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 in our guide on renewable energy stocks.
| ASX code | Fund name | Fees (% p.a) | 1-year return | Sector |
|---|---|---|---|---|
| ETHI | Betashares Global Sustainability Leaders ETF | 0.59 | 32.91% | Global shares |
| VESG | Vanguard Ethically Conscious International Shares Index ETF | 0.18 | 31.31% | Global shares |
| HETH | Betashares Global Sustainability Leaders ETF - Currency Hedged | 0.62 | 27.48% | Global shares |
| ESGI | Vaneck MSCI International Sustainable Equity ETF | 0.55 | 27.29% | Global shares |
| DZZF | Betashares Ethical High Growth ETF | 0.39 | 22.96% | Mixed asset |
| DGGF | Betashares Ethical Diversified Growth ETF | 0.39 | 18.43% | Mixed asset |
| INES | Intelligent Investor Ethical Share Fund (Managed Fund) | 0.97 | 17.68% | Australian shares |
| GRNV | VanEck MSCI Australian Sustainable Equity ETF | 0.35 | 15.24% | Australian shares |
| DBBF | Betashares Ethical Diversified Balanced ETF | 0.39 | 14.59% | Mixed asset |
| FAIR | Betashares Australian Sustainability Leaders ETF | 0.49 | 13.81% | Australian shares |
| VETH | Vanguard Ethically Conscious Australian Shares ETF | 0.17 | 13.76% | Australian shares |
| RARI | Russell Investments Australian Responsible Investment ETF | 0.45 | 12.26% | Australian shares |
| E200 | SPDR S&P/ASX 200 ESG Fund | 0.05 | 11.18% | Global fixed income |
| GBND | Betashares Sustainability leaders Diversified Bond ETF - Currency Hedged | 0.49 | 4.48% | Global fixed income |
| IMPQ | eInvest Better Future Fund (Managed Fund) | 0.99 | 3.16% | Australian small/mid-cap shares |
| VEFI | Vanguard Ethically Conscious Global Aggregate Bond Index (Hedged) ETF | 0.26 | 2.88% | Global fixed income |
| ERTH | Betashares Climate Change Innovation ETF | 0.65 | -11.36% | Global shares |
| AEAE | Australian Ethical High Conviction Fund (managed fund) | X | X | Australian shares |
| Source: ASX,CBOE | Period ending: 29 February 2024 | ||||
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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 in 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.
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
This fund from BetaShares also includes a portfolio of large global stocks which identified as climate leaders, obtaining its investment exposure by investing in the BetaShares Global Sustainability Leaders ETF (ETHI). However, this fund has the currency exposure hedged back to the Australian dollar.
Top holdings: Nvidia, Visa, Mastercard, Apple, Toyota, Home Depot
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
The fund provides investors exposure to a number of asset classes through a single fund. It's been built using Betashares' RIAA-certified ethical ETFs and is designed for investors looking for growth over a longer term (at least 7 years) and with a risk appetite. This fund has a target allocation of 90% growth assets (Australian and international shares) and 10% defensive assets (Australian and international bonds) and is designed for people looking to invest ethically.
Top holdings: Australian and international bonds, Australian and international equities
This fund combines positive climate leadership screens with a wide set of ESG criteria to offer investors exposure to a low-cost, multi-asset portfolio. The fund offers the potential for long-term growth with a target allocation of 70% growth assets and 30% defensive assets.
Top holdings: Global and Australian bonds, Australian equities, international equities
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)
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
Built using Betashares' ethical-certified ETFs, this fund aims to provide investors exposure to a range of Australian and global asset classes that include shares and bonds. The fund aims to balance income and capital growth returns over the long term and has a target asset allocation of 50% defensive assets consisting of bonds and 50% growth consisting of shares.
Top holdings: Australian and international bonds, Australian and international equities
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
Important: The standard brokerage fee displayed is the trade cost for new customers to purchase $1,000 of either Australian or US shares. Where a platform charges different fees for both US and Australian shares we show the lower of the two. Where both CHESS sponsored and custodian shares are offered, we display the cheapest option.
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