Key takeaways:

• FUM for the Betashares Australian Sustainability Leaders ETF is significantly greater than the combined total of the Vanguard Ethically Conscious Australian Shares ETF, the iShares Core MSCI Australia ESG ETF, and the VanEck MSCI Australian Sustainable Equity ETF.

• Among this group, VETH has achieved the highest average total return since inception, whereas GRNV boasts the highest average annual total return over the last three years.

• Historically, VETH and IESG have paid quarterly distributions, and currently charge the lowest management fees, while FAIR and GRNV charge higher management costs and have instead paid semi-annual distributions.

Over recent years, environmental, social, and governance (ESG) investing has grown in popularity as investors seek to align investments with their values as far as sustainable and ethical practices and activities.

Today, not only do individual companies make concerted efforts to address the ESG concerns of key stakeholders, but several exchange-traded funds focus on companies that fund managers actively screen for compliance with sustainable and/or ethical practices.

There are four main ASX-listed ETFs that focus on ESG investing across Australian shares, including the Betashares Australian Sustainability Leaders ETF (ASX: FAIR), the Vanguard Ethically Conscious Australian Shares ETF (ASX: VETH), the iShares Core MSCI Australia ESG ETF (ASX: IESG), and the VanEck MSCI Australian Sustainable Equity ETF (ASX: GRNV).

Today we’re looking at the ins and outs of these four ETFs.

Fund Objective

The Betashares Australian Sustainability Leaders ETF aims to track the performance of the Nasdaq Future Australian Sustainability Leaders Index, before fees and expenses. This entails a selection of Australian companies that Betashares deems ‘sustainable’ and ‘ethical’.

Next, the Vanguard Ethically Conscious Australian Shares ETF seeks to track the return of the FTSE Australia 300 Choice Index, before taking into account fees, expenses, and taxes.

In the case of the iShares Core MSCI Australia ESG ETF, the fund aims to provide investors with the performance of the MSCI Australia IMI Custom ESG Leaders Index before fees and expenses. The objective of the fund is to provide exposure to large, mid, and small cap segments of the ASX that iShares believes offer ‘better’ sustainability credentials relative to sector peers.

Finally, the VanEck MSCI Australian Sustainable Equity ETF gives investors access to a diversified portfolio of sustainable Australian companies selected on the basis of in-depth analysis by research agency MSCI ESG Research. The aim of the fund is to provide investment returns, before fees and other costs, which track the MSCI Australia IMI Select SRI Screened Index.

Fund Profiles

The four funds are ranked by net assets as follows: FAIR ($1.5 billion); VETH ($389.0 million); IESG ($203.0 million); and GRNV ($171.9 million). That means the Betashares Australian Sustainability Leaders ETF holds around twice as many net assets as the combined total of its three peers.

Focusing in further on Betashares FAIR, the ETF recorded a $39.2 million increase in Funds Under Management (FUM) in March 2024. This takes into account $2.0 million in net outflows for the month. Across all ASX brokers, FAIR was traded nearly 2,700 times.

Vanguard’s product, VETH, also recorded a net outflow last month, to the tune of $1.3 million. However, its FUM increased by $12.4 million. There were over 2,300 trades in VETH across all ASX trading (broker) participants.

Unlike its peers, the iShares IESG ETF posted net inflows of $3.6 million in March. This supported an overall increase in FUM of $10.9 million. IESG was traded almost 1,300 times across the entire market, which was the least of the four funds under review.

GRNV was at the centre of more than 1,400 ASX trades last month, which includes trading activity across all brokers. VanEck reported a $5.9 million lift in FUM, while fund inflows were flat. All of the above figures are from the March 2024 ASX Investment Products update.

Fund Holdings

As far as holdings and exposure, there is a slightly different focus to each fund.

Betashares FAIR includes Australian companies that pass screens to exclude companies with direct or significant exposure to fossil fuels activities deemed inconsistent with ‘responsible’ investment considerations. It excludes large mining companies and the ‘Big Four’ banks.

The fund’s methodology also gives preference to companies classified as ‘Sustainability Leaders’ based on their involvement in business activities aligned to the United Nations Sustainable Development Goals. More information on target market determination and methodology can be found here.

Vanguard VETH excludes companies that have a specified level of business involvement in fossil fuels, nuclear power, alcohol, tobacco, cannabis, gambling, adult entertainment, or weapons. The index also excludes companies that the index provider determines are involved in controversial conduct related to principles of the United Nations Global Compact.

Other screens for revenue and ownership are used by Vanguard, and industry exposure within VETH is restricted to +/-5% of the index’s exposure. Further screening information is available here.

The iShares Core MSCI Australia ESG ETF screens to avoid companies engaged in ‘serious’ ESG controversies and select activities based on revenue thresholds.

IESG seeks to invest in a broad universe of large, mid, and small-cap companies in Australia that iShares rank as having ‘better’ ESG practices within their industry, as defined by the index methodology. Detailed sustainability characteristics and screening thresholds are described here.

Finally, VanEck GRNV screens for fossil fuels, human rights controversies, and socially responsible investments (SRI) combined with ESG leadership. The index includes ASX-listed securities that the fund manager rates as having ‘high’ ESG performance by applying the following negative and positive screens: exclusion of companies whose business activities are not socially responsible (SRI), subject to satisfying various thresholds, and inclusion of only high ESG performers in each sector.

VanEck caps the maximum weight of each security in GRNV to achieve diversification. Detailed screening information is available here.

Note: all holdings rounded to 1 decimal place 
^ = as at Apr 16, 2024; * = as at Mar 31, 2024; # = as at Apr 17, 2024 

Performance and Distributions 

Over a one, three, and five-year timeline, the Betashares Australian Sustainability Leaders ETF has delivered average returns of 17.25%, 6.87% p.a., and 6.98% p.a. Since inception, the average total return is 7.66% per annum.  

Vanguard’s VETH ETF has traded on the ASX for just under four years, so no five-year performance data is available. However, across the last 12 months, the fund returned 17.39%. Over the last three years, VETH has yielded an average total return of 8.83% per annum. That figure increases to 10.62% per annum for performance since inception. 

There is also limited performance data for the iShares Core MSCI Australia ESG ETF, but the fund returned 19.09% over the last 12 months. Since inception back in June 2021, IESG has averaged a total return of 8.56% p.a. 

Performance history for the VanEck MSCI Australian Sustainable Equity ETF shows a total return of 18.6% over the last year. On a three and five-year timeline, GRNV returned 9.79% per annum and 8.89% per annum respectively, and 7.14% per annum since inception.  

Each of these performance figures are based on periods up to the end of March 2024. It should be noted that past performance is not indicative of future performance, and these results do not provide any guarantee that future returns will be of the same magnitude, or that returns will be positive. 

While the Betashares FAIR and VanEck GRNV ETFs have historically paid two distributions per year, the Vanguard VETH and iShares IESG ETFs have instead paid quarterly distributions to unitholders.  

Please note, the amount and timing of distributions will vary from period to period, and there may even be periods where no distributions are made. 

Fees 

Headline fees between the products vary significantly.  

The Betashares Australian Sustainability Leaders ETF charges a management fee of 0.49% per annum. This is the highest among the quartet, followed by the VanEck MSCI Australian Sustainable Equity ETF, which has a management fee of 0.35% per annum. 

On the other hand, the Vanguard Ethically Conscious Australian Shares ETF and the iShares Core MSCI Australia ESG ETF charge the lowest management fees among this cohort at 0.16% per annum and 0.09% per annum respectively.  

Management fees are calculated in relation to the net asset value (NAV) of each fund on a daily basis, and prospective investors should note that other fees may apply. Please refer to the relevant Product Disclosure Statements for up-to-date details on costs and expenses, which may be deducted from the fund’s assets as and when they are incurred.  

Summary 

Among ESG-oriented ETFs focusing on Australian companies, Betashares FAIR has accumulated the largest FUM, with net assets double that of the collective total of its three peers. Nonetheless, each fund applies its own screening methods to identify ESG-compliant companies for inclusion, which results in VETH and IESG being diversified across a far larger number of holdings than FAIR and GRNV. 

Since inception, Vanguard’s Ethically Conscious Australian Shares ETF has outperformed its peers, although that result differs over a three-year timeline, where the VanEck MSCI Australian Sustainable Equity ETF has the highest average annual total return. Historically, VETH and IESG have paid quarterly distributions, and currently charge the lowest management fees of this cohort, while FAIR and GRNV charge higher management costs and have instead paid semi-annual distributions. 

For more information, you can read about the Betashares Australian Sustainability Leaders ETF here, the Vanguard Ethically Conscious Australian Shares ETF here, the iShares Core MSCI Australia ESG ETF here, and the VanEck MSCI Australian Sustainable Equity ETF here. Before investing in any ETFs, you should consult the respective Product Disclosure Statement, which will be available on the fund’s website.