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To help you navigate the world of sustainable investing with ease and uncover lucrative opportunities for responsible growth, we have curated a selection of top-notch ESG ETFs and a guide to help you choose the best ones for you and the best platforms to start investing.
Best ESG ETFs to Invest in the UK
We have meticulously chosen the top six ESG ETFs that offer exceptional opportunities for sustainable investors. Along with our selection, we provide comprehensive insights and critical information to help you make well-informed investment decisions.
*Data as of 5 June 2023
Fund Size | Ongoing Charge | Net Asset Value | Trailing total returns observed daily | |
|---|---|---|---|---|
UBS ETF (IE) MSCI United Kingdom IMI Socially Responsible UCITS ETF (GBP) A-dis Fund | £919.83 million | 0.23% | £15.57 | +1.42% (5-year performance) |
Xtrackers - Xtrackers MSCI UK ESG UCITS ETF 1D | £298.35 million | 0.18% | £3.91 | +1.72% (5-year performance) |
L&G Quality Equity Dividends ESG Exclusions UK UCITS ETF | £38.92 million | 0.25% | £9.32 | -2.77% (1-year performance as fund launched on 12 Apr 2021) |
Amundi MSCI UK IMI SRI PAB UCITS ETF | £135.86 million | 0.18% | £10.49 | -1.03% (5-year performance) |
iShares MSCI UK IMI ESG Leaders UCITS ETF | £27.29 million | 0.15% | £4.97 | +1.02% (1-year performance as fund launched on 23 Mar 2021) |
HSBC UK Sustainable Equity UCITS ETF | £16.59 million | 0.12% | £16.44 | -0.81% (1-year performance as fund launched on 08 Oct 2020) |
1. UBS ETF (IE) MSCI United Kingdom IMI Socially Responsible UCITS ETF (GBP) A-dis Fund
The fund's main objective is to replicate the performance of UK-based companies that prioritise environmental, social, and governance (ESG) factors. These companies specifically exclude involvement in nuclear power, tobacco, alcohol, gambling, military weapons, civilian firearms, and genetically modified organisms.
The fund's investment strategy aims to replicate the returns of the MSCI UK IMI Extended SRI Low Carbon Select 5% Issuer Capped Index. When it comes to portfolio diversification, as much as 98.92% of it is UK stock.
Top Five Sectors
Financial services – 23.62%
Healthcare – 16.05%
Consumer defensive – 15.94%
Industrials – 14.46%
Consumer cyclical – 9.67%
Top Five Holdings
Reckitt Benckiser Group – 5.33%
Relx PLC – 5.21%
AstraZeneca PLC – 5.31%
Unilever PLC – 5.11%
HSBC Holdings PLC – 4.97%
Making up 26.51% of its portfolio.
Scores on Corporate USG Pillars
Environmental – 3.77
Social – 8.38
Governance – 6.05
Unallocated – 0.29
Average score – 18.38
2. Xtrackers - Xtrackers MSCI UK ESG UCITS ETF
The goal of the fund is to mirror the results of the MSCI United Kingdom IMI Low Carbon SRI Leaders Select Index. This index is specifically created to represent companies with lower carbon exposure than the United Kingdom stock market while demonstrating strong environmental, social, and governance (ESG) performance.
As far as portfolio diversification, a whopping 98.84% of it is UK stock.
Top Five Sectors
Financial services – 23.80%
Consumer defensive – 20.66%
Healthcare – 19.90%
Industrials – 13.13%
Consumer cyclical – 9.12%
Top Five Holdings
AstraZeneca PLC – 18.96%
HSBC Holdings PLC – 13.30%
Unilever PLC – 11.38%
Relx PLC – 5.28%
Reckitt Benckiser Group PLC – 5%
Making up 53.91% of its portfolio.
Scores on Corporate USG Pillars
Environmental – 3.50
Social – 9.08
Governance – 6.27
Unallocated – 0.16
Average score – 18.2
3. L&G Quality Equity Dividends ESG Exclusions UK UCITS ETF
The fund operates under a passive management strategy, and its primary goal is to mirror the performance of the FTSE All Share ex IT ex CW ex TC ex REITS Dividend Growth with Quality Net Tax Index. The fund deducts the ongoing charges and associated costs from the index's performance to reflect its own returns.
Top Five Sectors
Financial services – 44.42%
Consumer cyclical – 15.16%
Industrials – 10.98%
Consumer defensive – 9.83%
Basic materials – 9.47%
Top Five Holdings
Admiral Group PLC – 5.87%
National Grid PLC – 5.78%
BAE Systems PLC – 5.78%
Intermediate Capital Group PLC – 5.64%
Games Workshop Group PLC – 5.31%
Making up 28.38% of its portfolio.
Scores on Corporate USG Pillars
Environmental – 4.11
Social – 8.94
Governance – 7.33
Unallocated – 0.57
Average score – 20.82
4. Amundi MSCI UK IMI SRI PAB UCITS ETF
The primary aim of the fund is to replicate the performance of the MSCI UK IMI SRI Filtered PAB Index while minimising any deviation in performance between the sub-fund's net asset value and the Index. The sub-fund, categorised as a financial product under Article 9(3) of the Disclosure Regulation, is designed to reduce carbon emissions by closely imitating the index.
When it comes to portfolio diversification, as much as 95.36% of it is UK stock.
Top Five Sectors
Industrials – 21.79%
Financial services – 19.36%
Consumer cyclical – 11.86%
Consumer defensive – 11.23%
Real estate – 8.82%
Top Five Holdings
AstraZeneca PLC – 5.55%
Reckitt Benckiser Group PLC – 5.09%
Unilever PLC – 4.95%
Relx PLC – 4.9%
Rentokil Initial PLC – 4.75%
Making up 25.25% of its portfolio.
Scores on Corporate USG Pillars
Environmental – 3.93
Social – 7.36
Governance – 6.08
Unallocated – 0.33
Average score – 17.84
5. iShares MSCI UK IMI ESG Leaders UCITS ETF
The fund aims to deliver investors a total return that considers both capital appreciation and income earnings, aligning with the performance of the MSCI UK IMI Country ESG Leaders 5% Issuer Capped Index.
As far as portfolio diversification, a whopping 98.84% of it is UK stock.
Top Five Sectors
Financial services – 20.08%
Industrials – 15.78%
Consumer defensive – 13.09%
Consumer cyclical – 11.06%
Basic materials – 8.77%
Top Five Holdings
Relx PLC – 4.64%
AstraZeneca PLC – 4.49%
National Grid PLC – 4.48%
HSBC Holdings PLC – 4.47%
Reckitt Benckiser Group PLC – 4.44%
Making up 22.52% of its portfolio.
Scores on Corporate USG Pillars
Environmental – 4.59
Social – 7.81
Governance – 5.61
Unallocated – 0.48
6. HSBC UK Sustainable Equity UCITS ETF
The fund's primary objective is to replicate the performance of the FTSE UK ESG Low Carbon Emissions Select Index as closely as possible, aiming to minimise any tracking error between the fund's performance and that of the index.
Top Five Sectors
Consumer defensive – 23.22%
Financial services – 21.89%
Healthcare – 13.73%
Communication services – 11.29%
Basic materials – 9.76%
Top Five Holdings
London Stock Exchange Group PLC – 10.20%
GSK PLC – 9.82%
Barclays PLC – 9.26%
Diageo PLC – 8.95%
Unilever PLC – 6.56%
Making up 86.12% of its portfolio.
Scores on Corporate USG Pillars
The fund has the following scores on corporate USG pillars:
Environmental – 4.18
Social – 8.09
Governance – 6.61
Unallocated – 0.00
Even though ESG ETFs are an excellent opportunity for investors to generate returns while remaining socially responsible, they can be a little intimidating, particularly for novice investors. Assessing ESG ETFs is a dynamic process that requires reviewing tons of data and research, which is why they are off-putting for most beginners.
If you need help properly evaluating ESG ETFs and choosing the suitable options that best fit your portfolio, check out the rest of the article.
What Makes a Good ESG ETF?
Exchange-traded funds (ETFs) are investment vehicles that offer investors a convenient and cost-effective way to gain exposure to a diversified portfolio of securities. They comprise a basket of underlying assets, such as stocks, bonds, or commodities, and are designed to track the performance of a specific index, sector, or asset class.
A good exchange-traded fund will accurately track its underlying index or asset class, offer sufficient liquidity and transparency, and have a reasonable expense ratio, providing investors with the desired exposure and a strong foundation for their portfolios.
In addition to the above qualities, a good ESG fund invests in companies or assets that adhere to strong environmental, social, and governance principles. This involves employing a robust selection process that identifies companies with favourable ESG practices while excluding those with negative impacts – such as companies involved heavily in fossil fuels.
When evaluating what makes a suitable ESG ETF, several key factors come into play:
ESG Ratings
When assessing an ESG ETF, it's essential to consider the underlying holdings' ESG ratings. Specialised ESG research firms provide these ratings and evaluate companies based on their environmental impact, social responsibility, and governance practices. Look for ETFs prioritising holdings with high ESG ratings, indicating a strong commitment to sustainability.
Measures
In addition to ESG ratings, it's also essential to go into the specific ESG measures considered by the ETF. These measures can include carbon footprint, diversity and inclusion metrics, energy efficiency, waste management, and other sustainability indicators. A suitable ESG ETF should focus on companies with positive performance in these specific ESG measures.
Expense Ratios
Expense ratios directly impact an investor's returns. Lower expense ratios indicate a more cost-effective ETF, as they reduce the drag on investment performance. It's important to compare the expense ratios of different ESG ETFs to identify those with competitive pricing and reasonable fees.
Returns
While past performance does not guarantee future results, analysing historical returns can provide insights into an ESG ETF's performance. Assessing returns over different time periods allows investors to evaluate the consistency and alignment of an ETF's performance with ESG principles. Consider the risk-adjusted returns and compare them to relevant benchmarks.
Number of Holdings
Diversification is vital to managing risk in an ETF. The number of holdings in an ESG ETF indicates its diversification level. A well-diversified ETF should have a broad range of holdings across different sectors, ensuring exposure to various companies that align with ESG criteria. A larger number of holdings can help spread risk and reduce concentration in specific companies or industries.
Assets Under Management
The AUM of an ESG ETF reflects the level of investor interest and confidence. Higher AUM can indicate greater market acceptance and potentially better access to resources for conducting thorough ESG analysis. A larger AUM can also contribute to the liquidity and stability of an ETF, making it easier for investors to buy and sell shares.
Shares Outstanding
The number of shares outstanding is a measure of an ETF's liquidity. Higher outstanding shares generally indicate greater trading liquidity and narrower bid-ask spreads. It signifies the availability of shares for investors to buy or sell on the secondary market. A sufficient number of shares outstanding ensures smoother trading and helps maintain a fair market price.
How to Choose the Right ESG ETF For You
Now that you have a better idea of the ESG ETF evaluation criteria, we can move to the process of selecting the right options for your portfolio.
Active vs passive – Decide whether you prefer an actively managed ESG ETF, where professionals actively select and manage holdings based on ESG criteria, or a passive ESG ETF that aims to replicate the performance of a specific ESG index.
Investment goals and risk tolerance – Consider your investment goals, such as capital appreciation, income generation, or long-term sustainability. Assess your risk tolerance to determine the level of volatility and potential downside you are comfortable with.
Portfolio alignment – Evaluate your existing investments to ensure the chosen ESG ETF complements your current holdings. Analyse your portfolio's sectors, industries, and geographic exposure to determine if adding an ESG ETF enhances diversification and aligns with your sustainable values.
Impact focus – Understand the specific environmental, social, and governance issues that matter to you. Different ESG ETFs may prioritise other aspects of sustainability, such as climate change, gender equality, or corporate governance. Review the fund's holdings, engagement activities, and voting practices to ensure they align with your values and desired impact.
Performance and track record – Assess the historical performance and track record of the ESG ETF. Compare its returns relative to its benchmark or peers over different time periods. Consider the fund's long-term performance and consistency, keeping in mind that past performance does not guarantee future results.
Expense ratio and fees – Analyse the expense ratio and fees associated with the ESG ETF. Compare the costs with similar options to ensure they are reasonable and align with the value you expect to receive.
Diversification and liquidity – Consider the level of diversification the ESG ETF offers and its liquidity. A well-diversified ETF with sufficient liquidity can help mitigate risk and provide ease of trading.
By carefully considering these factors and conducting thorough research, you can select an ESG ETF that aligns with your values, supports your investment goals, and contributes to a more sustainable and responsible portfolio.
Best Platforms to Invest in ESG ETFs
Beyond being diligent and taking in a lot of information, choosing the right trading platform can make a world of difference for investors looking for the right investment options, ESG ETFs or otherwise.
It's the platform that provides you with the ESG ratings and educational resources, as well as the research tools that allow you to draw comparisons and assess the funds, so it's vital you opt for a quality platform.
Here are three handpicked trading platforms known for their overall qualities and features, as well as robust ESG ETF offerings.
Per ETF trade fee | ISA fee | Number of ETFs | |
|---|---|---|---|
Interactive Investor | £5.99 | £4.99 per month | 1,000+ |
Hargreaves Lansdown | £11.95 | 0.45% per year | 1,000+ |
Saxo Markets | £6 | 0 | 6,000+ |
Interactive Investor
Interactive Investor is the UK's second-largest investment platform, offering over 40,000 investment options, thousands of which are ETFs. Moreover, platform users can choose between multiple subscription tiers and account types, including trading accounts, stocks and shares ISA, SIPP, etc.
Interactive Investor is a platform more suited to investors with some degree of experience, particularly those with large portfolios. Its unique fixed price structure separates it from the crowd and makes it appealing for deep investment pots.
On the other hand, while inexperienced investors can undoubtedly benefit from the educational resources provided by Interactive Investor, the platform's fee structure may not be as cost-effective for those just starting out.
Consider using Interactive Investor if you are looking for a platform that offers a wide range of investment options and advanced tools for portfolio management. Otherwise, other options may be more suitable.
Hargreaves Lansdown
An FTSE 100 company, Hargreaves Lansdown is the biggest investment platform in the UK. It's far from the cheapest option but provides a premium service that aims to give its users everything they need to be successful investors at a price.
From extensive ETF research to first-rate trading tools, the platform offers financial advice and ready-made portfolios for investors wanting to take a more laid-back approach.
It has a comprehensive range of investment options, including EFTs and different account types such as GIAs, ISAs, SIPPs, etc. In short, Hargreaves Lansdown has the means necessary to match your investment values and goals at a price of 0.45% of your portfolio, regardless of its size.
Please note that Hargreaves Lansdown has additional charges besides its annual custody fee, which can make the platform more or less expensive depending on how you use it. But overall, considering what you are getting, the platform is undoubtedly worth the extra cost.
Saxo Markets
| Name | Score | Visit | Disclaimer | |
|---|---|---|---|---|
 | 8.8 | Visithome.saxo | CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.74% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs, FX or any of our other products work and whether you can afford to take the high risk of losing your money. Losses can exceed deposits on some products. |
Saxo Markets is another excellent option for socially responsible investors. The platform provides its users with over 6,000 ETFs traded on more than 30 exchanges worldwide. It also allows investors to open an ISA free of charge and enjoy tax benefits when trading.
Its dealing fees are very competitive and percentage-based. In most cases, the platform charges 0.1% ETF trading commission but has a minimum set at £3. Even with the minimum, the platform is cost-effective and affordable for investors with portfolios of all sizes.
Regarding educational resources, Saxo Markets does incredibly well and provides users with thorough research and market analysis, including live market updates and expert analysis.
If we have to be nitpicky, the one drawback of investing with Saxo Markets is its £500 minimum funding requirements, which can be overlooked, considering the overall affordability of the platform.
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