically Conscious Australian Shares ETF||0.17||2.87%||Australian Shares|
|ERTH||BetaShares Climate Change Innovation ETF||0.65||-17.31%||Global Shares|
|HETH||BetaShares Global Sustainability Leaders ETF - Currency Hedged||0.62||-5.01%||Global Shares|
|DBBF||BetaShares Ethical Diversified Balanced ETF||0.39||-5.16%||Mixed Asset|
|DGGF||BetaShares Ethical Diversified Growth ETF||0.39||-2.78%||Mixed Asset|
|DZZF||BetaShares Ethical High Growth ETF||0.39||-0.82%||Mixed Asset|
|AEAE||Australian Ethical High Conviction Fund (Managed Fund)||0.80||-0.00%||Australian Shares|
|Source: ASX,CBOE | Period ending: 31 May 2022|
How do ethical ETFs work work in Australia?
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. 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 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.
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, in no particular order.
How to choose a sustainable ETF?
Pat Garrett, co-CEO of Six Park online investment management service
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 that include companies that are, for example, committed to having more women involved at 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. Also, keep diversification in mind.
1. BetaShares Global Sustainability Leaders ETF (ETHI).
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, Home Depot, Apple, Mastercard and Toyota Motor Corp
2. eInvest Better Future Fund (IMPQ)
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, de-foresting, gambling and unhealthy fast food.
This fund also won our Green ETF of the Year award at this year's Finder Green Awards so it's a great option if climate change is a major concern for you.
Top holdings: Cash, Spark New Zealand Ltd, Charter Hall Social Infrastructure REIT, Integral Diagnostics, Iress Ltd.
3. BetaShares Australian Sustainability Leaders ETF (FAIR)
A diverse portfolio of Australian companies involved in sustainable business activities. Exclusions include 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, CSL, Sonic Healthcare, Brambles, Goodmans
4. VanEck Vectors MSCI Australian Sustainable Equity ETF (GRNV)
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 environmental, social and corporate governance ratings in line with global research agency MSCI ESG Research.
Top holdings: CSL, Commonwealth Bank, Transurban Group, Telstra, ANZ
5. InvestSMART Ethical Share Fund Managed Fund (INES)
An actively managed fund that 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)
6. Russell Investments Australian Responsible Investment ETF (RARI)
Primarily weighted towards dividend-paying companies that show positive environmental, social and governance (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, Westpac, NAB, ANZ, CSL
7. Vaneck Vectors MSCI International Sustainable Equity ETF (ESGI)
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: Microsoft, Home Depot, Salesforce, ASML, Allianze
8. Vanguard Ethically Conscious International Shares Index ETF (VESG)
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, Alphabet, Amazon, Facebook
9. BetaShares Sustainability leaders Diversified Bond ETF (GBND)
A diversified portfolio of global and Australian bonds, including a significant portion of green bonds which are used to fund environmental projects. Company bonds are screened to avoid the fossil fuel industry.
Top holdings: French Republic Government, Kingdom of Belgium, Netherlands Government, Ireland Government, New South Wales Treasury
10. Vanguard Ethically Conscious Global Aggregate Bond Index ETF (VEFI)
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, Italy, Federal National Mortgage Association
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