How investing can help reduce your carbon footprint

Australian investors can reduce their carbon footprint and contribute to a more sustainable future by investing in ETFs.

With Australia aiming to achieve net zero emissions by 2050, investors can play their part in contributing to a more climate-friendly world by investing in sustainable investments. 

Switching to exchange traded funds (ETFs) that focus on prioritising environmental, social, and governance (ESG) characteristics can be an effective way to reduce your carbon emissions. Often this has a greater impact on reducing emissions than many non-investing activities and is a great way to align your personal values when investing.

  1. What ESG ETFs are available for investors to reduce their carbon footprint?
  2. Is the best way to reduce carbon emissions through divestment or engagement?
  3. What are the risks of sustainable investing?
  4. Why investing in sustainable ETFs can make a difference to climate change

What ESG ETFs are available for investors to reduce their carbon footprint?

The ESG and sustainable investing market in Australia is now worth $40 billion according to Morningstar, of which sustainable ETFs are growing in market share with a size of around $9 billion. 

There are three types of sustainable and ESG ETFs available to choose from:

  1. Broad-based ESG ETFs – covering broad regions/countries and investments with environmental, social, and governance criteria for selecting sustainable companies. 
  2. Thematic ESG ETFs – covering niche sustainability issues and themes that are not constrained by region/country.
  3. Active ESG ETFs – rather than follow a rules-based sustainable index, active ETFs choose companies with the aim of outperforming an index and generating positive sustainable outcomes.

We prefer to avoid thematic ETFs and active fund managers, and instead favour the best ESG ETFs for our Sustainable Portfolios

Click here to scroll down to see the types of ESG ETFs available.

Is the best way to reduce carbon emissions through divestment or engagement?

When it comes to sustainable investing, there are two main approaches: divestment or engagement.

Divestment involves not investing in a company if it does not meet strict criteria or rules. For example, our chosen sustainable Australian shares ETF does not invest in any companies involved in the fossil fuel industry. 

Engagement involves investing in a company with the aim to have a greater impact through voting and encouraging them to act in a socially responsible manner. Investors can take positions in unsustainable or transitioning companies and vote on shareholder proposals with a specific focus on efforts surrounding sustainability. Engagement is a more active role than simply divesting, as investors can direct company management to make decisions that align with their social and environmental values.

So which is the best approach? We believe that a hybrid approach combining both strategies of divestment and engagement can achieve good sustainable outcomes for investors. 

ETFs adopt this approach through their strict negative screening processes where they avoid companies that don’t meet strict ESG criteria. ETF issuers can also use their investment stewardship to vote on your behalf. For example, BlackRock, the largest asset manager in the world, is normally in the top 10 shareholders of most companies. They, as well as other ETF issuers, have a corporate governance and investment stewardship team that can vote on investors’ behalf in favour of company proposals that incorporate ESG considerations in order to deliver the best value for shareholders.

What are the risks of sustainable investing?

While sustainable investing can achieve a positive outcome for the planet without sacrificing returns, there are some risks to consider.

Investing in sustainable ETFs that have strict ESG screens can lead to sector concentration risk. This could mean your portfolio has a lower allocation to sectors like materials, energy and financials. Meanwhile, your weighting towards sectors like healthcare and technology could be elevated. Sectors go through periods of outperformance and underperformance. Not having an allocation to oil and mining companies has seen ESG ETFs underperform in 2022.

Sustainable ETFs are also more expensive than traditional index ETFs, charging a higher management fee. Every dollar you pay in fees means less money in your pocket, so paying high management fees could eat into your returns.

Why investing in sustainable ETFs can make a difference to climate change

To contribute to a more carbon-neutral society investors can consider buying sustainable ETFs. 

The holdings within the Stockspot Sustainable Portfolios contributed 3,665 fewer tonnes of carbon emissions than holdings within a normal index portfolio. This means you can reduce your carbon emissions by up to 90% by simply switching from a normal investment portfolio to a sustainable portfolio.

Source: Based on tonnes of carbon dioxide emitted by the Stockspot sustainable share ETFs since 1 July 2020 compared to the equivalent dollar amount being invested in the MSCI World Ex Australia index and S&P/ASX 200 index. Source: BetaShares, VanEck, EPA.

Switching to a sustainable portfolio can also reduce your carbon footprint more than most non-investing activities such as switching to an electric car or recycling.

This means that you can achieve your investment goals, while also contributing to a greener planet.

Nearly 15% of Stockspot clients have chosen to invest their money in a sustainable way. If the trends in overseas markets are anything to go by, sustainable ETFs will continue to become more popular in Australia as more investors incorporate environmental and ethical values into their financial goal-setting.

ESG ETFs available on the Australian market

Broad-based ESG ETFs

ETF Ticker CodeETF NameCategoryCost 
FAIRBetaShares Australian Sustainability Leaders ETFAustralian shares0.49%
RARIRussell Australian Responsible Investment ETFAustralian shares0.45%
VETHVanguard Ethically Conscious Australian Shares ETFAustralian shares0.17%
GRNVVanEck Vectors MSCI Australian Sustainable Equity ETFAustralian shares0.35%
E200SPDR S&P/ASX 200 ESG FundAustralian shares0.13%
IESGiShares Core MSCI Australia ESG Leaders ETFAustralian shares0.09%
ETHIBetaShares Global Sustainability Leaders ETFGlobal shares0.59%
HETHBetaShares Global Sustainability Leaders ETF – Currency HedgedGlobal shares0.62%
ESGIVaneck Vectors MSCI International Sustainable Equity ETFGlobal shares0.55%
VESGVanguard Ethically Conscious International Shares Index ETFGlobal shares0.18%
IWLDiShares Core MSCI World All Cap ETFGlobal shares0.10%
IHWLiShares Core MSCI World All Cap AUD Hedged ETFGlobal shares0.13%
WXOZSPDR S&P World ex Australian FundGlobal shares0.18%
WXHGSPDR S&P World ex Australian (Hedged) FundGlobal shares0.21%
DJRESPDR Dow Jones Global Select Real Estate FundGlobal shares0.50%
WEMGSPDR S&P Emerging Markets FundGlobal shares0.65%
GBNDBetaShares Sustainability leaders Diversified Bond ETF – Currency HedgedFixed income0.49%
VEFIVanguard Ethically Conscious Global Aggregate Bond Index (Hedged) ETFFixed income0.26%
AESGiShares Global Aggregate Bond ESG (AUD Hedged) ETFFixed income0.19%
DBBFBetaShares Ethical Diversified Balanced ETF Diversified0.39%
DZZFBetaShares Ethical High Growth ETF Diversified0.39%
DGGFBetaShares Ethical Diversified Growth ETF Diversified0.39%
IBALiShares Balanced ESG ETFDiversified0.22%
IGROiShares Growth ESG ETFDiversified0.22%

Thematic ESG ETFs

ETF Ticker CodeETF NameCategoryCost
CLNEVanEck Vectors Global Clean Energy ETFClean Energy0.65%
HGENETFS Hydrogen ETFClean Energy0.69%
TANNBetaShares Solar ETFClean Energy0.69%
URNMBetaShares Global Uranium ETFClean Energy0.69%
ERTHBetaShares Climate Change Innovation ETFClimate Aligned0.65%
XCO2*VanEck Global Carbon Credits ETF (Synthetic)Climate AlignedN/A
EDOCBetaShares Digital Health and Telemedicine ETFHealth0.67%
IEATBetaShares Future of Food ETFFood0.67%
*Subject to ASX and final regulatory approval

Active ESG ETFs

ETF Ticker CodeETF NameCategoryCost
INESInvestSMART Ethical Share Fund (Managed Fund)Australian Shares0.97%
IMPQeInvest Better Future Fund (Managed Fund)Australian Shares0.99%
AEAEAustralian Ethical High Conviction Fund (Managed Fund)Australian Shares0.80%
FUTRJanus Henderson Global Sustainable Active ETF (Managed Fund)Global Shares0.80%
MCSEMFG Core ESG Fund (Managed Fund)Global Shares0.50%
GIVEPerpetual Ethical SRI Fund (Managed Fund)Global Shares0.65%
JZROJanus Henderson Net Zero Active ETF (Managed Fund)Global Shares 0.85%
MCCLMunro Climate Change Leaders Fund (Managed Fund)Global Shares0.90%
NNUKNanuk New World Fund (Managed Fund)Global Shares1.10%
Find out how the Stockspot Sustainable Portfolios can help reduce your carbon footprint
  • Marc Jocum

    Investment Manager

    Marc has previously worked for Morgan Stanley, AMP and KPMG. He holds a Bachelor of Business (Finance/Accounting) from the University of Technology Sydney (UTS), and has completed his Chartered Financial Analyst (CFA) Level 1.

Investment Manager

Marc has previously worked for Morgan Stanley, AMP and KPMG. He holds a Bachelor of Business (Finance/Accounting) from the University of Technology Sydney (UTS), and has completed his Chartered Financial Analyst (CFA) Level 1.

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