Types of Sustainable Investments

Sustainable investments come in various forms, each with unique characteristics and goals. Below are some of the most common types:

Green Bonds

Green bonds are a type of fixed-income instrument specifically earmarked to raise money for climate and environmental projects. These bonds are typically asset-linked and backed by the issuer’s balance sheet, and they are designed to encourage sustainability and to support climate-related or other types of special environmental projects.

Socially Responsible Mutual Funds

Socially responsible mutual funds are investment funds that consider both financial return and social/environmental good to bring about a positive change. These funds have a set of guidelines which filter investments based on social and environmental criteria. For example, a socially responsible mutual fund may avoid investing in companies that produce or sell addictive substances (like alcohol, tobacco, and gambling) and seek out companies engaged in social justice, environmental sustainability, and alternative energy/clean technology efforts.

Impact Investing

Impact investing aims to generate specific beneficial social or environmental effects in addition to financial gains. This can include investments in businesses that provide clean water, affordable housing, or sustainable agriculture. Impact investors actively seek to place capital in industries such as renewable energy, basic services including housing, healthcare, and education, and microfinance, and to buy stakes in companies with the intention of exerting a positive influence.

ESG Index Funds

ESG index funds track an index of stocks that meet specific criteria of environmental, social, and governance responsibility. By investing in an ESG index fund, investors can diversify their holdings and invest in a broad range of companies that adhere to ESG principles.

Examples of ESG funds

• Vanguard ESG U.S. Stock ETF (ESGV): This fund seeks to track the performance of an index that measures the investment return of stocks issued by companies that adhere to ESG criteria.¹
• Fidelity U.S. Sustainability Index Fund (FITLX): It tracks a market-cap-weighted index of U.S. companies that have been identified as having good ESG practices relative to their sector peers according to their ratings by MSCI ESG Research.²
• Calvert US Mid Cap Core Responsible Index Fund (CMJAX): This fund focuses on mid-cap companies with favorable ESG ratings.³
• BlackRock Sustainable Advantage CoreAlpha Bond Fund (BIAAX): A bond fund with a focus on issuers with strong ESG practices.⁴

Sustainable ETFs

Sustainable ETFs (Exchange-Traded Funds) are similar to ESG index funds but trade on exchanges like individual stocks. These funds hold a diverse portfolio of assets and are a popular choice for investors looking to gain exposure to sustainable investments without picking individual stocks.

Examples of sustainable ETFs

• iShares MSCI KLD 400 Social ETF (DSI): One of the largest sustainable ETFs, it invests in U.S. companies with positive ESG characteristics.⁵
• iShares USD Green Bond ETF (BGRN): This ETF invests in fixed-income securities that finance projects with direct environmental benefit.⁶
• US Vegan Climate ETF (VEGN): A fund that excludes companies involved in animal exploitation, defense, human rights abuses, fossil fuels, and other activities deemed harmful to the environment or society.⁷
• SPDR S&P 500 Fossil Fuel Reserves Free ETF (SPYX): This ETF seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of an index that excludes companies owning fossil fuel reserves.⁸

References

1. Vanguard ESG U.S. Stock ETF (ESGV). https://finance.yahoo.com/quote/ESGV/profile ↩︎
2. Fidelity U.S. Sustainability Index (FITLX). https://finance.yahoo.com/quote/FITLX/profile ↩︎
3. Calvert US Mid Cap Core Responsible Index Fund (A). https://www.calvert.com/Calvert-US-Mid-Cap-Core-Responsible-Index-Fund-CMJAX.php ↩︎
4. BlackRock Sustainable Advantage CoreAlpha Bond Fund (BIAAX). https://finance.yahoo.com/quote/BIAAX/profile ↩︎
5. iShares MSCI KLD 400 Social ETF (DSI). https://finance.yahoo.com/quote/DSI/profile ↩︎
6. iShares USD Green Bond ETF (BGRN). https://finance.yahoo.com/quote/BGRN/profile ↩︎
7. US VEGAN CLIMATE ETF (Ticker: VEGN). https://veganetf.com/ ↩︎
8. SPDR® S&P® 500 Fossil Fuel Reserves Free ETF. https://www.ssga.com/us/en/intermediary/etfs/funds/spdr-sp-500-fossil-fuel-reserves-free-etf-spyx ↩︎