Here is your complete guide to the Best Ethical ETF in Australia for 2021.
Maybe you have been inspired by the words of Greta Thunberg. Or perhaps you’re quite sympathetic to the cries of the Extinction Rebellion protestors.
Or maybe you just have a conscience!
Whatever the reason, you are looking to invest in companies that go that one step further than just printing money no matter the costs.
Infinite growth in a finite world and all that.
Click on through to read about the Australian Ethical ETF of your choice:
- Vanguard VESG Review
- Betashares ETHI Review
- Betashares FAIR Review
- VanEck GRNV Review
- VanEck ESGI Review
- Compare the Best Ethical ETFs
Let’s take a look at exactly what investing in Ethical ETFs is all about.
What is an Ethical ETF?
An Ethical ETF is simply an ETF that excludes certain industries or companies from their investment holdings. Ethical ETFs can also require companies to meet certain sustainability targets in order to be eligible for inclusion.
Ethical ETF’s typically exclude companies that invest in:
- Fossil fuels such as oil & gas
- Gambling
- Alcohol
- Tobacco
- Nuclear power
- Civil or military weapons
- Adult entertainment
- Or companies that destroy the environment in general
Depending on which Ethical ETF you invest in it may exclude one, several, or all of these industries deemed “Unethical” by the index owner. You really need to read the fine print to understand exactly what companies each Ethical ETF is investing in.
(Alternatively just keep on reading this article and I will spell it out for you!)
Typically, Ethical ETF’s are classified as investment products that are:
- Ethical Investments
- Environmental Leaders
- Sustainability Leaders
So if you come across any of these terms when reviewing a Fact Sheet for a new investment then you’re probably onto an Ethical ETF.
The Best Ethical ETF on the ASX
I’ve decided to break this down into two categories:
- The Best Ethical ETF for Australian Shares
- The Best Ethical ETF for International Shares
These are the two areas for which ETF providers are currently issuing ethical ETF products.
Best Ethical ETF for Australian Shares
GRNV – VanEck Australian Sustainable Equity ETF
GRNV is exactly the kind of innovative ethical ETF that many people want to see more of from the finance industry. Congratulations VanEck, great product.
GRNV invests according to a strict methodology that:
- Excludes a large range of unethical industries including fossil fuels, weapons, animal cruelty and gambling
- Excludes companies that are flagged as having human rights or Environmental, Social or Governance controversies
- Specifically includes companies that are rated AAA, AA or A by MSCI in terms of their Environmental, Social & Governance performance
GRNV may not have the lowest fees of all Australian Ethical ETFs, but by choosing to invest ethically you are making the decision that money is not the main driver of your investment.
Ethical investment means you want to make sure your money is going towards companies that care.
GRNV is the top ethical ETF in Australia and you can be satisfied that you are making a truly sustainable investment by buying this ETF.
Read my review of GRNV for more information.
Best Ethical ETF for International Shares
ETHI – Betashares Global Sustainability Leaders ETF
Here we have an absolute cracker of an ethical ETF in ETHI from Betashares.
ETHI invests according to a strict methodology that:
- Excludes companies involved in arms, destruction of the environment, animal cruelty and gambling
- Excludes companies with recent fines or convictions, a lack of women at board level, or companies with human rights concerns
- Requires companies to be classified as Climate Change leaders that have a carbon impact of at least 60% less than their industry average
ETHI does not have the lowest fees among the International Ethical ETFs. But if you are looking for a truly ethical ETF then it is worth paying that little bit more to make sure you get what you pay for.
ETHI is the top ethical ETF for International shares and you will be doing your part to be a world leader by choosing to put your money in this ETF.
Check out my review of ETHI for all the details.
Vanguard VESG Review
VESG is currently Vanguard’s only ethical ETF offering on the Australian market. However, VESG only invests in international companies and excludes Australian companies.
Vanguard does have one other ethical ETF VEFI but it focuses on ethical bond investments, not shares.
The Vanguard Ethically Conscious Shares Index Fund excludes companies that are involved in:
- Fossil Fuels
- Alcohol
- Tobacco
- Gambling
- Military Weapons
- Civilian Firearms
- Nuclear Power
- Adult Entertainment
Reviewing the information about VESG we see that:
- VESG invests in 1,600+ international companies, excluding those with business interests in the industries deemed unethical by the index
- There is currently more than $341 million invested in this ethical ETF
- VESG tracks the return of the FTSE Developed World ex-Australia ex-Non-Renewable Energy, Vice Products & Weapons Index
- Almost 70% of the companies held in this ETF are from the USA, with 8% from Japan
- VESG is not hedged and will react to movements in the Aussie dollar
- The return since inception in 2018 is 14.58%
VESG Dividend Yield
The VESG Dividend Yield is 1.40% as of 30 Jun 2021.
This ethical ETF is just over two year olds at the time of writing so it is too early to see any major trends in term of dividends. Over the past 12 months VESG has yielded 1.50%. Since inception in 2018 VESG has yielded 1.67% per annum.
VESG pays a quarterly dividend.
There is a dividend reinvestment plan available for VESG.
VESG Fees
VESG charges a very competitive management fee of 0.18%.
This means that you pay Vanguard $1.80 for every $1,000 you invest in VESG, $18 for every $10,000 you invest in VESG or $180 for every $100,000 you invest in VESG.
VESG Fact Sheet
To stay up to date with any changes in the holdings of this ETF read the VESG Fact Sheet available on the Vanguard Australia website.
Betashares ETHI Review
ETHI (short for Ethical if you could imagine!) invests in 199 stocks from around the world that are climate change leaders and are not involved in irresponsible investments. Although listed on the ASX, ETHI only invests in international shares and not Australian shares.
The Betashares Global Sustainability Leaders ETF excludes companies that are involved in:
- Gambling
- Tobacco
- Armaments (Arms!)
- Uranium & Nuclear Energy
- Destruction of valuable environments
- Animal Cruelty
- Chemicals of Concern
- Mandatory Detention of Asylum Seekers
- Alcohol
- Junk Foods
- Pornography
ETHI also excludes companies that have:
- Recent significant fines or convictions
- Human rights and supply chain concerns
- Lack of board diversity (no women on the board of directors)
Finally, you need to be considered a climate change leader to be included in ETHI.
Companies that are climate change leaders are defined as having a carbon impact which is at least 60% less than the average carbon impact for that company’s industry.
As you can see ETHI is a very exclusive ETF to be a part of. Betashares has made a real effort here to provide an ETF that is truly a leader in global sustainable investments.
Let’s take a look at some of the facts and figures for ETHI:
- ETHI invests in 199 international companies that meet the strict inclusion guidelines
- This ethical ETF tracks the NASDAQ Future Global Sustainability Leaders Index
- ETHI has over $1.6 billion dollars invested
- More than 70% of the companies held by this ETF are based in the United States with the next largest country being Japan with 8%
- Information Technology and Healthcare make up more than 50% of the asset allocation of ETHI
- The return since inception in 2017 is 23.43%
ETHI Dividend Yield
The ETHI Dividend Yield is 5.5%
Betashares do not break down the performance of their ETFs into Capital Gains and Dividend distributions so the historical dividend yield of ETHI is not readily available for review.
ETHI pays out dividends twice per year.
You can enroll in the ETHI Dividend Reinvestment Plan after purchase.
ETHI Fees
ETHI charges an above average management fee for an ETF at 0.59%.
You need to balance this higher fee with the fact that this is not your standard index ETF. Betashares have developed a specific climate change screening methodology for ETHI and that is why a higher fee is charged.
The best ethical investments do not always come cheap!
You will pay Betashares $5.90 for every $1,000 you invest in ETHI, $59 for every $10,000 you invest in ETHI or $590 for every $100,000 you invest in ETHI.
ETHI Fact Sheet
The latest ETHI Fact Sheet is always available for access on the Betashares Australia website.
Betashares FAIR Review
FAIR is designed as the Australian pairing to Betashares International Ethical ETF, ETHI. FAIR invests in Australian companies that engage in sustainable business activities and excludes companies that are deemed to be irresponsible investments.
The Betashares Australian Sustainability Leaders ETF excludes companies that are involved in:
- Fossil Fuels, including companies with Direct or Indirect exposure to high use of Fossil Fuels
- Gambling
- Tobacco
- Armaments (Arms!)
- Uranium & Nuclear Energy
- Destruction of Valuable Environments
- Animal Cruelty
- Chemicals of Concern
- Mandatory Detention of Asylum Seekers
- Alcohol
- Junk Foods
- Pornography
- Payday Lending
FAIR also excludes companies that have:
- Human rights and supply chain concerns
- A lack of gender diversity at the board level
In addition to these exclusions, to be considered an ethical investment worthy of inclusion in FAIR the company must be a Sustainability Leader. This means that the company satisfies at least one of three criteria:
- More than 20% of revenue generated from one or more sustainable industries such as renewable energy, water efficiency, recycling, public transport, animal health, healthy foods, social services, sustainable forestry (there’s loads more industries on the list!)
- Rated ‘A’ or ‘B’ level in a trusted ethical consumer report
- Certified ‘B’ Corporation
Betashares has really put some work into the design of their ethical ETFs and FAIR is no different. If you invest with a Betashares Ethical ETF you know that the companies included are truly sustainability leaders.
Let’s take a closer look at the details of FAIR:
- FAIR invests in 78 Australian Shares
- This ethical ETF tracks the NASDAQ Future Australian Sustainability Leaders Index
- FAIR has over $1.1 billion dollars invested in it
- 100% of FAIR is invested in Australian companies listed on the ASX
- The return since inception in 2017 is 10.54%
FAIR Dividend Yield
The FAIR Dividend Yield is 3.40% as of 30 July 2021.
Betashares do not break down the performance of their ETFs into Capital Gains and Dividend distributions so the historical dividend yield of FAIR is not readily available for review.
FAIR pays dividends on a half yearly basis.
Participation in a Dividend Reinvestment Plan is available to owners of FAIR.
FAIR Fees
FAIR has a relatively high management fee for an ETF at 0.49% per year.
I believe this higher fee is justified due to the stringent eligibility criteria that Betashares applies to confirm that this ETF only holds truly ethical investments.
This means that you pay Betashares $4.90 for every $1,000 you invest in FAIR, $49 for every $10,000 you invest in FAIR or $490 for every $100,000 you invest in FAIR.
FAIR Fact Sheet
To stay up to date with any changes read the FAIR Fact Sheet available on the Betashares Australia website.
VanEck GRNV Review
GRNV is the first of two ethical ETFs offered by VanEck. GRNV is focussed on investments in sustainable Australian companies. The Index that GRNV tracks aims to invest in Australian companies that have high Environmental, Social and Governance performance by:
- Excluding companies that own any fossil fuel reserves or derive revenue from mining thermal coal or derive revenue from oil and gas related activities
- Excluding companies with business activities that are not socially responsible
- Targeting companies with high Environmental, Social and Governance ratings
The VanEck Australian Sustainable Equity ETF specifically excludes companies whose business activities are not socially responsible investments.
Australian companies that are involved in or exposed to the following activities are excluded:
- Adult Entertainment
- Alcohol
- Animal Welfare
- Civilian Firearms
- Conventional Weapons
- Controversial Weapons
- Fossil Fuels
- Gambling
- Genetically Modifies Organisms (GMOs)
- Nuclear Power
- Nuclear Weapons
- Tobacco
- Soft Drinks
- Nutrition & Health
GRNV also excludes companies that are:
- Flagged by MSCI as having red or orange Environmental, Social and Governance controversies
- Flagged by MSCI as having red, orange or yellow human rights controversies
GRNV specifically includes companies that are high Environmental, Social and Governance performers:
- MSCI rates companies ESG performance on a scale of AAA to CCC. Only companies rated AAA, AA or A are included in GRNV
Taking a closer look at the details of GRNV I see that:
- GRNV invests in 94 different Australian companies
- There is currently $67 million invested in this ethical ETF
- GRNV tracks the return of the MSCI Australia IMI Select SRI Screened Index
- 100% of the companies held in this ETF are from Australia
- The return since inception in 2016 is 7.38%
GRNV Dividend Yield
The GRNV Dividend Yield is 3.20% as of 30 July 2021.
This yield has been trending down more recently but is largely in line with its long term payout ratio. Over the past 12 months GRNV has yielded 4.25%. Over the past 3 years GRNV has paid dividends at a rate of 5.18%. Since inception GRNV has yielded 4.73% per annum.
GRNV pays a quarterly dividend.
There is a dividend reinvestment plan available for GRNV.
GRNV Fees
GRNV management fees are currently 0.35%
This means that you pay VanEck $3.50 for every $1,000 you invest in GRNV, $35 for every $10,000 you invest in GRNV or $350 for every $100,000 you invest in GRNV.
GRNV Fact Sheet
To stay up to date with any changes read the GRNV Fact Sheet available on the VanEck Australia website.
VanEck ESGI Review
ESGI is the second ethical ETF offered by VanEck, the first being GRNV. ESGI is focussed on investments in sustainable international companies. The Index that ESGI tracks aims to invest in International companies that have high Environmental, Social and Governance performance by:
- Excluding companies that own any fossil fuel reserves or derive revenue from mining thermal coal or derive revenue from oil and gas related activities
- Excluding companies with business activities that are not socially responsible
- Targeting companies that are Environmental, Social and Governance leaders in each sector
- Excluding companies that are high carbon emitters
The VanEck International Sustainable Equity ETF specifically excludes companies whose business activities are not socially responsible investments.
International companies that are involved in or exposed to the following activities are excluded:
- Alcohol
- Gambling
- Tobacco
- Military Weapons
- Civilian Firearms
- Nuclear Power
- Adult Entertainment
- Genetically Modified Organisms
ESGI specifically includes companies that are high Environmental, Sustainable and Governance performers:
- MSCI ESG research data is used to include only the leading ESG performers in each sector.
Let’s review what else makes ESGI interesting:
- ESGI invests in 141 different international companies
- There is currently $93 million invested in this ethical ETF
- ESGI tracks the return on the MSCI World ex Australia ex Fossil Fuel Select SRI and Low Carbon Capped Index
- 36% of the companies held by this ETF are based in the United States, followed by 11% of companies based in Japan, with 8% of companies coming from the UK
- The return since inception is 13.63%
ESGI Dividend Yield
The ESGI Dividend Yield is 2.12% as of 30 July 2021.
This ethical ETF has consistently had a dividend yield that is quite low, with most of the returns of this ETF coming from capital growth. Over the past 12 months ESGI has yielded 1.93%. Over the past 3 years GRNV has paid dividends at a rate of 1.81%. Since inception in 2018 ESGI has yielded 1.77% per annum.
ESGI pays a dividend once per year.
There is a dividend reinvestment plan available for ESGI.
ESGI Fees
ESGI charges an above average management fee for an ethical ETF at 0.55%
This means that you pay VanEck $5.50 for every $1,000 you invest in ESGI, $55 for every $10,000 you invest in ESGI or $550 for every $100,000 you invest in ESGI.
ESGI Fact Sheet
The latest ESGI Fact Sheet is always available for review and download on the VanEck Australia website.
The Best Ethical ETF’s Comparison
GRNV vs FAIR
Can’t make up your mind whether to buy FAIR or GRNV?
- Both GRNV and FAIR apply strict ethical investment criteria to companies
- GRNV charges a lower annual management fee than FAIR
- FAIR has more than six times the amount of funds invested in their ETF than GRNV
- GRNV pays a quarterly dividend whereas FAIR pays out twice per year
Have a read of the VanEck GRNV Review
Consider the Betashares FAIR Review
Recommendation: It’s a close call and both FAIR and GRNV are excellent ethical ETFs. I rate GRNV as the top ETF due to its lower management fee and more frequent dividend payment schedule.
ETHI vs VESG
Before deciding whether to buy VESG or ETHI remember:
- Companies need to be climate change leaders to be included in ETHI, meaning that their carbon emissions are at least 60% below the industry average. VESG uses a simple industry exclusion method for companies in their ethical ETF
- ETHI has 10 times the amount of money invested in their ethical ETF compared with VESG
- VESG invests in 1,600+ international companies, whereas ETHI invests in 199 global companies
- ETHI charges a management fee of 0.59% but VESG only charges 0.18% per annum
Read the detailed Betashares ETHI Review
Consider our Vanguard VESG Review
Recommendation: ETHI comes on on top due to the strict ethical screening criteria it applies to companies in which it invests.
ETHI vs ESGI
ETF Comparison: ESGI or ETHI?
- ESGI charges a slightly lower management fee than ETHI with 0.55% vs 0.59%
- Both ETHI and ESGI apply excellent screening criteria to ensure their invests are both ethical and sustainable
- ESGI excludes companies that are high carbon emitters, but ETHI goes further by excluding companies that aren’t at least 60% below the industry average for carbon emissions
- ETHI makes dividend payments twice per year whereas ESGI only pays dividends once per year
Have you read the Betashares ETHI Review
Take a look at the VanEck ESGI Review
Recommendation: It’s another close call here but I am calling ETHI as the better ETF because it is more transparent in publishing how it defines high carbon emissions. Both Betashares and Vaneck have excellent ethical etf products out on the market at the moment. You really can’t go wrong with either one.
You now have all the information about the which ethical etf is the best on the ASX and why. Time to go and save the planet one ETF at a time!
But before you do that, take a look at my reviews of all of the Best Australian ETFs for 2021.
