Worried About Investing Ethically? These 2 ETFs Can Put You On The Right Track

 | Aug 06, 2020 03:22

Ethical concerns are an increasingly pressing consideration for many investors seeking to put their money into companies that align with their views and values.

As terms like "environmental, social and governance (ESG)" and "socially responsible investing (SRI)" enter the mainstream, we have seen the emergence of more exchange-traded funds (ETFs) that integrate social responsibility with investing.

Below we will take a closer look at ethically focused investing and ETFs worth considering:

Measuring ESG Investing Criteria/h2

More businesses and investors are becoming aware of the environmental and social impact of their choices in both their professional and personal lives. Yet shareholders may have different lines in the sand when it comes to ethical investing.

For example, some may avoid so-called sin stocks—companies involved in segments like tobacco, alcohol, gambling or firearms. Others may shun businesses that could potentially transgress controversial human rights issues like animal testing, nuclear energy development or intensive, eco-unfriendly farming. Corporations that damage the environment understandably make the news headlines regularly.

Political leanings may also influence portfolio choices. And some may prefer companies with overall positive social behavior rather than excluding stocks solely based on specific products or practices.

Since ethical investing can be viewed through the lens of what companies do practice, as well as what they don't practice, there are various definitions with significant differences.

The principles of corporate social responsibility (CSR) should be expressed in measurable variables, but as there is no single concept of sustainability, for example, nor is there one commonly accepted method of measuring it either.

Worldwide, different initiatives or not-for-profit membership organizations have also been introducing guidelines to ensure consistency in the disclosure of environmental information. Still, at present, these standards are not perfectly standardized.

There are a wide range of investing options, like the FTSE4Good Index Series, which was launched in 2001 and measures the performance of businesses with ESG practices. A complete list of these indexes can be found on the website of FTSE Russell.

The total assets under management worldwide at the end of 2019 using one or more sustainable investing strategies were over $30 trillion. With all that in mind, let's take a closer look.

1. Vanguard ESG US Stock ETF/h2
  • Current Price: $61.06
  • 52-Week Range: $38.85 - 61.08
  • Dividend Yield (TTM-Trailing Twelve Month): 0.94%
  • Dividend Distribution Frequency: Quarterly
  • Expense Ratio: 0.12 % per year, or $12 on a $10,000 investment

The Vanguard ESG US Stock Fund (NYSE:ESGV), which has 1,464 holdings, seeks to track the performance of the FTSE US All Cap Choice index.

The fund is screened for certain ESG criteria and specifically excludes stocks of companies in the following industries: adult entertainment, alcohol, tobacco, weapons, fossil fuels, gambling and nuclear power. Additionally, stocks of individual companies that do not meet certain diversity criteria as well as the principles of the United Nations Global Compact are not included.

The most important sectors (by weighting) are Technology (30.90%), Financials (16.70%), Consumer Services (15.40%), Healthcare (14.60%) and Consumer Goods (8.10%). These five sectors comprise over 85% of the fund.