You are able to invest in a broad number of sustainable and responsible companies using SRI exchange traded funds (ETFs). These seek to track a basket of companies deemed to be sustainable or having a low negative social impact.
Each SRI ETF tracks an SRI index, created by index providers such as MSCI. This is why it is common to see the name of the index provider included in the name of the ETF. For instance, iShares MSCI Emerging Markets SRI UCITS ETF looks to mimic the returns of the MSCI Emerging Markets SRI Index, less the annual fee charged by the ETF. There are different ways in which socially responsible indices can be created. The two most common methods are:
- Exclusionary screening: companies in industries such as gambling and tobacco are simply removed from the index
- Focus on ESG factors: companies scoring highly on environmental, social, and governance, or ESG, concerns are given a higher weight in the index. For instance, Company A will receive a relatively higher weight than Company B if Company A's carbon footprint is lower than Company's B.
iShares and UBS are the only ETF providers to offer an extensive range of socially responsible ETFs. But we believe this will change as the demand for this type of product continues to grow. Below we take a look at six ETFs that you may consider investing in to make your portfolio more socially responsible.
Six to consider:
iShares Dow Jones Global Sustainability Screened UCITS ETF ‚Äî IGSGIGSG provides a solid core to any socially responsible portfolio. It invests in a range of global companies but excludes those involved in industries such as weapons manufacturing and adult entertainment. Its expense ratio of 0.6% is admittedly higher than some of our favourite low-cost global ETFs ‚Äî see HSBC MSCI World UCITS ETF (HMWO) which charges just 0.15% for comparison. However, it has outperformed HSBC's offering by an impressive 0.78% so far this year, proving itself as value for money as well as promoting sustainable investing.
UBS MSCI United Kingdom IMI Socially Responsible UCITS ETF ‚Äî UKSRIf you are looking to invest in sustainable companies a little closer to home then UBS offer, you might be interested in UKSR which invests in 162 companies listed on the London Stock Exchange for an expense ratio of just 0.28% per year. Its performance since its inception in October 2014 is also impressive, outperforming the FTSE All Share Index by 4.5%.
UBS MSCI EMU SRI ETF ‚Äî UB39
UB39 allows investors to buy a basket of socially responsible stocks from across the Eurozone. Its average bid/ask spread is tight at 0.28 and it has €338 million in assets under management. It is also physically replicated and has an annual fee of 0.28%.