2020 ETF Research Report

The growth of sustainable ETFs in 2020

The best sustainable and ethical ETFs on the ASX. We look at the growth and popularity of sustainable investing in Australia.

Sustainable ETFs listed in the ASX have increased 79% per year over the last 5 years. There is now almost $1.7b in money invested in ethical and sustainable ETFs, representing 3% of the overall Australian ETF market.

What is sustainable investing?

Ethical or sustainable investing aims to achieve long term wealth creation by investing in companies that demonstrate positive environmental and social impact. This may involve:

  • Negative screening – excluding companies that have activities in non-sustainable practices such as fossil fuel production, tobacco and weapons.
  • Environmentally friendly – including companies that have renewable energy initiatives aimed at reducing the global carbon footprint pollution and waste.
  • Socially responsible – investing in companies that have positive social impacts such as employee well-being, supply chain standards, product safety, privacy/data, and good stakeholder management.
  • Practicing good business – prioritising corporate governance such as having board independence, gender diversity, acceptable executive pay, good accounting practices, and lack of corruption. 

The lack of uniform rules around what sustainable investing requires becomes problematic, with many funds using ‘ESG’ (environmental, social and governance) as a marketing tool. The idea of ‘green-washing’ and ‘impact-washing’ may arise in sustainable investing, with some funds claiming to have a robust ethical framework, but may only be using the ‘sustainable’ brand as a marketing tool.

Investors can protect themselves from this by urging their fund to be transparent with their investment process and portfolio holdings. Investors should review how sustainable investment products filter and define their screening (both positive inclusions and negative exclusions) of companies.

The Best Sustainable ETF on the ASX

Australian Share Sustainable ETFs

The VanEck Vectors MSCI Australian Sustainable Equity ETF (GRNV) launched in June 2019 providing exposure to Australian companies that have high ESG ratings. We also saw the launch of 2 ETFs from active fund managers in this category. The eInvest Future Impact Small Caps Fund (Managed Fund) (IMPQ) launched in May 2019 and provides exposure to smaller sized companies that contribute positively to society and the environment. The InvestSMART Ethical Share Fund (Managed Fund) (INES) launched in June 2019 and invests in ~30 companies that have good ESG factors.

CodeName1 year3 years (p.a.)5 years (p.a.)
FAIRBetaShares Australian Sustainability Leaders ETF -5.9%N/AN/A
IMPQeInvest Future Impact Small Caps Fund (Managed Fund)N/AN/AN/A
INESInvestSMART Ethical Share Fund (Managed Fund)N/AN/AN/A
RARIRussell Australian Responsible Investment ETF -17.5%-2.8%0.5%
UBAUBS IQ MSCI Australian Ethical ETF -14.2%0.3%2.2%
GRNVVanEck Vectors MSCI Australian Sustainable Equity ETF*-13.3%-1.4%N/A
*GRNV previously tracked the VanEck Vectors S&P/ASX Franked Dividend ETF until 25 June 2019, so performance may not be relevant. N/A means that the ETF has not built up enough of a track record since launching to record performance over the specific time period.

Global Share Sustainable ETFs

There were no new global share ETFs introduced over the last year. UBS did announce that they will delist many of their ETFs, including majority of their sustainable ETFs, and even convert some into unlisted managed funds. This is another key reminder to pick ETFs that have decent level of size to prevent shutting down an ETF.

CodeName1 year3 years (p.a.)5 years (p.a.)
ESGIVaneck Vectors MSCI International Sustainable11.9%N/AN/A
ETHIBetaShares Global Sustainability Leaders ETF18.0%18.1%N/A
UBEUBS IQ MSCI Europe Ethical ETF -3.3%4.8%2.4%
UBJUBS IQ MSCI Japan Ethical ETF 7.9%7.7%5.8%
UBPUBS IQ MSCI Asia APEX 50 Ethical ETF 9.3%12.6%N/A
UBUUBS IQ MSCI USA Ethical ETF 10.0%13.1%11.4%
UBWUBS IQ MSCI World ex Australia Ethical ETF3.8%9.8%8.1%
VESGVanguard Ethically Conscious International Shares Index ETF 8.0%N/AN/A

Global Bond ETFs

The BetaShares Sustainability leaders Diversified Bond ETF – Currency Hedged (GBND) launched in November 2019 and provides exposure to Australian and global green bonds. Green bonds are issued for projects that provide clear environmental impacts such as renewable energy, pollution prevention, clean transportation, and sustainable water.

CodeName1 year3 years (p.a.)5 years (p.a.)
GBNDBetaShares Sustainability leaders Diversified Bond ETF – Currency HedgedN/AN/AN/A
VEFIVanguard Ethically Conscious Global Aggregate Bond Index (Hedged) ETF4.4%
N/AN/A

If you’re interested in sustainable investing you might also like to read:

The rise of socially responsible investing
Are ethical ETFs really that ethical?

Stockspot is Australia’s largest online investment adviser. We build you a smart, personalised investment portfolio using proven strategies to grow your wealth faster than leaving your money in the bank.

Investment Associate

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.

Grow your wealth effortlessly

Get your free personalised portfolio recommendation

Get started
cloud
Join thousands of Australian already investing with Stockspot