March 30, 2023

Choosing what types of investment to put your money towards can be a challenge if you’re looking at a rocky market and not familiar with the many types of investments at your disposal.

If you’re searching for ways to diversify your portfolio with more unique investments, consider doing so through passion investing. These types of investments are centered around investing in something you’re passionate about and believe in. 

A popular type of passion investment is an ESG ETF, which stands for environmental, social, and governance. Focusing on this kind of passion investing can be a great way to diversify your portfolio in a difficult market.

What Are ESG ETFs?

If you’re interested in adding sustainable investments to your portfolio, you can do so with ESG ETFs. The three components of an ESG ETF include:

  • Environmental – Natural resources, climate change, waste, and pollution
  • Social – Product liability, human capital, and social opportunities
  • Governance – Corporate behavior, governance, diversity, and transparency

An ESG ETF is essentially a combination of two different investment strategies. ESG investing involves any type of investing that takes environmental, social, and governance factors into account. ESG can also refer to making investments in the things that assist companies in increasing value and performing better. 

An exchange-traded fund represents a basket of bonds, stocks, or other asset types. In many situations, ETFs will be tied to a certain index. The right approach to ETF investing allows you to diversify your portfolio in a low-cost manner. 

When you combine ESG investing with ETFs, this type of investment gives you the opportunity to diversify across numerous investments that have strong environmental, social, and governance characteristics. If you want to divest from harmful practices or controversial companies, focusing on ESG ETF investments may be the best option for you and your portfolio. 

Benefits of Investing in ESG ETFs

The primary advantages of investing in ESG ETFs include:

  • This is an easy way to place responsible investment into your portfolio
  • Companies with higher ESG ratings have better performance according to data from MSCI
  • These funds cover an array of different sectors, geologies, and asset classes
  • ESG ETFs tend to be available at relatively low costs

How to Find the Top ESG ETFs

When you’re looking into ESG ETFs to identify the ones that allow you to invest money wisely, there are numerous factors to consider. Your main goal should be to consider trailing 12-month performance as well as the MSCI rating. This rating shows which companies have strong ESG characteristics. 

The leading companies will have AA or AAA ratings and will certainly make for safe investments when included in an ETF. Companies like Alphabet Inc. and Microsoft Corp. have high MSCI ratings. You should also search for ESG ETFs that offer training 12-month returns of anywhere from 8-15%. 

If you want to know how to invest money wisely in a way that aligns with your passions, ESG ETFs are a great way to put your money into investments you believe in without needing to spend a considerable amount of your assets. Investing in an ETF only requires enough money to cover a single share, which makes it possible to invest with as little as $50. Now that you know what criteria to use when searching for the top ESG ETFs, you should be able to find the right investments to add to your portfolio.

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