Project Description

In today’s world, there is a lot of pressure on publicly traded companies to not only increase their earnings year after year, but to expand their social and environmental awareness as well. In the finance industry, this pressure is realized in the form of ESG investing.

ESG stands for Environment, Sustainability, and Governance. Generally, ESG investing is where the examination of environmental, community, and other corporate and societal governance criteria comes into play in portfolio construction and investment analysis .

The primary concern for investors is whether an ESG portfolio can deliver returns comparable to non-ESG portfolios. But before diving into performance, it may be useful to provide a short background on ESG investing.


ESG investing has come to be known by many names: SRI (socially responsible investing); impact investing; ethical investing; and socially responsible investing to name a few.

For many, the purpose of ESG investing is not only to realize a return, but to encourage sustainable business practices among public companies while allocating capital for the benefit of society and the environment .

The primary theory behind ESG investing is that it delivers more than just a financial return for its investors. It enables individuals to become positive agents of change within publicly traded companies who – seeking to be included in SRI funds – are encouraged to adopt responsible and socially conscious practices.

These practices include promoting gender diversity on their boards of directors, issuing detailed reports on sustainability, implementing sustainable forestry practices, improving climate risk disclosure, setting greenhouse gas emission reduction goals, addressing poor labor and human’s rights conditions in their global supply chains, and adopting goals to reduce energy use or to use renewable energy .

The earliest proponents of socially responsible investing were high net worth individuals and large institutions – but the trend has moved toward retail investors with the availability of ESG ETFs. ETFs generally have lower expense ratios than their mutual fund counterparts and this is also true for ESG EFTs. A rise in demand from retail investors for low cost ESG ETF options has led to an expansion of the space.

In the past, ESG investors had to buy individual stocks that met certain ESG criteria or pay internal expense fees of up to 1.16% percent to participate in broad based ESG mutual funds like the Domini Social Equity Index Fund (DSEFX) . The high cost of ESG mutual funds is due in part to the ESG screening process that adds another layer of research costs for fund managers. However, the actively traded nature of funds such as the DSEFX is the biggest contributor to high expense ratios.

Luckily, for retail investors who take a passive asset class approach, 2016 produced an abundance of opportunities for cost and tax-efficient ESG ETFs. 2016 saw a doubling of ETFs with 21 funds launched that focus on environmental, social, and governance factors . In September of 2016, Morningstar data reported that ESG fund assets have grown an astonishing 76% over five years to $201.3 billion under management .

Are ESG ETFs a viable investment?

While many would argue that the purpose of the markets is purely commercial, the incorporation of ESG factors into business analysis has proven to be a good investing practice .

In 2015, Deutsche Asset & Wealth Management and Hamburg University conducted a meta-analysis of over 2000 empirical studies and found a positive correlation between ESG standards and corporate financial performance.

Our takeaway

Here at WealthJar, we do not view ESG as a standalone asset class, but instead as an additional layer of analysis to portfolio construction. WealthJar’s socially responsible portfolios include one of the oldest sustainable ETFs.

Our top ESG pick screens out companies that are currently involved in controversies related to ESG. It also disallows companies with a negative social or environmental impact, including tobacco, alcohol, gambling, civilian firearms, military weaponry, nuclear power businesses, genetically modified organisms and nuclear power business .

Our ESG ETFs are also cost effective with expense ratios of 50 basis points or lower, ranging from .50% to .08%.

Contact your WealthJar advisor to find out more about our ESG portfolios.

[1] SRI Basics,

[2] SRI Basics,

[3] Forum for sustainable and responsible investment, SRI_FINAL.pdf

[4] “The Ford Foundation publicly committed to eventually convert 100% of its 12 billion endowment to impact investing; The Bill & Melinda Gates Foundation has begun to strip its portfolio of carbon exposure and to make impact investments; Pop Francis suggested in his second encyclical Laudato Si that capital markets should bend towards impact investing…” Opinion: Can you do well as an investor and still do good? Matthew Weatherly White. Feb. 13, 2017.

[5] These 5 socially responsible ETFs Meet The Grade. December 2016, Lorne Abramson

[6] These 5 socially responsible ETFs Meet The Grade. December 2016, Lorne Abramson

[7] Socially responsible ETFs take Root, March 01, 2017, Debbie Carlson,

[8] These 5 socially responsible ETFs Meet The Grade

[9] Opinion: Can you do well as an investor and still do good? Matthew Weatherly White. Feb. 13, 2017.

[10] SRI Basics,

[11] The Top Seven Socially Responsible ETFs, March 01, 2017, Lara Crigger,