Our Favourite ESG Funds - Top-Performing and Low-Fee Options

Updated 21 October 2021

Summary

• New Zealanders are increasingly concerned about investing with ESG factors (environmental, social and governance) in mind. 
• The number of ESG-focused investments options continues to increase, with ESG opportunities in index funds, KiwiSaver, managed funds and ETFs - we outline what's available below.
• How profitable ESG funds are and how 'ethical' a fund is, has never been more transparent with resources such as Mindful Money, Sorted's Smart Investor tool, and Morningstar. 
• Our research has shown that some ESG funds have performed better than their traditional counterparts.
• If you want to know what's on offer, our best overall ESG funds and low-fee ESG funds tables have you covered. 
• The number of ESG funds continues to increase, and we update this guide regularly.
• The fund returns are shown as after fees but before tax.

Know this: Not all ESG funds are of the same "standard" when it comes to exclusions.

• One fund may "consider" ESG factors in their investing decisions, while another may have numerous exclusions upfront before "considering" other factors.
• We would argue that Booster and Pathfinder go quite a lot further than most with regards to the number of exclusions they have.
• Only a handful of fund managers are RIAA certified - AMP Capital Investors, Booster, Harbour, Kiwi Wealth, Mercer and Pathfinder.
• Generally, an ESG fund will exclude companies involved with alcohol production, gambling, tobacco, military weapons, firearms, Nuclear power, fossil fuels, adult entertainment and genetically modified organisms (GMOs), among other things.

Our guide covers:

• What is an ESG Fund?
• Best Overall: Top Performing KiwiSaver ESG Funds, Managed ESG Funds, ESG ETFs (US-Listed) and Other Options
• How to Choose the Best ESG Funds For You
• What's the Easiest Way to Invest Responsibly?

Disclaimer: Some of the products featured in our guide are from commercial partners who work with MoneyHub. Such arrangements do not influence our evaluations, and we use Morningstar and Forbes data to disclose each fund's returns. Our advertising policy has more details.

The information provided is for educational purposes only and is not financial advice (general or specific to any situation). MoneyHub does not offer investment services, nor does it recommend or advise readers to buy or sell any fund, share or other investment product.

We have relied on data from Morningstar to shortlist five top-performing KiwiSaver options you may want to consider. Please note, we have used one-year returns as many KiwiSaver ESG funds are less than three years old due to the emergence of ethical funds in recent years. This list is not an endorsement of these funds. Returns are shown as After Fees/Before Tax.

We appreciate that one-year returns are not generally sufficient to make an informed decision about whether or not a fund is a credible investment. We will use three-year returns when these become available. Booster was the first KiwiSaver scheme to offer ethical funds and has a long-term track record dating back to 2010. Because of the availability of data, we have placed the two popular Booster ESG funds #1 and #2 on our list. Past returns are not a reflection of future results.

There are hundreds of ETFs that track companies that meet positive environmental, social and governance (ESG) characteristics, with most listed in the US. Hatch, Stake and Sharesies are the most popular platforms for New Zealanders to invest directly in the US markets. Returns are shown as After Fees/Before Tax.

Because of the volume of ESG funds, we have relied on data from Forbes' top ESG funds to shortlist five top-performing options you may want to consider. Please note, Forbes excludes funds without at least three years of performance data. We have used five-year returns as these ETFs are long established.

Please be aware, ETFs are bought and sold like shares, and their price can change multiple times per day and trade fees may be charged when you buy/sell an ETF. Funds, however, are bought directly from the manager or via a financial advisor or broker and rarely have a trade fee.

In addition to the above KiwiSaver, managed funds and US-listed ETF ESG investments, there are other options:

1. Kernel Wealth - an index fund manager who launched three ESG funds in mid-2021. As they are new funds, we've not stated their performance; the (external) links below outline each fund's index return for the last five years.

• NZ 50 ESG Tilted - This fund invests in global real estate companies with weighting towards sustainable practices. 
• Global Green Property - This fund includes and adjusts companies in the S&P/NZX 50 according to sustainability factors.
• S&P Global Clean Energy - This fund invests in global companies involved in the production or provision of Clean Energy.

2. Smartshares - a NZD-based ETF manager with five ESG ETFs which launched in 2020. We've not stated their performance; the (external) links below outline each fund's fees and recent returns.

• Emerging Markets Equities ESG ETF
• Europe Equities ESG ETF
• Global Equities ESG ETF
• Japan Equities ESG ETF
• US Equities ESG ETF

Deciding to invest in ESG funds adds some extra considerations you may not have when picking more conventional funds, which we outline below to help you make the right decision.

1. Costs vs Returns

• Actively managed funds exist to try and beat the returns of a sharemarket index. Unfortunately, this doesn't always work out, and the returns after deducting the costs from running the fund (charged in management fees) may be lower than an index fund.
• Index funds and ETFs follow a specific market index and have low management fees as there are no analysts and investment managers. 

2. Fund Availability

• Outside of US ESG ETFs, of which there are dozens, New Zealand has limited active and index-based ESG funds.
• Pathfinder and Booster are, arguably, the most prominent ESG-specific active managers.
• Index funds from Simplicity and the newly-launched ESG funds from Kernel are also popular. New Zealand-based ETFs are available from Smartshares. 
• Whether actively managed or index-based funds/ETFs are suitable for you depends on your investment goals, time frame, and experience. Generally, ESG products (funds and ETFs) are seen as long-term wealth creation investments. 

3. Ask yourself - does this ESG investment have an impact?

• There is a big difference between a fund that excludes undesirable companies (operating casinos, manufacturing weapons, extracting fossil fuels etc.) and investments with a mission to do "the right thing".
• For example, if you want to invest in companies that have diversity and inclusion initiatives, finding a fund that invests in such companies will be a priority.
• Alternatively, if you want to invest in renewable energy, you should look for a fund investing in companies that operate wind, hydro and/or solar electricity generation etc.
• If you value clean water, look for a fund that invests in water resources. Want to be carbon-neutral? Look for a fund that invests in carbon-neutral companies.
• In any case, the benefits of the fund may outweigh the higher management fees that come with a higher-impact investment.

4. Evaluate your existing investments before buying into an ESG fund or ETF

• The risk with ESG investing is that you become over-exposed to a particular asset class or industry.
• Before investing, look at your current portfolio of funds and shares and make sure you're not concentrated in one area. For example, a KiwiSaver fund that follows the NZX50 is typical, but if you have non-KiwiSaver index funds that track the NZX50 and are now considering an ESG NZX50 fund, you may be over-exposed to the New Zealand sharemarket.
• There are plenty of funds and ETFs available; don't rush in before making sure you'll be diversified. 

 
5. Ask about an impact report from now on

• It's all very well to invest in a fund or ETF, but it's hard to see if your money is making any difference without knowing the impact.
• An impact report should cover the carbon emissions, the gender mix on the board of directors, charitable donations etc.
• It may be problematic to aggregate for a fund with dozens of investments, but such documentation is the best way to understand the impact. 

Popular options include investing in a fund and/or in an ETF. We have listed popular options below, but do not endorse any fund or investment option.

Know This: Respected active managers like Pathfinder and Booster have management fees greater than 1% p.a. for their ESG funds. We understand many New Zealanders who are concerned about the impact of their investments are comfortable paying such fees to a portfolio aligned with their values. However, low-fee ESG funds are widely available with Simplicity Investment Funds and Kernel offering ESG funds for 0.10% p.a. and 0.29% p.a. respectively. Low-cost ESG funds are most likely to be index-based - you can read about index funds, why they are cheaper and their pros and cons here.

Mindful Money has listed a number of investment funds that meet its high ethical standards, supported by credible verification. The funds avoid many companies of concern, and/or invest in companies with higher standards. You can find out more about Mindful Money's approach here.