Ethical investing in Australia continues to accelerate as investors seek investments that align with their views on Environmental, Social, and Governance (ESG) matters. Below, we’ve listed three ethical ETFs to consider for 2021.
#1 – eInvest Future Impact (ASX: IMPQ) ETF
eInvest’s IMPQ ETF offers investors an actively managed ETF that invests in Australian and New Zealand listed small and medium companies (small caps). Th IMPQ fund seeks businesses with a strong focus on positives outcomes and sustainability in sectors such as healthcare, education, and renewable energy.
Like VESG and ETHI (see below), IMPQ uses an eligibility screen to remove certain industries and activities from their investment universe. However, rather than a materiality criteria, the fund uses a zero-revenue threshold, meaning even firms with minimal operations in the aforementioned criteria will be removed.
The ETF then scores each company based on its efforts towards ESGE, with the final ‘E’ standing for Engagement. Unlike passive ethical funds, analysts at IMPQ engage with management to grasp a further understanding of their ESGE activities and offer recommendations to improve ESGE activities. For example, the fund recently engaged with a company regarding its lack of board diversity and offered a list of potential candidates.
Only companies that exceed the market benchmark score are admitted to the fund’s investment universe. After the two-step ESG process, the fund actively chooses companies based on fundamental analysis with an emphasis on balance sheet strength and sustainable growth investments.
With a management fee of 0.99%, plus an additional performance fee of 20%, this fund could be a good option for investors who are seeking active management with a strong emphasis on companies contributing to positive outcomes.
Get our free IMPQ ETF review.
#2 – Vanguard Ethically Conscious International Shares (ASX: VESG) ETF
Offered to the market in September 2018, VESG offers exposure to the world’s largest companies listed in developed markets. The VESG fund uses an eligibility screen to exclude companies with material business activities in:
- Fossil fuels
- Nuclear power
Additionally, VESG excludes companies based on severe controversies. With a modest management fee of 0.18%, VESG offers a core alternative for those looking for a diversified global fund with an ethical overlay.
Get our free VESG ETF review.
#3 – BetaShares Global Sustainability Leaders (ASX: ETHI) ETF
The ETHI ETF offers exposure to 200 large global stocks that are climate change leaders. ETHI’s investible universe is determined through a two-step process; an eligibility screen and a climate leader score. The ESG screen used by VESG (above) is applied in addition to the following excluded activities or industries:
- Junk foods
- Destruction of the environment
- Human rights or supply chain concerns
- Lack of board diversify
Next, companies are graded on three criteria relating to climate leadership:
- Does the company have low total greenhouse emissions from operations?
- Does the company commercialize technology that has net positive climate benefits?
- Does the company have low involvement in the fossil fuel industry?
Only companies in the top one-third of performers relating to the above questions will be admitted to the ETHI fund.
ETHI places a stronger emphasis on climate leadership relative to VESG, making it a great option for investors wanting tactical exposure to large global companies creating a positive impact.
Get our free ETHI ETF review.
Where can I learn about ethical investing in Australia?
Has all this talk of investing got you intrigued?
Firstly, we have a free course on ETF investing (our most popular one actually) which should give you a head start on your investment journey.
Then give our ethical investing basics course a go (it’s free as well), to work out what your personal ethics are and how you want to invest for your future.