February 8, 2023

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Picking a socially responsible fund can be confusing. Here’s what to know

2 min read

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Investment funds that promote values like the environment and social good have become more popular.

But trying to pick a so-called ESG fund — especially one that aligns well with your interests — may seem about as easy as drying a towel in a rainstorm.

“I think it can be really hard to know where to start,” said Fabian Willskytt, associate director of public markets at Align Impact, a financial advice firm that specializes in values-based investing.

Luckily, there are some simple steps investors can take to get started and invest with confidence.

ESG funds

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Funds that allocate investor money according to environmental, social and governance issues held $357 billion at the end of 2021 — more than four times the total three years earlier, according to Morningstar, which tracks data on mutual and exchange-traded funds.

Investors poured $69.2 billion into ESG funds (also known as sustainable or impact funds) last year, an annual record, according to Morningstar.

These funds come in a variety of flavors. Some may seek to promote gender or racial equality, invest in green-energy technology or avoid fossil-fuel, tobacco or gun companies, for example.

Women and younger investors (under 40 years old) are most likely to be interested in ESG investments, according to Cerulli Associates survey data. About 34% of financial advisors used ESG funds with clients in 2021, up from 32% in 2020, according to the Financial Planning Association.

There are now more than 550 ESG mutual and exchange-traded funds available to U.S. investors — more than double the universe five years ago, according to Morningstar.

“An individual investor has a lot more [ESG options] and can build a portfolio in ways they couldn’t 10 years ago,” said Michael Young, manager of education programs at the Forum for Sustainable and Responsible Investment. “Almost every [asset] category I can think of has…

2022-06-05 09:00:01

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