Ethical investing has become the avocado toast of the finance world. 

...stay with us here…

While it was once a niche, now it’s everywhere. 

Gone are the days when investors only cared about cold, hard cash.

Now, many investors also want their dollars giving back, recycling, and volunteering on weekends.

But it doesn’t just stop at giving back because more and more, investors are realising that their money can generate a return and make a positive impact at the same time. 

Talk about killing two birds with one stone!

In fact 85% of Australians expect their portfolio to be invested responsibly.

To do this, many investors are gravitating towards ethical investing.

What’s ethical investing?

Ethical investing is all about putting that money in hands that you believe are doing good in the world…or at least, not doing harm.

There are generally two ways that investors engage in ethical investing; negative screening and positive screening.

Negative screening is when you put your money into investments that “do no harm”. 

For example, you might actively avoid investing in companies involved in fossil fuel production, gambling, tobacco, or alcohol production.

Positive screening on the other hand is when you actively choose industries or companies that are trying to make a positive impact.

For example, through positive screening you might choose to invest in renewable energy stocks.

That might be sounding a little vague to you.

It helps to think of ethical investing as an umbrella term, and underneath it there are a bunch of different approaches to investing.

You’ve got socially responsible investing, environmental, social and governance investing, impact investing, faith based investing, and sustainable investing.

These different investing methods overlap with each other too, but they have separate focuses, and as an investor you can veer towards the strategy that best aligns with your values.

But, with soooo many companies out there, picking and researching individual companies based on financial performance AND ethical impact can be like finding a needle in a stack of other needles.

That’s why ESG ETFs have become a popular option for investors to grow their money ethically.

What are ESG ETFs?

Quick reminder, ETFs are a type of fund that invest in a collection of assets like stocks, bonds, or other assets. 

Usually when we think of ETFs we mostly think of index funds like the ones tracking the ASX200 or the S&P500 or maybe we think of sector specific funds that invest in tech stocks or energy stocks.

But ESG ETFs are ones that invest in stocks that are ethical from an environmental, social, governance lens. 

They’re a way to generate a financial return while also making a positive impact on the world.

And recently, they’ve become more popular with investors than Charlixcx on TikTok.

In fact, according to ETF provider BetaShares, 20% of investors were looking for more socially responsible investor products.

If that sounds like you, to get started with ESG ETFs, here are some of the strongest performing Australian and Global ESG ETFs.

Australian Share Sustainable ETFs

Global Share Sustainable ETFs

Beware of greenwashing

Unfortunately, despite a tonne of ESG ETFs in the market, it’s still a relatively new investment form, which means the frameworks used to understand the ethical practices of companies isn’t perfect.

Many companies and funds also claim to be ethical, and make misleading statements about their ESG impact as a marketing tool. 

That’s known as greenwashing.

So as an investor, you’ve got to do a deeper dive into the ETFs you’re considering investing in to make sure they’re actually achieving the ESG objectives they talk about.

If you’re keen to learn more about the ins and outs of ETFs or ethical investing, let us know in the comments what questions you’d like us to answer!