The Investor’s Guide To ESG ETFs

It's not easy to find your way through the forest of ESG ETFs.

(For more on this topic, please join us on Tuesday, Feb. 18 at 2 p.m. ET for our free webinar: "Evaluating ESG ETFs.")

My kids' new favorite movie is “Rio,” a story about a parrot from Minnesota who finds himself lost in Rio de Janeiro in the middle of Carnival, learning how to samba and wandering unfamiliar territory without a map.

I think about “Rio” a lot—not simply because casa de Crigger is on its 87^th screening—but because sometimes, being an investor is a lot like being that parrot. We find ourselves bombarded on all sides by noisy, flashy marketing spectacle, when all we want is just someone to give us a map.

That goes double for environmental, social and governance (ESG) investing. Heck, the space is so new that we can't even agree on what to call it. Is it ESG? Impact investing? Socially responsible investing? Who even knows?

ESG: Trend With Staying Power

Whatever you call it, though, real money is moving into these investments. Last year, investors poured $9.2 billion into ESG ETFs, almost double what had been invested in these funds since 2015. In the few short weeks since the start of the year, we've seen an additional $4.8 billion invested:

Data: ETF.com; data as of Feb. 10, 2020

What's more, big institutions, like insurance companies and pensions, are seeding ETFs and reallocating to more sustainable options. And issuers are scrambling to match demand: Last year saw 22 new ETFs launch, including many firsts, like the first high yield ESG bond ETF, the first active ESG bond ETF, the first Shariah-law-compliant funds and more.

This is a snowball that has been in motion for some time. But now it's finally starting to become an avalanche.

Separating Signal From Noise

If you're like most of our readers, it's likely you or your clients have questions about ESG ETFs and how to incorporate them into a portfolio.

The problem is, like a Midwestern parrot at Carnival, it's not easy to separate the signal from the noise. There are so many ESG ETFs on the market now that sifting through them is no longer the chore of an afternoon, but a task that requires some serious legwork.

And ESG means different things to different investors. Some people think ESG means divesting from fossil fuels. Others think it means investing according to a certain religious or ethical standard. Still others believe it means making a difference with their dollars.

Who's right? They all are, and that can be the frustrating part.

What investors and advisors need is a map—or at least a guidebook to help sort through the marketing double-speak and figure out which ESG ETFs are worth a closer look.

Opening The ESG Guidebook

Luckily, ETF.com offers a range of free, easy-to-use tools to help you do your due diligence on these funds. On next Tuesday's webinar, "Evaluating ESG ETFs," my colleague Cinthia Murphy and I will step through each of these tools in turn.

For example, for investors concerned about fossil fuel exposure, we'll demonstrate how to measure an ETF's carbon footprint, or how to check whether an ETF's portfolio includes specific stocks on a No-Fly List.

For clients driven by ethical conviction, we'll explore easy, single-data-point metrics that quantify how much of an ETF's portfolio is exposed to so-called sin stocks, or on the flip side, how much of the portfolio is in companies trying to make a positive impact.

We'll even demonstrate our ETF Watchlist functionality, which lets investors flag funds that catch their interest and compare relevant performance and ESG metrics.

Our goal is to equip you with the tools you need so that you can have confident conversations and make informed choices about using ESG investments in your portfolio. We'll give you the guidebook, so you can take the next step.

(For more on this topic, please join us on Tuesday, Feb. 18 at 2 p.m. ET for our free webinar: "Evaluating ESG ETFs.")

Contact Lara Crigger at [email protected]