In this post I will dive into the World of ESG investing (sustainable investing), I will start with a quick explanation what ESG is and then list funds and ETFs I found. Kindly note that ESG funds are being created or old funds converted to ESG funds at a speed nobody can follow in their spare time.
What is ESG?
ESG stands for environment, social and governance. ESG measurment means a company is rated on non-financial metrics instead of financial. The topic has been trending for a while as environmental topics have been lifted up as important. ESG investing is a recent investing trend, a form of highlighting sustainable investing and a way for investors to express their opinion.
A few ESG investment funds will be mentioned in this post and key information given. There are a few different ESG investment funds on the market, ETFs as well as mutual funds. Issue here is that some funds seek based on specific ESG citeria, others have less weight in low rated companies and other seem to be impacting.
A list of ESG funds and ETFs
Here I have listed funds launched by known banks and investment firms like Blacrock and Vanguard, which have launched their special ESG ETFs that follow specific ESG indexes. I have summarized the most relevant information about the ESG ETFs I found, link to homepage or search page for funds and for more information is given for each. Note that all of the given ETFs might not be available in you country or the broker you use. Note that all information is gathered based on data available 30th May 2021 and that all suppliers are not mentioned due to limited time and reduce your time spent here.
Blackrock and iShares
Blackrock is known for their iShares ETFs which are most likely known all around the World, some have small charges other are a little more expensive per year. As you can see from my portfolio I do have some iShares ETFs. I will focus on Blackrocks ESG Screened, ESG Aware and ESG Advanced equity ETFs in this section. They do have other sustainability funds available which you can find on their webpage. For example the iShares Global Clean Energy ETF I owned at one point does not show up on the list when I looked at it.
This link will take you to the main page for sustainable investing as direct links might not work perfectly.
ESG Screened
Screened funds aim to remove exposures to certain businessess that might be controversial or impose risks to investors preferences.
iShares ESG Screened S&P 500 ETF (Bloomberg ticker: SP5ESUT)
Benchmark index is S&P 500 Sustainability Screened Index with ongoing charges of 0,08% per year and 2,2 million shares outstanding. It pays a quarterly dividend based on history and has 454 holdings. Six biggest holdings are Apple, Microsoft, Amazon, Facebook and Alphabet Class A and C shares representing 22,91% of portfolio. Interestingly on seventh place comes Berkshire Hathaway class B share, note that Berkshire Hathaway has decided not to make any additional sustainability reports and employer responsibility reports. In other words, they do not employ any additional reporting moving against the general trend.
Quickly reviewing the holdings, it looks like the S&P 500 index companies without companies like Exxon and Chervon.
iShares ESG Screened S&P Mid-Cap ETF (Bloomberg ticker: SP4ESUT)
Benchmark index is S&P MidCap 400 Sustainability Screened Index, the fund was launched in September 2020 with 800 thousand shares outstanding and 368 holding. The ETF has annual fees of 0,12% and seems to apply quarterly distributions of funds. Six biggest holdings are Bio Techne, XPO Logistics, Fair Isaac, Molina Healthcare, Signature Bank and Cognex representing 4,03% of portfolio. Here we see that the largest companies have small portions of the total portfolio which can be seen as a positive sign compared to many other funds were the six largest holdings can represent over 20% of the portfolio having a big impact on both upside as well as downside.
iShares ESG Screened S&P Small-Cap ETF (Bloomberg ticker: SP6ESUT)
Launched in September 2020 with 250 thousand outstanding share and annual charges of 0,12 %, this fund has 638 holdings. As the two other ESG Screened ETFs this also seems to follow the same distribution logic of quarterly distributions. Benchmark index is S&P SmallCap 600 Sustainability Screened Index which explains the amount of holding in the fund. Six biggest holdings are BLK Cash Fund Treasury, GameStop class A, Crocs, SAIA, Omnicell and Macys representing 5,55% of the total portfolio. As before we see that the number of holding in the fund reduces exposure to one specific company in this fund as well. Interestingly the fund holds swaps in a few stocks while the two other funds do not, this is one fundamental difference between the tree funds.
ESG Aware
The aware funds are supposed to strive for sustainable outcome yet still returning the market outcome.
iShares ESG Aware MSCI USA ETF (Bloomberg ticker: GU719471)
Launched in end of 2016 with 180,7 million shares outstanding this ETF has ongoing charges of 0,10% per year. It has an MSCI ESG rating of A (AAA is the best rating) which seems to be due to military technology. Notably the fund holds positions in Exxon Mobile (0,62% of the portfolio) and Chevron (0,51% of the portfolio) which might explain why it is called Aware. The ETF has 351 holdings and has been paying quarterly dividends. The ETF follows MSCI USA Extended ESG Focus Index and the six biggest holdings are Apple, Microsoft, Amazon, Facebook and Alphabet representing 19,56% of the total portfolio.
Compared it quickly to iShares MSCI USA UCITS ETF which has a bit higher ongoing charges of 0,33% and has a little bigger weight in Exxon Mobile of 0,65% and Chevron of 0,53% they do look alike to a large extent. Just wondering why, the Aware ETF has lower charges then the normal accumulating ETF, maybe it is due to no mentioning of rebalancing in the Aware ETF which lowers costs.
iShares ESG Aware MSCI EAFE ETF (Bloomberg ticker: NU719472)
Launched in mid-2016 with ongoing charges of 0,20% and MSCI EAFE Extended ESG Focus Index as benchmark index. It pays a quarterly distribution, has 72,1 million shares outstanding and consists of 482 holdings. Six biggest holdings are Nestle, ASML Holding, Roche Holding, LVMH, Novartis and Toyota Motor representing 8,6% of the total portfolio. This fund is a bit more geographically diversified in the sense of where the stocks are traded compared to the USA fund (obviously). The six biggest holdings have a significantly lower weight then in USA fund and has a better MSCI ESG rating of AA compared to A in the USA fund. The fund is focused on Europe, Asia and Australia based on company trading location and geographical distribution.
iShares ESG Aware MSCI EM ETF (Bloomberg ticker: NU719473)
This ETF was also launched in mid-2016 and has 168,9 million shares outstanding with ongoing charges of 0,25% per year. The ETF pays quarterly dividends and has 357 number of holdings with a MSCI ESG rating of AA with MSCI Emerging Markets Extended ESG Focus Index as benchmark index. It as you might have guessed invests in emerging markets as the six biggest holdings are Taiwan Semiconductor Manufacturing, Tencent Holdings, Samsung Electronics, Alibaba Group, Meituna and Naspers Limited representing 22,77% of the total portfolio. The fund does have exposure to Russian NK Lukoil and interestingly has Greek Organisation of Football Prognostics (gambling company) as an investment of 0,28%.
Gambling and oil might not be the best assets in a responsible fund, even though a gambling company would report all necessary ESG material it should be considered most likely not good practice. Oil companies such as Exxon and Chevron can change their energy sources after time, but a gambling company cannot change to more sustainable gambling methods.
ESG Advanced
As with the other ESG ETF there are also 3 equity focused funds in the advanced portfolio as well as two bond ETFs not covered in this post. The aim of the advanced funds is to prioritize highly rated ESG companies and leaving the rest out.
iShares ESG Advanced MSCI USA ETF (Bloomberg ticker: GU729302)
Launched in mid of 2020 with 6,35 million shares outstanding and an ongoing yearly expense of 0,10% it follows the MSCI USA Choice ESG Screened Index. The ETF has 320 number of holdings and MSCI ESG rating of AA with six largest holding being Tesla, NIVIDA, Visa, Home Depot, Mastercard and Paypal Holding representing 15,16% of the total portfolio.
Vanguard
Have two Vanguard ESG ETFs summarized here and to a large extent they follow the same pattern as other ESG ETFs in portfolio holdings.
Vanguard ESG U.S. Stock ETF (ESGV)
The ETF follows FTSE US All Cap Choice Index and has ongoing charges of 0,12% which is normal for a replicating index ETF. The ETF was launch back in September 2018 and contains 1 465 stocks which is a well-diversified portfolio already. Six biggest holdings are Apple, Microsoft, Amazon, Alphabet, Facebook and Tesla. The six largest holdings represent 23% of the portfolio, reversing my claim of a well-diversified portfolio. Here we see a big exposure to a few companies which means there are a lot of small holdings.
Vanguard ESG International Stock ETF (VSGX)
This ETF tracks the FTSE Global All Cap excluding US Choice Index and has ongoing charges of 0,15% per year. Launched back in September 2018 with 4 913 stocks and six biggest holdings of Taiwan Semiconductor Manufacturing Co, Tencent Holdings, Alibaba Group Holding, Samsung Electronics, Nestle and ASML Holding which represent 10,1% of portfolio. This ETF can be called diversified due to the limited exposure to the six biggest holdings and 10 largest holdings represented 13,3% of the total portfolio end of April 2021. A diversified portfolio at reasonable costs would be available here, might consider this fund if the market turns South.
Svenska Handelsbanken
Handelsbanken seems to have adopted the ESG in most if not all of their funds. They use AI to scan company reports to identify the criteria's and which goals each company fulfils based on information about operating countries, products and services. The goals are based on Agenda 2030 and is available in Swedish.
Handelsbanken has 28 funds that based on comparison to other similar funds are positioned in the top percentile of sustainability. Because of the large amount of funds, I will only give the 28 funds as a list below. To analyse all the funds will take a lot of time and that we all have a limited amount of, for English list of Handelsbankens funds please use this link. The mutual funds links are to their euro denominated pages. Note that the amount of funds are due to different currencies and fund "shares". Fund shares might be accumulating or distributing or due to separation of institutional investors and individual investors.
Handelsbanken Asien Tema (available in fund currency of EUR, SEK and NOK, ongoing charges of 1,50% per year)
Handelsbanken Auto 50 Criteria (ongoing charges of 0,60% per year)
Handelsbanken Auto 75 Criteria (ongoing charges of 0,60% per year)
Handelsbanken Brasilien Team (available in fund currency of EUR, SEK and NOK, ongoing charges of 1,85% per year)
Handelsbaken Euro Corporate Bond Fund (available in fund currency of EUR, ongoing charges of 0,65% per year)
Handelsbaken Europa Selektiv (available in fund currency EUR, SEK and NOK, ongoing charges of 1,85% per year)
Handelsbaken Finland Småbolag (available in fund currency EUR and SEK, ongoing charge of 1,80% per year)
Handelsbaken Företagsobligation (available in fund currency SEK, ongoing charges of 0,95% per year)
Handelsbanken Global Dynamisk (available in fund currency SEK, ongoing charges of 0,80% per year)
Handelsbanken Global Selektiv (available in fund currency EUR, SEK and NOK, ongoing charges of 1,85% per year)
Handelsbanken Japan Tema (available in fund currency EUR, SEK and NOK, ongoing charges of 1,60% per year)
Handelsbanken Kapitalförvaltning 50 (available in fund currency EUR, ongoing charges of 1,56% per year)
Handelsbanken Kina Tema (available in fund currency EUR, SEK and NOK, ongoing charges of 1,85% per year)
Handelsbanken Latin Amerika Tema (available in fund currency EUR, SEK and NOK, ongoing charges of 1,60% per year)
Handelsbanken Multi Asset 40 (available in fund currency SEK, ongoing charges of 1,46% per year)
Handelsbanken Multi Asset 50 (available in fund currency SEK, ongoing charges of 1,54% per year)
Handelsbanken Mutli Asset 60 (available in fund currency SEK, ongoing charges of 1,58% per year)
Handelsbanken Mutli Asset 75 (available in fund currency SEK, ongoing charges of 1,61% per year)
There are a few more funds to be mention, however as I want to limit the post you can look for all the rest on Handelsbankens page, link to their fund selection is here. Overall I would say that Handelsbanken has some good funds and some I would challenge on the ongoing charges side, considering the fund owners could get some more contribution.
Notable is that I hold a small position in Handelsbanken funds, all Handelsbanken holdings available in my portfolio.
Nordea
Nordea has dividend their funds in Star funds and Sustainable balanced funds, Star funds have as criteria that companies are responsible in the sense of environment, human rights, working
conditions and business ethics and noted in their operations. Sustainable balanced funds do have the Paris agreement as a criterion, otherwise it seems to be weighted on choosing other ESG funds and creating a balance of it. Note that Nordea does have some Star bond funds of the similar Equity funds mentioned below, however not for all. The selection is available on Nordeas pages at funds now. Besides the tree funds given below there are additional tree funds focused on Europe, US and Asia which I will not cover here.
Global Stars Equity Fund BP-EUR(ISIN: LU0985320059)
Nordeas Global Stars Equity fund invests as stated in global companies and globally. Funds currency is USD, fees of 1,79% on yearly basis and they apply a entry charge of up to 5% and benchmark index is MSCI All Country World - Net Return Index. Six biggest holdings per 31th March 2021 are Alphabet, Microsoft, Amazon, Rotork, Taiwan Semiconductor Manufacturing and ING Groep representing 17,58% of the total portfolio. Over 70% of the fund is invested in US, a little less than 16% in Europe and around 10% in Asia excluding Japan, geographically it is weighted in US yet the companies we see are global and in reality, if the split would be on revenue basis then the weights would change a bit. in total the fund has 78 positions in companies making it a diversified fund.
My opinion is that the fund might be a good option for ESG investing, however the ongoing charges of 1,79% and a entry fee of up to 5% makes it expensive considering it has returned around 98 % since launch 2016. Of which most of the return has come in the aftermath of Covid stimulus. If I would buy into this fund, I would like to challenge the portfolio managers a bit on their ability to outperform the market.
Emerging Stars Equity Fund BP-EUR (ISIN: LU0602539867)
Launched in 2011 Nordeas Emerging Stars Equity fund focuses on equities in emerging markets like China, India, Taiwan and South Korea. Fund currency is USD, fees of 1,81% and entry fee of up to 5% and the benchmark index is MSCI Emerging Markets Net Return Index. Six biggest holding are Taiwan Semiconductor manufacturing, Alibaba, Samsung Electronics, Tencent Holdings, Ping An Insurance Group Co of China and Meituna representing 39,38% of all holdings. Around 32% of the holdings are in China, 13% in Taiwan and almost 13% in India. The fund has a total of 47 holdings and the as the geographical split shown heavily invested in China, the weight in China might well be motivated by the size of Chinas economy and therefore there is a lot of opportunity.
I do find the fund proper if I would like to invest in China or emerging markets, yet the fee does bother me. It is a bit to high in my opinion considering that I could more cheaply create a similar fund in my portfolio. The fund has returned 141 % and beaten the benchmark index, this fund has basically since 2014 kept a good margin to its benchmark index and based on return it has outperformed.
Nordic Stars Equity Fund BP-EUR (ISIN: LU1079987720)
Launched in 2014 Nordeas Nordic Stars Equity fund focuses as the name indicates on Nordic countries and companies, biggest countries are Sweden, Finland, Denmark and Norway. The funds currency is EUR and has ongoing charges of 1,80% and a entry fee of 5%, benchmark index is MSCI Nordic 10/40 Index (Net Return). The six biggest holding are Sampo, Tryg, Gjesidige Forsikring, Novo Nordisk B, Volvo B and Bakkafrost representing 30,52% of the total portfolio and the total amount of holding are 32. Compared to the benchmark index the fund has just outperformed the index since launch, however with a limited margin. interesting is that the fund has one US and one Switzerland holding even though it should be a Nordic Equity funds.
Unfortunately since launch I do not see the fund to have significantly outperformed the benchmark index and considering it has returned 90 % since launch I would more likely take index funds even though they do include less ESG friendly companies.
Nordeas Sustainable Selection Funds
Nordea has tree Sustainable Selection funds, a moderate, balanced and growth fund. The difference between these funds is the equity weight. Kindly note that the funds had no mentioning of any easing of charges in the funds they invest, as there are cases where funds in funds are only charged once based on the fund you own directly and not indirectly via a fund.
Sustainable Global Moderate (ISIN: FI4000400080)
The fund has ongoing charges of 1,18% and the portfolio consists of Nordeas Star funds and other Nordea funds. A fund of funds launched in 2016 with no benchmark index. These funds could be compared to a pension company which distributes assets all over and then returns after expenses a moderate amount to the owner. I would only buy this kind of an fund if I had no other options available due to the additional costs from owning a fund that invests in funds (you pay a fee directly to the fund which has investments in other funds that charge you as well, not a good deal in my opinion).
The fund has a policy of holding 30% of its funds in equities and the rest is fixed income which explains the low return over the last 10 years.
Sustainable Global Balanced (ISIN: FI4000400098)
As the moderate fund this balanced fund has equity holdings of up to 50% and rest in fixed income holdings compared to moderate which has around 30% in equity. The fund was launched in 2016 and has ongoing charges of 1,58% per year and includes Nordea Stars funds and some equity holdings which are already included in the Stars funds. This means that you basically have twice the same holding which I find a bit confusing, to criticize the fund.
Sustainable Global Growth (ISIN: FI4000400106)
Sustainable Global Growth fund has equity holdings of 70% and the rest in fixed income assets, compared to the other Sustainable funds the equity weight is bigger and therefore a better return than the other funds. Ongoing charges per year are 1,62% and the fund was launched in 2016, no benchmark index given.
The fund does include Nordea Stars funds and bond funds as well as direct equity holdings of companies in the Stars funds. The difference is that the equity holdings are more and covers a bit larger sample then the Stars funds. What bothers me with the funds is the weight in Nordea 2 Global Sustainable Enh. Eq. Fd Y- EUR fund of 19,26%.
Nordea selection summary
Nordea does have a few ESG funds from which you can choose, and I assume there might be something interesting for all, what bothers me are the high fees. Unfortunately, funds do have higher fees then ETFs due to the additional work from following up of cash flows and most likely some other costs which I do not know, but I assume we all agree that over 1,1% annual fees are quite high.
JPMorgan ETFs (Ireland) ICAV - Carbon Transition Global Equity UCITS ETF (JPCT)
The ETF follows the underlying index which is JPMorgan Asset Management Carbon Transition Global Equity Index (JPMIGCTN). Balancing is done on a quarterly basis and has a fee of 0,19% and no performance fees with 1,1 million shares outstanding. The fees is low due to it being a index fund, it was established in 2020 and currency is USD. Biggest holdings are Apple, Microsoft, Alphabet A (Google), Amazon, Facebook and Johnson&Johnson representing 15,5% of the ETFs holdings. The fact sheet as well as KIID is available on the funds page which you can reach via ticker.
For me the question is more based on what criteria this ETF has chosen ESG fulfilling companies? It only states to be following an index created by the company, for information purpose to investors and potential investors it could be good to explain a little more what the ESG criteria is, a few sentences is enough on the homepage. J. P. Morgan has a webpage where they introduce the whole policy around ESG investing and it seems to be weighted towards Paris agreement and dedicated sustainability agenda.
J. P. Morgan has a lot of SICAV funds under their EGS investment policy, more than a few posts would be able to handle so have decided not to look at them in this post. If you are interested in what funds they have then you click the link. It will take you to the main page from where you can look at their whole selection of ESG investment funds and ETFs, ranging from equities to bonds and all in between.
Summary
There are a lot of funds and ETFs stating and following an ESG investment policy. The issue is to find what fits you best and what you broker or bank has available.
One question that I have and find important with ESG investing is, why are fossil fuel companies left out? Should we maybe see these companies as an opportunity to change instead of seeing them as the evil monster? Maybe consumers behaviour should also be reviewed and companies products? How long does the products last and how often do they launch new models that drive consumption and increase waste? For example electronical recycling in Europe has already been proven to work badly with a lot ending up in Africa as waste instead of recycled as promised.
Relating to the trend of ESG investing and green future, there is a small issue of free riding that will occur here. As many investors can choose a low-cost fund covering the same companies while other might choose an impact fund that will work for the changes. In the example of Blackrock and iShares ETFs I do believe Blackrock will work for the total good via all their funds in which case they have a big impact due to the size and amount of their funds. If I remember correctly Larry Fink the CEO of Blackrock said back in 2020 that Blackrocks funds will start impacting company Boards and management to work for more sustainable future.
If we quickly look at my portfolio composition from ESG perspective then Telia Company might be one to criticize due to their history of bribes given in old Soviet states. Canadian Utilities seem to move towards a more green perspective and for the rest of the companies and funds I would say it might be on a good stand. One problem is that I cannot get information on how how well the employer treates employees, if the management is in reality good and humane (off stage as well as on stage). One way could be the amount of sickdays and weighted average numbers of years at employer on all levels including internal possibilities of career. Much more can be added, such as to what extent empoyee suggested improvements are initiated by management.
Which ESG ETF or mutual fund would I choose? Would not choose one single, instead mix with a few iShares, one Vanguard, some Handelsbanken spiced with one or two Nordea. Might consider J.P. Morgan ETF, however do want to limit my US large Cap risk and not that confident with Facebook and Tesla as ESG investments.
If you find any link not working please reach out to me in the comments or e-mail to edgwhstudio@gmail.com to ensure the links are updated as banks and investment houses might change the url from time to time.
Disclaimer;
Of the mutual funds and ETFs mentioned in this post per publishing day I only have positions in a few Handelsbanken funds and a few iShares ETF. I do not have any personal financial interest in mentioning nor do I receive any compensation of any form from any of the mentioned entities. This post shall not be interpreted as financial advice nor is it, the reader is fully responsible for own financial decisions.
