The best ESG ETFs for 2024

Vanguard ESG US Stock ETF (ESVG)

• Rollback from inception (as of November 5, 2021): 20.51%
• Cost ratio: 0.09%
• Assets Under Management (AUM): $9.6 billion (as of September 30, 2024)
• Start date: September 18, 2018

Vanguard ESG US Stock ETF is offered by Vanguard, a company known for its low-cost investment options. This ETF follows suit, paying an expense ratio of just 0.09%, which equates to $1.20 per $1,000 invested.

Although the fund is relatively young, Vanguard's brand recognition has helped it grow rapidly. It now has $5.2 billion in assets, meaning investors don't have to worry about liquidity. The fund had a one-year return of 36.81% as of November 5, 2021, and has offered a return of 20.51% since its inception in September 2024. These returns are consistent with Vanguard's FTSE US All Cap Choice Index for the fund.

The fund's ESG focus is on the companies it excludes from the fund, compared to Vanguard's selected index. The fund does not own shares in the following enterprises:

• Produce alcohol, tobacco, gambling and adult entertainment
• Produce civilian, contested and conventional weapons
• Produce nuclear power
• Do not meet certain diversity criteria
• Violation of labor rights, human rights, anti-corruption and environmental standards defined by the UN Global Compact Principles
• Own proven 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 a competitive advantage, allowing it to outperform the competition by 5.54 percentage points on an annualized basis.

iShares MSCI Global Impact ETF (SDG)

• 3-year return (to September 30, 2024): 16.47%
• Cost ratio: 0.49%
• Assets Under Management (AUM): $235 million (as of September 30, 2024)
• Start date: April 20, 2016

The iShares MSCI Global Impact ETF focuses on companies that advance the United Nations' Sustainable Development Goals, including improving education worldwide and combating climate change.

The fund charges an expense ratio of 0.49%, which equates to $4.90 per $1,000. As of September 30, 2024, it has returned 16.47% over the past year and 16.68% over the past three years. These returns are in line with the returns of the fund's benchmark MSCI ACWI Sustainable Impact Index.

About a quarter of the fund's holdings are in the United States, with the rest coming from other leading economies around the world. This means that the fund provides good leverage to investors.

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

• 3-year return (to September 30, 2024): 15.07%
• Cost ratio: 0.20%
• Assets Under Management (AUM): $1.9 billion (as of September 30, 2024)
• Start date: November 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 fossil fuel companies. For the purposes of this fund, this refers to any company that owns fossil fuel resources 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. This makes this fund a good way to get broad exposure to the US market without investing in some of the companies directly responsible for climate change.

The fund tracks the index very closely and underperforms it by about 0.20% (equal to the expense ratio) in most periods. The fund's 0.20% expense ratio means investors will pay the equivalent of $2 for every $1,000 they invest.

iShares ESG Aware USD Corporate Bond ETF (SUSC)

• 3-year return (to October 17, 2021): 4.04%
• Cost ratio: 0.18%
• Assets Under Management (AUM): $1.1 billion (as of September 30, 2024)
• Start date: July 11, 2017

Not every ESG-focused ETF owns shares in companies. Fixed income investors can gain exposure to ESG businesses through bond funds that buy corporate bonds from companies that adhere to ESG principles.

iShares screens companies for involvement in the arms, tobacco and fossil fuel industries before buying its investment-grade bonds. It then designs its portfolio to try to capture risk and returns similar to the broader Bloomberg US Corporate Index.

The fund's expense ratio is reasonable at 0.18%, which equates to a fee of $1.80 per $1,000 invested. However, its revenue lags the benchmark revenue by a slightly larger margin than its expense ratio.

An ETF.com analysis called the fund “a building block for investors looking to build their ESG-focused portfolio.” All bonds must be in US dollars, although this provides exposure to bonds from around the world.

Xtrackers MSCI USA ESG Leaders Equity ETF (USSG)

• Rollback from inception (to September 30, 2024): 16.25%
• Cost ratio: 0.09%
• Assets Under Management (AUM): $1.14 billion (as of September 30, 2024)
• Start date: March 7, 2019

The Xtrackers MSCI USA ESG Leaders Equity ETF, offered by European asset manager DWS, 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. This aims to give investors exposure to a diverse set of companies, while allowing them to focus on businesses with the best ESG practices in their industries.

The fund has tracked its index very closely, with returns varying by less than 0.10% over the fund's lifetime.

With an expense ratio of 0.09%, equal to $1 per $1,000 invested, this ETF is one of the cheapest ESG ETFs available. Despite being a little over two years old, it has built up a large number of assets.

Based on Morningstar's analysis, the MSCI USA ESG Leaders index has stocks representing the top half of each sector's total market capitalization and is based on an ESG rating. The Xtrackers ETF has a “well-diversified portfolio” similar to its benchmark index, but it lacks 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.