ESG investing is not just about aligning your financial goals with your values. Studies show that ESG investing can reduce volatility and improve returns. In fact, ESG funds did better than the broader market during the stock volatility surrounding the coronavirus pandemic. This article highlights the performance of the 10 ETFs with the highest ESG scores over 3 time periods this year.
ESG investing means that investments are made only in the businesses and their financial securities which are compliant with environmental, social, and governance norms for doing their business and conducting operations. ESG scores are composed of three types of criteria: environmental, social, and governance.
ESG investing requires positive answers to the following questions regarding:
- Environment:
- What is the company’s attitude toward climate change?
- To what extent is the company attempting to minimize its carbon footprint?
- How does the company manage its environmental impact?
- How does the company handle air or water pollution arising from its operations?
- How much progress has the company made in utilizing renewable energy sources?
- How sustainable are the company’s efforts in its supply chain?
- Social:
- How does the company improve its social impact?
- Does the company offer fair levels of compensation for employees?
- What are the companies’ policies regarding LGBTQ+ equality, racial diversity, and inclusive hiring practices?
- How does the company advocate for social good in the wider world, beyond its limited sphere of business?
- Governance:
- How do management and the board of directors address the interests of the company’s employees, shareholders, and customers?
- Is executive compensation balanced compared to pay for other employees?
- How does the company’s board and management drive positive change?
- Does the board foster diversity in leadership?
- Are its interactions with shareholders positive?
Creating A Short List For the munKNEE ESG ETF Index
- There are 126 exchange-traded funds (ETFs) in FKnol.com’s ESG category database which belong to the ESG category.
- Of those, 50 have been ranked as per their ESG Risk Ratings (a snapshot of how well ESG risk is managed at a fund level relative to its peer group) by Morningstar.
- Of those, 29 have Morningstar “leader” (AA, AAA) scores of 7.2 or more.
- Only 10, however, are consistent out-performers and, as such, make up a rebalanced munKNEE ESG ETF Index.
Below is how the constituents performed last week, in the last 5 weeks (since the end of May) and YTD, in descending order, with their ESG scores:
- Invesco S&P 500 Equal Wight Health Care ETF (ARCA:RYH): +3.4% last week; -2.6 last 5 weeks; -13.4% YTD; ESG Score: 7.2
- Vanguard Health Care ETF (ARCA:VHT): +2.8% last week; +1.0% last 5 weeks; -8.9% YTD; ESG Score: 7.5
- JPMorgan Diversified Return ETF (ARCA:JPUS): +2.4% last week; -8.4% last 5 weeks; -12.3% YTD; ESG Score: 7.9
- JPMorgan U.S. Value Factor ETF (ARCA:JVAL): +1.9% last week; -7.9% last 5 weeks; -14.5% YTD; ESG Score: 8.4
- Invesco Russell Top 200 ETF (ARCA:EQWL): +1.8% last week; -7.0% last 5 weeks; -15.4% YTD; ESG Score: 7.5
- Vanguard Russell 1000 Value ETF (ARCA:VONV): +1.5% last week; -7.9% last 5 weeks; -12.1% YTD; ESG Score: 7.4
- SPDR S&P 500 Value ETF (ARCA:SPYV): +1.2% last week; -7.7% last 5 weeks; -10.9% YTD; ESG Score: 7.5
- iShares Core U.S. Value ETF (ARCA:IUSV): +1.2% last week; -7.7% last 5 weeks; -10.9% YTD; ESG Score: 7.7
- Vanguard S&P 500 Value ETF (ARCA:VOOV): +1.1% last week; -7.7% last 5 weeks; -10.9% YTD; ESG Score: 7.4
- Vanguard Value ETF (ARCA:VTV): +0.9% last week; -7.6% last 5 weeks; -9.0% YTD; ESG Score: 7.2
The above 10 ESG ETFs have an average ESG score of 7.45 and were UP 2.1% last week, are DOWN 5% in the past 5 weeks, and are DOWN 11.5% YTD.
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