Sustainable investing – which seeks to generate a financial return while also considering environmental, social, and governance (ESG) factors – has become popular in recent years. In the same way that people are focused more on sustainability when shopping for food or clothes, many people are increasingly focusing on sustainability when investing their money.
If sustainable investing is something that interests you, it’s easy to start this way. These days, there are plenty of actively-managed funds and exchange-traded funds (ETFs) that invest on a sustainable basis. And some have performed very well, outperforming major stock market indices over time.
With that in mind, here’s a look at a selection of sustainable funds and ETFs I like.
Sustainable investing funds
Whether you’re looking for UK equity exposure or global equity exposure, you’ve plenty of options when it comes to sustainable investment funds. Funds I hold in high regard include:
Royal London Sustainable Leaders. This invests in businesses that are deemed to make a positive contribution to society. It invests predominantly in UK businesses but also has a little bit of exposure to the US and Europe. It has returned about 30% over the last three years (vs -7% for a FTSE 100 tracker).
Liontrust Sustainable Future Global Growth. This seeks to identify companies around the world that not only have strong growth prospects but also offer products or services that make a positive contribution to society. Over three years, it’s returned about 61% (vs 25% for a FTSE All-World index tracker).
Janus Henderson Global Sustainable Equity. This aims to invest in companies whose products and services are considered by the investment manager as contributing to positive environmental or social change. It’s delivered a return of about 50% over three years.
BMO Responsible Global Equity. This only invests in companies whose products and operations aren’t considered to be harming the world, its people, or its wildlife, and are making a positive contribution to society. It has returned roughly 44% over three years.
Fundsmith Sustainable Equity fund. This is a relatively new fund from the team at Fundsmith. It has a similar philosophy to that of Fundsmith Equity but won’t invest in businesses in certain sectors, such as Alcoholic Beverages or Tobacco. It’s performed well since launch, easily beating its benchmark.
If you prefer to invest in ETFs, which are generally more cost-effective than actively-managed funds, here are some options to consider:
The iShares Dow Jones Global Sustainability Screened UCITS ETF. This ETF offers exposure to a broad range of global companies that have been screened for their economic, environmental, and social characteristics. It screens out companies involved in industries such as alcohol, tobacco, gambling, firearms, and adult entertainment. It’s returned about 6% per year since its inception in 2011.
The iShares MSCI World SRI UCITS ETF. This ETF aims to provide access to global markets through companies with outstanding ESG ratings and minimal controversies. It screens out companies involved in the oil & gas, weapons, tobacco, firearms, alcohol, and gambling industries. It has returned about 10.2% per year since its launch in 2017.
As you can see, investors have plenty of options today when it comes to sustainable funds and ETFs. My advice, if you’re keen to invest in sustainably, is to spread your money over a few different funds, or ETFs, in order to reduce your risk.
Edward Sheldon has a position in Fundsmith Equity. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.