The Rise of ESG Investing: Aligning Financial Goals with Values

As global awareness of climate change and social responsibility continues to grow, so does the significance of ESG (Environmental, Social, and Governance) investing. ESG funds focus on companies and projects that prioritize sustainability, ethical governance, and social impact, allowing investors to align their financial goals with their values. This article highlights a selection of climate and ESG investment funds worth knowing about, empowering you to become an informed consumer in the evolving landscape of responsible investing.

1. The Brown Advisory Sustainable Growth Fund (BAFWX)

The Brown Advisory Sustainable Growth Fund is a prominent player in the ESG investment space, boasting total assets of $9.9 billion as of June 30, 2024. This large growth fund has consistently aimed to deliver significant returns while adhering to sustainable investment principles. Over the past year, it has achieved an impressive return of 17.11%. Looking back, the fund has generated returns of 6.07% over three years, 13.49% over five years, and an average of 13.42% over the last decade. Its performance is benchmarked against the Russell 1000 Growth Index, reflecting a robust strategy that prioritizes growth while considering environmental and social factors.

2. Nuveen Winslow Large-Cap Growth ESG ETF (NWLG)

The Nuveen Winslow Large-Cap Growth ESG ETF focuses on long-term capital appreciation by seeking out high-quality companies that demonstrate above-average earnings growth potential. This actively managed exchange-traded fund invests at least 80% of its net assets in equity securities of U.S. companies with market capitalizations exceeding $4 billion at the time of purchase. The fund incorporates environmental, social, and governance considerations, as well as assessing controversy inputs to mitigate risks. By blending an active growth strategy with ESG criteria, this fund aims to deliver sustainable financial returns.

3. Praxis Growth Index Fund (MMDEX)

The Praxis Growth Index Fund is designed to pursue capital appreciation through a thoughtfully curated portfolio of stocks that mirror the performance of the U.S. large-cap growth equity market. Operating under a stewardship investing framework, it incorporates responsible investment criteria into its selection process. As of September 27, 2024, the fund has a net asset value of $46.50, reflecting a slight change of -0.58%. Launched on May 1, 2007, this fund has a minimum investment requirement of $2,500 and an annual expense ratio of 0.65%. The Praxis Growth Index Fund is ideal for investors looking to balance growth potential with ethical investing.

4. Vanguard ESG U.S. Stock ETF (ESGV)

The Vanguard ESG U.S. Stock ETF stands out with its low expense ratio of just 0.09% and an appealing dividend yield of 1.08%. Since its inception in September 2018, the fund has delivered an average annual return of 13.31%. With nearly 1,500 holdings, the ETF offers a highly diversified portfolio predominantly composed of U.S. stocks. Approximately 70% of its investments are in large-cap companies while also maintaining exposure to mid- and small-cap stocks. By adhering to strict environmental, social, and governance principles, the Vanguard ESG U.S. Stock ETF is an excellent choice for investors seeking growth alongside sustainability.

5. Pimco Enhanced Short Maturity Active ESG ETF (EMNT)

The Pimco Enhanced Short Maturity Active ESG ETF is designed to preserve capital while maximizing income for its investors. With an expense ratio of 0.24% and an appealing dividend yield of 5.05%, this actively managed ETF emphasizes high-quality, short-term, dollar-denominated debt. Launched in December 2019, it has achieved an average annual return of 2.29%. EMNT focuses on securities from issuers whose ESG practices align with PIMCO’s investment strategy, making it a strong option for socially conscious investors.

6. iShares MSCI Global Sustainable Development Goals ETF (SDG)

The iShares MSCI Global Sustainable Development Goals ETF is dedicated to investing in companies that contribute positively to addressing significant social and environmental challenges, as identified by the United Nations Sustainable Development Goals. With an expense ratio of 0.49% and a dividend yield of 1.82%, this fund has delivered an impressive average annual return of 8.16% since its inception in April 2016. SDG screens for companies that derive most of their revenue from products and services aimed at promoting clean energy, environmental sustainability, and the elimination of hunger, while excluding those involved in alcohol, civilian firearms, weapons, predatory lending, and tobacco. Currently, the fund comprises approximately 160 stocks, with a predominant focus on U.S. companies.

7. Fidelity U.S. Sustainability Index Fund (FITLX)

The Fidelity U.S. Sustainability Index Fund offers a cost-effective option for ESG investors, featuring an impressively low expense ratio of 0.11% and a dividend yield of 0.99%. This passive index fund is designed to track the MSCI USA ESG Index, providing broad exposure to a diverse array of U.S. companies across various industries and market capitalizations. As of the latest data, FITLX has delivered a robust average annual return of 15.65% over the past five years. The fund includes 273 holdings, predominantly composed of large-cap stocks, complemented by mid-cap investments. Its portfolio is largely growth-oriented, with more than half of the assets allocated to technology, healthcare, and financial services sectors. Notably, FITLX has outperformed its large-cap blend category average over the past two, three, and five years.

8. Calvert US Mid Cap Core Responsible Index Fund (CMJAX)

Established nearly 50 years ago, the Calvert US Mid Cap Core Responsible Index Fund is a strong contender for investors seeking significant exposure to mid-cap stocks. With an expense ratio of 0.49% and a dividend yield of 0.81%, this fund emphasizes responsible investing in businesses committed to positive social and environmental practices. Approximately 80% of the fund’s portfolio consists of mid-cap companies, providing a focused approach to growth potential within this segment. Over the past five years, CMJAX has achieved an average annual return of 9.48%.

9. BlackRock Sustainable Advantage CoreAlpha Bond Fund (BIAAX)

The BlackRock Sustainable Advantage CoreAlpha Bond Fund offers an actively managed approach to fixed-income investing, emphasizing bonds that not only provide income but also have the potential for positive societal impact. With an expense ratio of 0.54% and a dividend yield of 3.78%, this fund aims to balance capital appreciation with income generation. However, it has faced challenges in the current interest rate environment, with an average annual return of -0.47% over the past five years.

10. American Century Sustainable Growth ETF (ESGY)

The American Century Sustainable Growth ETF is designed to provide a total return that surpasses its benchmark over market cycles by employing a growth-oriented U.S. equity strategy that integrates environmental, social, and governance (ESG) factors. As of September 27, 2024, the fund boasts a year-to-date total return of 34.45%, reflecting its strong performance in a competitive market.

Conclusion

Investing in climate and ESG funds is not just a trend; it represents a crucial shift toward more sustainable and responsible financial practices. As awareness of environmental and social issues continues to rise, these funds offer investors a way to contribute positively to the planet while also seeking financial returns. The ten funds highlighted in this article demonstrate diverse approaches to addressing climate change, promoting social equity, and upholding strong governance standards. As you consider your investment strategy, integrating these ESG-focused options can align your portfolio with your values.

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