Reports

The best sustainable ETFs in 2021

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 80% per year over the last five years. There is now $3.3b 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. Ethical investing or sustainable investing research uses a framework that filters out companies that don’t meet certain criteria, and includes companies that demonstrate good ethical and sustainable practices. 

Stockspot launched our Sustainable Portfolios in July 2020 to enable investors to invest in a way that aligns with their values. We went through the Australian ETF universe with a microscope to ensure the ETFs we chose were true to label and had strong environmental, social and governance (ESG) screens and integration.

What is greenwashing?

Unfortunately, because sustainable investing is so new, many funds use the ESG framework as a marketing tool, rather than there being any real sustainable benefit in their ETF. This is called ‘greenwashing’, and is the practice of making a misleading claim about the sustainable benefits of a product. For example, many investors make the choice to invest in sustainably focused ETFs because they care about climate change and want to reduce their overall carbon footprint. However, a deeper dive shows that only some of the ETFs available in Australia truly achieve this objective. 

That’s why, even if a sustainable ETF performs well, it’s important that investors do their own research and review exactly how sustainable the underlying investments of their chosen ETFs are. 

To stem greenwashing, investors should review how sustainable investment products filter and define their screening (both positive inclusions and negative exclusions) of companies, and should consistently urge their fund to be transparent with their investment process and portfolio holdings.

The Best Sustainable ETFs on the ASX

Australian Share Sustainable ETFs

There are now seven sustainable Australian share ETFs available on the ASX. Both Vanguard and State Street Global Advisors (SSGA) have followed the early leaders in BetaShares and VanEck in launching Australian sustainable ETFs, while UBS delisted their sustainable ETF last year. 

CODENAME1 YEAR3 YEARS (P.A.)5 YEARS (P.A.)
E200E200: SPDR S&P/ASX 200 ESG ETF FundN/AN/AN/A
FAIRBetaShares Australian Sustainability Leaders ETF21.7%9.6%N/A
GRNVVanEck Vectors MSCI Australian Sustainable Equity ETF33.1%9.5%*N/A
IMPQeInvest Better Future Fund (Managed Fund)60.5%N/AN/A
INESInvestSMART Ethical Share Fund (Managed Fund)53.1%N/AN/A
RARIRussell Australian Responsible Investment ETF36.9%6.4%7.6%
VETHVanguard Ethically Conscious Australian Shares ETF (VETH)N/AN/AN/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. Source: ASX as of March 2021.

Direct Emissions (Scope 1) are sources owned or controlled by the company. Indirect Emissions (Scope 2) are generated by the production of energy used by the company. Graphs in green are the Stockspot chosen ETFs for our Sustainable Australian share exposure and responsible Australian Shares theme. Graph in light blue is represented by the benchmark (an ETF tracking the S&P/ASX 200). Data for INES and IMPQ not available.

Global Share Sustainable ETFs

While UBS delisted their ETF business (including multiple sustainable ETFs), there are now four global share sustainable ETFs available on the ASX. BetaShares recently launched a hedged version of their successful unhedged strategy, while also converting their diversified funds into an ethical option. 

CODENAME1 YEAR3 YEARS (P.A.)5 YEARS (P.A.)
ESGIVaneck Vectors MSCI International Sustainable16.3%N/AN/A
ETHIBetaShares Global Sustainability Leaders ETF32.7%22.9%N/A
HETHBetaShares Global Sustainability Leaders ETF – Currency HedgedN/AN/AN/A
VESGVanguard Ethically Conscious International Shares Index ETF24.4%N/AN/A
CLNE and ERTH were excluded given their recent launch in 2021. The BetaShares diversified ethical ETFs range (DBBF, DZZF and DGGF) were also excluded. Source: ASX as of March 2021.


Global Bond ETFs

The BetaShares Sustainability leaders Diversified Bond ETF – Currency Hedged (ASX: 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 Hedged1.40%N/AN/A
VEFIVanguard Ethically Conscious Global Aggregate Bond Index (Hedged) ETF0.90%N/AN/A
Source: ASX as of March 2021.
If you want to find out what the best and worst Australian ETFs of 2021 are, as well as the most popular – head straight to our 2021 ETF report. Find out everything you need to know about ETFs this year.

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.

Grow your wealth effortlessly

Get your free personalised portfolio recommendation

Get started
cloud
Join thousands of Australian already investing with Stockspot