Best ESG ETFs for 2022

The Vanguard ESG U.S. Stock ETF (ESVG)

• Return since inception (as of Nov. 5, 2021): 20.3%
• Expense ratio: 0.12%
• Assets under management (AUM): $5.2 billion (as of Nov. 5, 2021)
• Inception date: Sept. 18, 2018

The Vanguard ESG U.S. Stock ETF is offered by Vanguard, a company well known for its low-cost investment options. This ETF follows that pattern, charging an expense ratio of just 0.12%, equivalent to $1.20 on a $1,000 investment.

While the fund is relatively young, Vanguard’s brand recognition has helped it grow quickly. It now has $5.2 billion in assets, meaning investors needn’t worry about liquidity. As of Nov. 5, 2021, the fund had a one-year return of 43.29% and offered 20.3% returns since its inception in September 2018. These returns are in line with the benchmark Vanguard has chosen for the fund, which is the FTSE US All Cap Choice Index.

The fund gets its ESG focus in the companies that Vanguard excludes from the fund compared to its chosen index. The fund does not own shares in any businesses that:

• Produce alcohol, tobacco, gambling, and adult entertainment
• Produce civilian, controversial, and conventional weapons
• Produce nuclear power
• Do not meet certain diversity criteria
• Have violations of labor rights, human rights, anti-corruption, and environmental standards defined by UN Global Compact Principles
• Own proved or probable reserves in fossil fuels such as coal, oil, or gas

According to a Morningstar analyst report, the fund’s low expense ratio gives it an edge over the competition, letting it overperform the competition by 5.54 percentage points on an annual basis.

The iShares MSCI Global Impact ETF (SDG)

• 3-year return (as of Nov. 5, 2021): 19.67% 
• Expense ratio: 0.49%
• Assets under management (AUM): $564 million (as of Nov. 5, 2021)
• Inception date: April 20, 2016

The iShares MSCI Global Impact ETF focuses on companies that advance the United Nations’ Sustainable Development Goals, which include a focus on improving education and fighting climate change throughout the world.

The fund charges an expense ratio of 0.49%, equivalent to $4.90 per $1,000 invested. It has, as of Nov. 5, 2021, returned 20.66% over the past year and 19.67% over the past three years. These returns are in line with the returns of the fund’s benchmark, the MSCI ACWI Sustainable Impact Index.

Roughly a quarter of the fund’s holdings are based in the United States, with the remainder coming from other top economies around the world. This means the fund gives investors good exposure to international businesses.

The SPDR S&P 500 Fossil Fuel Reserves Free ETF (SPYX)

• 3-year return (as of Nov. 5, 2021): 21.87%
• Expense ratio: 0.20%
• Assets under management (AUM): $1.2 billion (as of Nov. 5, 2021)
• Inception date: Nov. 30, 2015

The SPDR S&P 500 Fossil Fuel Reserves Free ETF is an index fund that aims to track the S&P 500 without owning any companies that are involved in fossil fuels. For the purposes of this fund, this refers to any companies that own reserves of fossil fuels such as coal, oil, or natural gas.

The S&P 500 is an index that includes some of the largest businesses in the United States and is often used as a benchmark for the American economy as a whole. That makes this fund a good way to get broad exposure to the U.S. market without investing in some of the companies directly responsible for climate change.

The fund tracks its index quite closely, lagging it by about 0.20% (equal to its expense ratio) over most periods. The fund’s 0.20% expense ratio means investors pay the equivalent of $2 for every $1,000 they have invested.

The iShares ESG Aware USD Corporate Bond ETF (SUSC)

• 3-year return (as of May 31, 2021): 7.36%
• Expense ratio: 0.18%
• Assets under management (AUM): $869.4 million (as of Nov, 5, 2021)
• Inception date: July 11, 2017

Not every ESG-focused ETF owns shares in the companies. Fixed-income investors can get exposure to ESG businesses with bond funds that buy corporate bonds from companies that follow ESG principles.

The iShares screens companies for involvement in the industries of weapons, tobacco, and fossil fuels before purchasing their investment-grade bonds. It then designs its portfolio to try to achieve risk and returns similar to the broader Bloomberg U.S. Corporate Index.

The fund’s expense ratio is reasonable, at 0.18%, equivalent to a fee of $1.80 for every $1,000 invested. However, its returns lag behind its benchmark’s return by a margin somewhat larger than its expense ratio.

An ETF.com analysis called the fund a “building block for investors looking to structure their own ESG focused portfolio.” It provides exposure to bonds from across the globe, though all the bonds must be U.S. dollar-denominated.

The Xtrackers MSCI USA ESG Leaders Equity ETF (USSG)

• Return since inception (as of Nov. 5, 2021): 17.55%
• Expense ratio: 0.10%
• Assets under management (AUM): $4.125 billion (as of Nov. 5, 2021)
• Inception date: March 7, 2019

Offered by European asset manager DWS, the Xtrackers MSCI USA ESG Leaders Equity ETF aims to track the MSCI USA ESG Leaders Index. This index focuses on companies with strong ESG scores compared to their peers in the same sector. It aims to give investors exposure to a diverse set of companies while also letting them focus on businesses with the best ESG practices in their industries.

The fund has tracked its index very closely, with returns differing by less than 0.10% over the course of the fund’s existence.

With an expense ratio of 0.10%, equivalent to $1 for every $1,000 invested, this ETF is one of the cheapest ESG ETFs available. It has also built up a large number of assets despite being just over two years old.

According to an analysis from Morningstar, the MSCI USA ESG Leaders index holds stocks representing the top half of each sector’s total market capitalization that are eligible based on its ESG scoring. The Xtrackers ETF has a ”well-diversified portfolio” that is similar to its benchmark index, but it is notably missing large-cap stocks with low ESG ratings such as Meta (formerly Facebook), Apple, or Amazon. It does however invest in Google’s parent company, Alphabet.