Socially conscience investing--looking into a public companies environmental, social, and governance factors for how they conduct business alongside more traditional financial metrics--has been on the rise following the March's stock market plunge in the beginning of the coronavirus pandemic. Typically referred to as ESG investing, this type of investing has become more popular with younger traders who want to align their investments with their values.
Environmental factors focus on how an individual firm promotes cleaner energy and sustainability practices like reducing carbon emissions and the development or use of solar energy. Social focuses on how the company manages relations with employees, suppliers, customers, and the communities where it operates. Governance factors focus on the companies leadership and its long-term goals.
With more new investors joining the market to get ahead amid financial uncertainty, more exchange-traded funds have launched to keep up with the pace of demand. Both the number of ESG-focused index funds, along with their assets, have doubled over the past three years, according to a recent report from Morningstar. The research firm stated that by the end of the second quarter 2020, there were 534 index funds focused on ESG themes that had accrued a combined $250 billion in assets.
While an investor could look into the practices of individual companies when making trading, it is always easier to invest in an exchange-trading fund. Here are a list of some of the more popular ESG funds and their holdings:
iShares ESG MSCI USA ETF
ESGU tracks an index that follows large- and mid-cap U.S. companies that have been selected and weighted for positive ESG characteristics. The index holds a 30% stake in Tech companies and weights of Healthcare, Consumer Staples, and Financials over 10%.
Vanguard ESG U.S. Stock ETF
ESGV tracks an index following U.S. companies, including large-, mid-, and small-cap stocks screened from ESG values. This fund also contains out layer companies in its weighting, with holdings within industries like fossil fuels and tobacco.
iShares ESG MSCI USA Leaders ETF
SUSL tracks an index of large- and mid-cap U.S. companies with high ESG ratings. In order for firms to be included, they most pass 37 factors screened by the fund, with adjustments for sector and cap weight. The fund regularly removes firms with lower ESG rankings.
Xtrackers MSCI U.S.A. ESG Leaders Equity ETF
USSG tracks an index of large- and mid-cap stocks that score highly against ESG factors. The fund doesn't only hold the highest rated stocks, but makes concessions towards market-like representation.
The most commonly held stocks in the above ETFs: 3M
