What is ESG investing and what are the best ESG funds?

by Stephen Conmy on Aug 25, 2021


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As the planet reacts to human activity and people around the world experience dramatic climate events, ESG, or environmental, social, and governance, is attracting a lot of attention from concerned investors and boards. Here, Nate Williams gives a useful overview of ESG investing and the best ESG funds currently open to investors.

It’s interesting: Decades ago, it would have been unheard of for a company to make their sociopolitical opinions publicly known. Now, the opposite is true: It’s rare for a company not to speak out against injustices of all sorts. With more and more companies realising their role in environmental, social, economic, racial, and privacy issues, it’s only natural that this heightened awareness would translate directly into the way we now invest. It’s called ESG investing, and it’s quite the hot topic as of late.

ESG investing explained

ESG stands for environmental, social, and governance — three aspects of our world that dominate much of the conversation surrounding what is ethical and what is not. Investors no longer want to put money into “dirty” — a.k.a. environmentally, socially, or politically shady — companies. They want to use their money to elicit positive change and hopefully see a nice return on that investment, as well.

ESG investing and the best ESG funds

ESG investing depends on independent ratings that examine how a company has affected the environment, our society, and our governance on both a national and global level. These ratings come from third parties, independent companies, and research groups alike. The higher a company’s rating, the more environmentally, socially, and societally conscious they are. An ESG fund combines tens, hundreds, potentially even thousands of stocks that fit this bill, allowing investors to put their money into a whole array of companies attempting to bring forth some positive change.

The 10 best ESG funds right now

While many factors make an ESG fund worth investing in, these are the ten that investors seem to flock to the most.


With nearly $6.5 billion in assets from over 400 companies, iShares ESG MSCI EAFE ETF [1] (ESGD) comprises many large and mid-sized stocks in Europe, Australia, Asia, and the Far East. This fund is ideal for those hoping to build a sustainable equity portfolio that will bring in great returns over the long run.

Vanguard FTSE Social Index Fund (VFTAX)

What sets Vanguard FTSE Social Index Fund [2] apart is its commitment to exclude all companies in the alcohol, tobacco, weapons, fossil fuels, nuclear power, gambling, and adult entertainment industries. Instead, the fund invests in companies such as Apple, Microsoft, Google, Amazon, and countless other large companies that pass the strict ESG criteria.

iShares Global Clean Energy ETF (ICLN)

This iShares fund has far fewer companies under its umbrella — just over 80, for the time being — but the total assets still come close to that of iShares ESG MSCI EAFE ETF. As a matter of fact, iShares Global Clean Energy ETF [3] currently holds nearly $6 billion in net assets. The fund focuses exclusively on clean energy stocks from all over the world.

Shelton Green Alpha Fund (NEXTX)

As one might tell from the name, Shelton Green Alpha Fund [4] focuses primarily on the green economy: companies that help make the Earth greener while also demonstrating above-average potential for future growth. Any company that prioritizes products and services that better the environment is especially attractive to this ESG fund.


This iShares fund has that same focus on large- and mid-cap stocks that demonstrate those all-important environmental, social, and governance (ESG) practices that other iShares funds have. Still, the iShares ESG Aware MSCI USA ETF [5] is unique for the way it hones explicitly in on U.S. companies only. With nearly 350 holdings and over $21 billion in net assets, this strategy seems to work quite well for the fund.

Parnassus Core Equity Investor (PRBLX)

A primary goal of the Parnassus Core Equity Investor ESG [6] is to maintain its high quality through both market highs and market lows. This means investing in U.S. companies that pass the ESG test and perform incredibly well during market downturns. With this unique strategy, it ultimately hopes to outperform the S&P 500 Index.

iShares MSCI USA ESG Select ETF (SUSA)

Of course, while the intentions with ESG funds are always good, certain companies are inevitably going to become embroiled in controversy from time to time. In an attempt to avoid this, iShares MSCI USA ESG Select ETF [7] turns its attention to companies that stay away from low ESG ratings and have averted any severe controversies in their histories. Their net assets are lower than other iShares ESG funds on this list, but it’s worth it when considering the fund’s commitment to the ESG mission.

Parnassus Mid Cap Fund Investor (PARMX)

The Parnassus Mid Cap Fund Investor [8] aims to avoid companies that would perform poorly during market downturns while still staying committed to companies with high ESG ratings. This fund invests solely in high-quality companies with a small range of expected investment outcomes hoping to protect capital during downturns. Ultimately, the end goal is to outperform the Russell Midcap Index.

iShares ESG Aware MSCI EM ETF (ESGE)

As with the Parnassus funds, it helps for an ESG fund to have a specific index in mind when establishing particular financial goals. In the case of iShares ESG Aware MSCI EM ETF [9], that index they hope to mirror is the MSCI Emerging Markets Index. To do this, the iShares ESG Aware MSCI EM ETF invests in large- and mid-cap stocks that are just beginning to show great potential, such as Alibaba and Tencent.

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

The SPDR S&P 500 Fossil Fuel Reserves Free ETF [10] is a more ESG-friendly alternative to the S&P 500 Fossil Fuel Free Index, allowing investors in the fund to have the peace of mind that they are not investing in any fossil fuels or other non-ESG compliant companies.


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