How to invest worldwide in socially responsible companies

The easiest way to invest globally, broadly diversified and at lowest cost into socially responsible companies is to use ETFs.

The indices and ETFs available for sustainable investment are numerous and can differ considerably in their objectives, methodology and title selection. Consequently, not all sustainable indices are equally suitable for every investor.

For instance, investors who wish to benefit from current developments and trends related to thematic sustainable investment should particularly pay attention to indices that cover topics like electric mobility, clean energy or water. In contrast, climate change ETFs are particularly sought after by institutional investors, as the underlying indices are usually designed to meet certain regulatory requirements on climate protection.

Many private investors, on the other hand, prefer to invest in sustainable and socially responsible companies out of ethical conviction. Thematic or climate change indices meet this purpose only to a limited extent, as they are often limited to single aspects of sustainability. Fortunately, a large number of sustainable indices and ETFs with stricter selection criteria and more extensive exclusions are also available for investors.

In this investment guide, we explain in detail the particularities of these indices and support you with rankings of the available worldwide ETFs. You may also have a look at our investment guide on socially responsible ETFs for Europe.

The best socially responsible (SRI) ETF by 1-year fund return as of 31.10.24

All socially responsible (SRI) ETFs ranked by fund return

The largest socially responsible (SRI) ETF by fund size in EUR

All socially responsible (SRI) ETFs ranked by fund size

The cheapest socially responsible (SRI) ETF by total expense ratio

All socially responsible (SRI) ETFs ranked by total expense ratio

Excluded sectors of the most important SRI index families

 

Performance of global SRI indices in comparison

Source: justETF Research; As of: 16.11.24

Dow Jones Sustainability indices

Dow Jones Sustainability indices are designed to measure the stock performance of the leading sustainable companies of their respective region, identified by the investment company RobecoSAM through an annual corporate sustainability assessment. The indices represent their respective portion of the global parent index. The index excludes companies that generate revenue from nuclear energy, alcohol, tobacco, gambling, armaments and firearms, and/or adult entertainment.

Methodology of the Dow Jones Sustainability indices Factsheet Methodology

• reassessment takes place annually in September
• selection of stocks depends on RobecoSAM rating
• criterion: social, economic and ecological sustainability
• weighted by float-adjusted market capitalisation
• excluded sectors: nuclear energy, alcohol, tobacco, gambling, armaments & firearms, adult entertainment

Regional sub-indices of the Dow Jones Sustainability

All Dow Jones Sustainability indices

FTSE ESG Low Carbon Select indices

The FTSE ESG Low Carbon Select indices aim to reduce carbon emissions and fossil fuel consumption by 50% each and to improve the ESG rating by 20%, compared to the respective parent index. Companies that are involved in weapons, tobacco, thermal coal, nuclear power or that violate the principles of the UN Global Compact are generally excluded.

Methodology of the FTSE ESG Low Carbon Select indices Factsheet Methodology

• index is reviewed annually in March; quarterly review of the exclusion list
• weighted by float-adjusted market capitalisation
• general exclusions as well as exclusions via an optimisation scheme
• generally excluded sectors and companies: weapons, tobacco, thermal coal, nuclear power, non-compliance with UN Global Compact
• climate protection target: reduction of carbon emissions and fossil fuel consumption by 50% (compared to parent index)
• ESG target: improvement of ESG rating by 20% (compared to parent index)

Regional sub-indices of the FTSE ESG Low Carbon Select

All FTSE ESG Low Carbon Select indices

FTSE Global Choice indices

FTSE’s Global Choice indices are characterised by a very broad market coverage while at the same time taking sustainability criteria into account. The investment universe not only contains large and mid cap stocks, but also small caps from developed and emerging markets. As a consequence, the FTSE Global Choice indices provide access to a very large number of companies despite the general exclusion of different sectors. The following sectors are excluded from the FTSE Global Choice indices: alcohol, tobacco, gambling, adult entertainment, nuclear power, fossil fuels, weapons. Moreover, companies that violate the UN Global Compact are excluded. The remaining securities are weighted by their free float-adjusted market capitalisation.

Methodology of the FTSE Global Choice indices Factsheet Methodology

• investment universe: large, mid and small cap stocks from developed and emerging markets
• excluded sectors and companies: alcohol, tobacco, gambling, adult entertainment, nuclear power, fossil fuels, weapons, non-compliance with UN Global Compact
• quarterly index review
• weighted by float-adjusted market capitalisation

Regional sub-indices of the FTSE Global Choice

All FTSE Global Choice indices

MSCI Climate Change ESG Select indices

The MSCI Climate Change ESG Select indices evaluate and weight companies from the respective parent index by their impact on climate change. Companies are assessed according to their carbon emissions and climate-friendly companies are given greater weighting in the index. An additional ESG filter excludes companies that are involved in controversial weapons, tobacco, thermal coal, unconventional oil and gas production or nuclear power or that violate the standards of the UN Global Compact.

Methodology of the MSCI Climate Change ESG Select indices Factsheet Methodology

• based on their respective regional parent index
• titles are weighted according to their impact on climate change: climate-friendly companies are given a greater weight
• index is reviewed semi-annually (not in parallel with parent index)
• excluded sectors and companies: controversial weapons, tobacco, thermal coal, unconventional oil and gas production, nuclear power, non-compliance with UN Global Compact

Regional sub-indices of the MSCI Climate Change ESG Select

All MSCI Climate Change ESG Select indices

MSCI ESG Enhanced Focus indices

The MSCI ESG Enhanced Focus indices are characterised by low cost and broad market coverage. These benefits result from a rather straightforward ESG-scanning method. Rather than evaluating companies individually, the MSCI ESG Enhanced Focus indices simply exclude certain sectors and firms. This applies to companies that produce weapons, thermal coal or tobacco or that violate the principles of the UN Global Compact. The indices are designed to maximise exposure to positive ESG factors while reducing the carbon equivalent exposure to carbon dioxide and other greenhouse gases as well as their exposure to potential emissions risk of fossil fuel reserves by 30% (compared to the parent index). Positive ESG exposure is achieved via optimisation of the index construction: companies with high (low) ESG Ratings are over-weighted (under-weighted).

Methodology of the MSCI ESG Enhanced Focus indices Factsheet Methodology

• based on their respective regional parent index
• weighted by ESG-criteria: over-weight (under-weight) companies with high (low) ESG Ratings
• target 30% reduction in carbon exposure compared with parent index
• excluded sectors and companies: weapons, thermal coal, tobacco, non-compliance with UN Global Compact

Regional sub-indices of the MSCI ESG Enhanced Focus

All MSCI ESG Enhanced Focus indices

MSCI ESG Leaders indices

The MSCI ESG Leaders indices aim for companies that have the highest environmental, social and governance (ESG) rated performance in each sector of the parent index while excluding companies involved in severe controversies. The MSCI ESG Leaders indices target a 50% sector representation vs. the parent index. Sub-indices belonging to the MSCI Select ESG Rating and Trend Leaders series rate companies not only on the basis of their current ESG profile but also according to how that profile develops over time. Companies which are involved in weapons, alcohol, gambling, tobacco or nuclear power are generally excluded. The same applies to companies that do not comply with the principles of the UN Global Compact. The selected securities are weighted by their free float-adjusted market capitalisation.

Methodology of the MSCI ESG Leaders indices Factsheet Methodology

• based on their respective regional parent index
• best-in-class approach – the indices select the 50% highest ESG-rated companies in each sector of the parent index
• excluded sectors and companies: weapons, alcohol, gambling, tobacco, nuclear power, non-compliance with UN Global Compact
• MSCI Select ESG Rating and Trend Leaders indices take into account not only the ESG profile itself but also its development
• weighted by float-adjusted market capitalisation

Regional sub-indices of the MSCI ESG Leaders

All MSCI ESG Leaders indices

MSCI ESG Screened indices

The MSCI ESG Screened indices are characterised by low cost and broad market coverage. These benefits result from a fairly straightforward ESG-scanning method. Rather than evaluating companies individually, the MSCI ESG screened indices incorporate exclusions of specific sectors as a whole. Companies that are involved in weapons, tobacco, thermal coal, or oil sands are excluded from the indices. Furthermore, companies that fail to comply with the United Nations Global Compact principles are excluded. The remaining securities are weighted by their float-adjusted market capitalisation.

Methodology of the MSCI ESG Screened indices Factsheet

• based on their respective regional parent index
• weighted by float-adjusted market capitalisation
• excluded sectors and companies: weapons, tobacco, thermal coal, oil sands, non-compliance with UN Global Compact

Regional sub-indices of the MSCI ESG Screened

All MSCI ESG Screened indices

MSCI ESG Universal indices

The MSCI ESG Universal indices are characterised by low cost and broad market coverage. These benefits result from a fairly straightforward ESG-scanning method. By default, the MSCI ESG Universal indices exclude only companies found to be in violation of international norms as defined by the UN Global Compact (e.g., facing very severe controversies related to human rights, labour rights or the environment) and companies involved in controversial weapons. Some sub-indices add further controversial sectors to this spectrum. The MSCI ESG Universal indices enhance exposure to companies which feature both a high ESG Rating and a positive ESG trend over the most recent 12 months by increasing the weight of these companies. By contrast, the weightings of companies who lag behind their industry peers in terms of ESG quality are reduced.

Methodology of the MSCI ESG Universal indices Factsheet Methodology

• based on their respective regional parent index
• weighted by ESG-criteria: over-weight (under-weight) companies with high (low) ESG Ratings
• ESG-related improvements by companies are taken into account
• exclusion of companies that fail to comply with the UN Global Compact or that are involved in controversial weapons
• some sub-indices feature additional exclusions

Regional sub-indices of the MSCI ESG Universal

All MSCI ESG Universal indices

MSCI SRI indices

The MSCI SRI indices aim for companies that have the highest environmental, social and governance (ESG) rated performance in each sector of the parent index and target a 25% representation of each sector’s market cap. Companies whose products have negative social or environmental impacts and companies associated with severe controversies are excluded. This applies to companies that are involved in weapons, adult entertainment, alcohol, tobacco, gambling, genetically modified organisms, nuclear power, or thermal coal. Companies that fail to comply with the UN Global Compact principles are excluded as well. Accordingly, the SRI series features the strictest exclusion criteria of all socially responsible MSCI indices. Some sub-indices further tighten the selection criteria with regard to climate protection (S-Series, Low Carbon SRI Leaders, SRI Select Reduced Fossil Fuels). The selected securities are weighted by their free float-adjusted market capitalization.

Methodology of the MSCI SRI indices Factsheet

• based on their respective regional parent index
• best-in-class approach – the indices select the 25% highest ESG-rated companies in each sector of the parent index
• excluded sectors and companies: weapons, adult entertainment, alcohol, tobacco, gambling, genetically modified organisms, nuclear power, thermal coal, non-compliance with UN Global Compact
• strictest exclusion criteria of all socially responsible MSCI indices
• some sub-indices feature additional selection criteria with regard to climate protection (S-Series, Low Carbon SRI Leaders, SRI Select Reduced Fossil Fuels).
• weighted by float-adjusted market capitalisation

Regional sub-indices of the MSCI SRI

All MSCI SRI-Indizes

Solactive Core indices

The Solactive Core indices are based on their respective regional parent index from the Solactive Global Benchmark Series but feature additional ESG-related exclusions. Companies that are involved in the production of controversial weapons or that have violated the principles of the UN Global Compact over a period of three years are excluded. The same applies to pure coal mining companies. The Solactive Core indices are characterised by very low cost, which is achieved by the relatively simple method of ESG implementation. The selected securities are weighted by their free float-adjusted market capitalisation.

Methodology of the Solactive Core indices Factsheet Methodology

• index adjustment takes place quarterly in February, May, August and November
• excluded sectors and companies: controversial weapons, pure coal mining, non-compliance with UN Global Compact
• weighted by float-adjusted market capitalisation

Sustainable indices of Solactive

Sustainable indices provided by Solactive

When choosing a socially responsible (SRI) ETF one should consider several other factors in addition to the methodology of the underlying index and performance of an ETF. For better comparison, you will find a list of all socially responsible (SRI) ETFs with details on size, cost, age, income, domicile and replication method ranked by fund size.

Compare all socially responsible (SRI) ETFs in detail
Compare all socially responsible (SRI) ETFs in a chart

Source: justETF.com; As of 16.11.24

Return comparison of all socially responsible (SRI) ETFs

The table shows the returns of all socially responsible (SRI) ETFs in comparison. All return figures are including dividends as of month end. Besides the return the reference date on which you conduct the comparison is important. In order to find the best ETFs, you can also perform a chart comparison.

• Cumulative
• Calendar year

Source: justETF.com; As of 31.10.24; Calculations in EUR including dividends