The coronavirus pandemic has increased consciousness about the environment, social injustice and world events at large. In addition, the COP26 UN meeting last year especially focused attention on our planet's climate crisis.
These factors have seen Australian investors move towards ethical investing in a big way. Over the last 2 years, the local ethical funds market has doubled, with assets worth $44.3 billion at the end of 2021, according to data from research firm Morningstar.
Ethical investing involves excluding or being underweight on particular industries or companies that do not meet certain Environmental, Social and Governance (ESG) criteria. Given the problems of screening individual stocks on these factors, most investors prefer to take the exchange traded fund route.
There are 5 fund houses that dominate Australia's ESG ETF market, led by Vanguard and Australian Ethical, and followed by BetaShares, Mercer and Dimensional, with most offering multiple investment options.
Of the dozens of options available, here are some of the popular ones, classified by category:
BetaShares Australian Sustainability Leaders ETF (ASX: FAIR). It is the largest of the Australia-focused ethical ETFs, with $1.2 billion in assets. It tracks the Nasdaq Future Australian Sustainability Leaders Index. Key exclusions include companies exposed to fossil fuels, tobacco, alcohol, junk foods, gambling, weaponry, nuclear energy and pornography, among other things. Its diverse portfolio of 88 Australian stocks counts CSL, ResMed, Telstra, Goodman Group and Sonic Healthcare among the top holdings.
Vanguard's Ethically Conscious Australian Shares (ASX: VETH). Among the fastest-growing ethical funds, it holds $313 million in assets, and tracks the FTSE Australia 300 as the underlying index. It excludes companies with activities involving fossil fuels, nuclear power, alcohol, tobacco, gambling, weapons and adult entertainment. Unlike some other ethical ETFs, it counts Australia's Big Four banks among the biggest of its 252 holdings, along with Wesfarmers and Telstra.
Russell Investors Australian Responsible Investment (ASX: RARI). It is focused on dividend-paying Australian companies with positive ESG characteristics and excludes firms manufacturing or distributing alcohol, tobacco, gambling, weapons and pornography. With $263 million in assets spread across 101 companies, it counts the Big Four banks, Telstra and Woolworths among its biggest holdings.
VanEck's Australian Sustainable Equity (ASX: GRNV). Relatively smaller than its peers, the GRNV ETF holds assets worth $95.7 million. It tracks the MSCI Australia IMI Select SRI Screened Index covering a broad mix of large Australian companies and excludes those involved in fossil fuels or mining of coal, oil and gas. Telstra, Goodman Group, Fortescue Metals Group and Transurban are among its major holdings.
BetaShares Global Sustainability Leaders (ASX: ETHI). It is the largest of the international-focused, ASX-listed ethical funds, with $2 billion in assets. It aims to track the Nasdaq Future Global Sustainability Leaders Index, providing exposure to global stocks from developed economies, screened to exclude companies with exposure to fossil fuels, gambling, tobacco, weaponry, nuclear energy and animal cruelty, among other things. Nvidia, Apple, Visa, Mastercard and Toyota comprise the top holdings of its 200-odd stocks.
Vanguard's Ethically Conscious International Shares (ASX: VESG). It holds stocks in some of the world's biggest companies and is diversified across a range of sectors, but excludes those with exposure to fossil fuels, alcohol, gambling, tobacco, weaponry, nuclear power and pornography. It holds assets worth $643 million spread across 1,669 stocks. Apple, Microsoft, Amazon, Meta and Tesla are among its top holdings.
ETFS Battery Tech & Lithium ETF (ASX: ACDC). Despite not having a specific ESG mandate, the ACDC ETF attracts ethical investors because of its focus on clean energy. It tracks the performance of the Solactive Battery Value-Chain Index, which mainly covers companies providing electrochemical storage technology and companies mining battery minerals. It holds assets worth $509 million spread across 33 stocks, with Mineral Resource, Pilbara Minerals, Renault, Nissan and BMW AG among its top holdings.
VanEck Vectors Global Clean Energy ETF (ASX: CLNE). Among the most recent entrants to the ethical ETF space, CLNE gives investors a portfolio of 30-odd large and liquid companies involved in clean energy production and associated technology and equipment globally, with the S&P Global Clean Energy Select as its underlying index. It holds $107.8 million in assets, with Brookfield Renewable, Contact Energy, Siemens and Vestas Wind Systems among its top holdings.
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