Sustainable ETFs promise an investment in a green future. Find out here what you should look out for when buying.

There is now a wide range of green investments to choose from. Sustainable investments are becoming increasingly popular. However, there are still no precise regulations on when an investment product is considered sustainable. As a consequence, there are considerable differences between the sustainability criteria of the available green ETFs. So before you decide on a sustainable investment product, it is worth taking a closer look. Only then will you choose an ETF that meets your ethical and ecological convictions.

What are ETFs?

ETFs (abbreviation for Exchange Traded Funds) are funds that track a specific stock index (e.g. DAX). Therefore, an ETF performs almost identically to the index it tracks. In this respect, the associated ETF rises when the price of the index is in an upward trend and falls in the same way in the event of a negative trend. The performance of the ETF is almost identical to the corresponding index. This is why ETFs are also called index funds. ETFs incur lower management costs than actively managed funds and offer lower risk than shares in individual companies due to their broad diversification.

What are sustainable ETFs?

Sustainable ETFs belong to the so-called green investments. They are very popular among investors in forex Exness because of their advantages. Therefore, many specialised index funds are now on the market. While at the beginning of this trend the focus was mostly on certain sectors (e.g. pharmaceuticals) or regions (e.g. Asia), for some time now there have been a large number of ecological and sustainable ETFs. These are intended to combine the advantages of index funds with an investment with sustainable criteria. For this reason, only companies whose corporate philosophy and business practices fit the principles of the respective ETF are included in the respective fund. These sometimes have considerable differences in terms of their sustainability criteria.

What are the criteria for sustainable ETFs?

Before you decide on an ETF, you should check the sustainability principles in detail. This is the only way to find out whether the green investment suits you and your personal ideas. Sustainable ETFs have various abbreviations in their names. Particularly common are, among others:

    ESG (Environmental, Social & Governance): Commitment to the environment, social issues and fair corporate governance.
    SRI (Socially Responsible Investment): investments with social responsibility
    ex Weapons: excluding the arms industry
    ex Tobacco: excluding the tobacco industry
    ex Gambling: excluding the gambling industry
    ex Alcohol: without alcohol companies
    Low Carbon: low CO2 emissions
    Sustainability: sustainability

The last two designations in particular do not provide any certainty, because they usually only include companies that produce few emissions anyway - such as service companies. But the other designations also require close scrutiny by you as an investor. The best-in-class principle applies to many sustainable ETFs. Here, the index provider selects, for example, 25 percent of the most sustainable companies from an index such as the DAX. This says little about actual sustainability. Due to the low and vague selection criteria, this quickly leads to a green investment with shares in the mineral oil industry or nuclear power companies. Therefore, before investing, check which green criteria the respective ETF attaches importance to. It is important that investors compare the method used to create the index with their individual and personal convictions and preferences.