What is ESG investing?
ESG investing, also known as Environmental, Social, and Governance investing, is an investment method considering a company’s environmental, social, and governance factors along with financial performance when making investment decisions. The ESG investing is also known as “impact investing, ”or “sustainable investing. In recent years, Environmental, Social, and Governance (ESG) investing has gained significant traction worldwide. By incorporating ESG into investment decisions, investors are supporting companies that contribute positively to the environment, society, and governance
The key components of ESG Investment are
Environmental
The “E” in ESG represents how companies manage their environmental impact. This include
- Carbon emission
- Waste management
- Water usage
- Deforestation
- Air and water quality
- Biodiversity
Social
The “S” in ESG focuses on how companies treat their workers and the communities .This include
- Labor Standard
- Human rights
- Employee gender and diversity
- Product safety and quality
- Community relationship
Governance
The term ‘G’ focus on corporate governance. It is the set of rules, practices, and processes that determine how well a company is operated and controlled. This include
- Sovereign policy making
- The function and composition of board of directors
- Remuneration
- Monitoring of senior executives
- Aim of the business
- Corporation isn’t engaging in unlawful actions
- Internal corruption
What are ESG Funds?
ESG funds are like other mutual funds, index funds or ETF considering the impact of an investment on the environment, society, and governance .The main goal of investing in ESG funds is that an investor can choose investment funds that will personally apply to their environmental, social, and governance values. It is the need of the hour to encourage companies that are making environmentally conscious decisions, follow ethical business practices, and understand their social responsibilities. For example , investing in a company producing eco friendly goods or investing in a company producing chemical dyes removing waste products into water bodies. Which one do you prefer? In order to save our mother earth we should focus more on ESG companies.
ESG funds have a strong trajectory ahead and gaining popularity.
What are the best 5 ESG Funds in US?
The Vanguard ESG U.S. Stock ETF (ESGV)
The Vanguard ESG U.S. Stock ETF (ESGV) is an exchange-traded fund that is based on the FTSE USA All Cap Choice index. The fund seeks to track the performance of a benchmark index that measures the investment return of large-, mid-, and small-capitalization stocks of U.S. companies and is screened for certain environmental, social, and corporate governance criteria. ESGV was launched on Sep 18, 2018 and is issued by Vanguard.
Top 5 holdings
iShares ESG Aware MSCI USA ETF(ESGE)
Managed by BlackRock, this ETF tracks the investment results of an index composed of U.S. companies that have positive environmental, social and governance characteristics as identified by the index provider while exhibiting risk and return characteristics similar to those of the parent index. The fund generally will invest at least 90% of its assets in the component securities of the underlying index and may invest up to 10% of its assets in certain futures, options and swap contracts, cash and cash equivalents. The underlying index is an optimized equity index designed to reflect the equity performance of U.S. companies that have favorable environmental, social and governance (“ESG”) characteristics (as determined by the index provider), while exhibiting risk and return characteristics similar to those of the MSCI USA Index (the “parent index”).
Top 5 holdings
Nuveen ESG Mid-Cap Growth ETF (NUMG)
This ESG USA Mid-Cap Growth Index (the “Index”) is primarily composed of equity securities issued by mid-capitalization companies listed on U.S. exchanges. The Index uses a rules-based methodology that seeks to provide investment exposure that generally replicates that of mid-cap growth benchmarks through a portfolio of securities that adhere to predetermined ESG, controversial business involvement and low-carbon screening criteria. The Index is rebalanced on a quarterly basis. The portfolio is heavily invested in information technology (34.08%) and healthcare (20.69%).
Top 5 holdings
Calvert Equity Fund (CSIEX)
Calvert Equity A (CSIEX) is an actively managed U.S. Equity Large Growth fund. Calvert Research and Management launched the fund in 1987.
The investment seeks growth of capital through investment in stocks believed to offer opportunities for potential capital appreciation. The fund normally invests at least 80% of its net assets, including borrowings for investment purposes, in equity securities (common stock). It will normally invest in common stocks of companies having market capitalizations that rank among the top 1,000 U.S. listed companies. The fund may invest up to 25% of its assets in U.S. dollar-denominated securities of foreign companies that trade on U.S. exchanges or in the over-the-counter market (including depositary receipts which evidence ownership in underlying foreign stocks).
Top 5 holdings
iShares Global Clean Energy ETF (ICLN)
The index is designed to track the performance of approximately 100 clean energy-related companies. The fund generally invests at least 80% of its assets in the component securities of the index and in investments that have economic characteristics that are substantially identical to the component securities of the index and may invest up to 20% of its assets in certain futures, options and swap contracts, cash and cash equivalents, as well as in securities not included in the index. It is non-diversified.
Top 5 holdings
- First Solar Inc
- Vestas Wind Systems A/S
- Enphase Energy Inc
- China Yangtze power Co Ltd
- EDP Energias de Portugal SA
Conclusion
In summary, the ESG-focused companies have achieved extraordinary long-term increases in return, they have also proven more resilient during market downturns than other equities in the S&P 500 index. The top 5 ESG investment funds discussed reflect a commitment to environmental, social, and governance principles while delivering solid financial performance. As the demand for ESG investments continues to rise, these funds offer investors an opportunity to align their financial goals with ethical considerations, contributing to a more sustainable and responsible investment landscape. It is essential for the investors to conduct a thorough research, consider their own financial goals and risk tolerance, and stay informed about the evolving landscape of ESG investing before investing.
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