8 best ESG index funds to buy in 2025

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This information is NOT relevant to EU residents who are to be serviced by EU subsidiaries of the Plus500 Group, such as Plus500CY Ltd, authorised by CySEC (Reg. 250/14). Different regulatory requirements apply in Europe such as leverage limitations and bonus restrictions.

ESG (Environmental, Social, and Governance) index funds have emerged as a popular choice for investors looking to integrate sustainability and ethical considerations into their portfolios. 

Our panel of investing experts delve into a comprehensive review of the best index funds that hold stocks in ethical and sustainable companies, to provide valuable insights and guidance to help you make informed decisions while supporting companies that prioritise ESG principles.

What are the 8 top ESG index funds to buy?

1. iShares MSCI KLD 400 Social ETF (DSI)
2. Vanguard FTSE Social Index Fund (VFTSX)
3. iShares ESG MSCI USA ETF (ESGU)
4. SPDR S&P 500 ESG ETF (EFIV)
5. iShares ESG MSCI EM ETF (ESGE)
6. Parnassus Core Equity Fund (PRBLX)
7. Calvert Equity Fund (CSIEX)
8. TIAA-CREF Social Choice Equity Fund (TISCX)

The best ESG funds, compared

1. iShares MSCI KLD 400 Social ETF (DSI)

Key details

• Date created: November 14, 2006
• Expense ratio: 0.25%
• 5-year return: 15.02% 
• Minimum investment amount: None
• Dividend yield: 1.42%
• Risk level: Moderate

The iShares MSCI KLD 400 Social ETF is managed by BlackRock, one of the world’s largest asset management companies. The ESG fund aims to track the performance of the MSCI KLD 400 Social Index.

It includes companies that have positive environmental, social, and governance characteristics while maintaining a risk and return profile similar to the broader market. 

Examples of stocks held in the fund may include companies like Microsoft, Visa, and Procter & Gamble. This fund is best suited for investors seeking broad exposure to the US stock market while adhering to ESG principles.

2. Vanguard FTSE Social Index Fund (VFTSX)

• Date created: April 20, 2000
• Expense ratio: 0.14%
• 5-year return: 17.56%
• Minimum investment amount: $3,000 
• Dividend yield: 1.66%
• Risk level: Moderate

The Vanguard FTSE Social Index Fund is managed by Vanguard, a leading investment management company that’s well-known for its low-cost index funds. The ESG fund seeks to track the performance of the FTSE4Good US Select Index. 

Like other ESG funds, VFTSX invests in companies that meet specific ESG factors, including positive policies on social issues, the environment, and corporate governance. The fund has many ESG investments, including companies such as Alphabet (Google), Apple, and Johnson & Johnson. 

This fund is suitable for investors looking for a low-cost option for long-term investing with a focus on socially responsible companies.

3. iShares ESG MSCI USA ETF (ESGU)

Key details

• Date created: October 18, 2016
• Expense ratio: 0.15%
• 5-year return: 17.22%
• Minimum investment amount: None
• Dividend yield: 1.42%
• Risk level: Moderate

Managed by BlackRock, the iShares ESG MSCI USA ETF aims to replicate the performance of the MSCI USA Extended ESG Focus Index. This index consists of U.S. large and mid-cap companies with favourable ESG characteristics relative to their sector peers.

The fund invests in a range of companies like Apple, Amazon, and Facebook. The ESG fund is designed for investors seeking exposure to environmentally-friendly and socially-conscious U.S. equities.

4. SPDR S&P 500 ESG ETF (EFIV):

Key details

• Date created: April 19, 2021
• Expense ratio: 0.10%
• 5-year return: N/A
• Minimum investment amount: None specified 
• Dividend yield: N/A
• Risk level: Moderate

The SPDR S&P 500 ESG ETF, managed by State Street Global Advisors, tracks the performance of the S&P 500 ESG Index. The index is made up of companies from the widely recognised and hugely popular S&P 500 Index that have strong ESG practices. 

The fund holds a diversified portfolio that may include companies such as Microsoft, Johnson & Johnson, and Visa. It is suitable for investors seeking broad exposure to large-cap U.S. equities with a focus on ESG considerations.

5. iShares ESG MSCI EM ETF (ESGE)

Key details

• Date created: October 18, 2016
• Expense ratio: 0.25%
• 5-year return: 9.99%
• Minimum investment amount: None
• Dividend yield: 1.54%
• Risk level: High

Also managed by BlackRock, the iShares ESG MSCI EM ETF seeks to track the MSCI Emerging Markets Extended ESG Focus Index. 

The fund invests in emerging market companies that exhibit favourable ESG characteristics relative to their sector peers. Holdings include companies like Samsung Electronics, Tencent Holdings, and Alibaba Group. 

This fund is suitable for investors looking for exposure to emerging stock markets, such as those in Asia, while also adhering to ESG principles.

6. Parnassus Core Equity Fund (PRBLX)

Key details

• Date created: March 31, 1984
• Expense ratio: 0.86%
• 5-year return: 16.23%
• Minimum investment amount: $2,000
• Dividend yield: 1.27%
• Risk level: Moderate

The Parnassus Core Equity Fund is managed by Parnassus Investments and aims to achieve long-term capital appreciation through investments in companies that meet stringent ESG criteria. 

The fund follows a high-conviction approach and typically holds a concentrated portfolio of 30 to 40 stocks. Examples of holdings include companies such as Microsoft, Adobe, and Alphabet. 

This fund is suitable for investors seeking an actively managed mutual fund that integrates ESG analysis with a focus on sustainable investing.

7. Calvert Equity Fund (CSIEX)

Key details

• Date created: December 28, 1987
• Expense ratio: 0.94%
• 5-year return: 16.57%
• Minimum investment amount: $2,000
• Dividend yield: 0.99%
• Risk level: Moderate

Managed by Calvert Research and Management, the Calvert Equity Fund focuses on investing in companies that exhibit strong ESG practices. 

The fund aims to achieve long-term growth by investing in U.S. companies that meet Calvert’s ESG standards. Holdings in the fund include companies such as Intel, Home Depot, and Verizon. 

This fund is well-suited for investors seeking a diversified equity fund that aligns with their values and prioritises ESG and environmental investing considerations.

5. TIAA-CREF Social Choice Equity Fund (TISCX)

Key details

• Date created: September 30, 1990
• Expense ratio: 0.43%
• 5-year return: 17.13%
• Minimum investment amount: $2,500
• Dividend yield: 1.10%
• Risk level: Moderate

The TIAA-CREF Social Choice Equity Fund is managed by TIAA-CREF Asset Management and seeks long-term growth by investing in U.S. companies that meet specific ESG criteria. 

The fund aims to provide a diversified portfolio of stocks across various sectors. Examples of holdings include companies such as Microsoft, Apple, and Visa. This fund is suitable for investors looking for a socially conscious index fund with a focus on U.S. equities.

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What is a ESG index fund?

An ESG (Environmental, Social, and Governance) mutual fund is a type of investment fund that focuses on incorporating ESG criteria into the investment selection process. 

These funds consider environmental factors (such as climate change and resource usage), social factors (such as labour practices and community impact), and governance factors (such as board structure and executive compensation) when evaluating potential investments. 

ESG mutual funds aim to invest in companies that demonstrate positive ESG practices or exclude companies that are involved in activities that are deemed harmful or socially undesirable.

What does ESG mean?

ESG stands for Environmental, Social, and Governance. These three factors represent different aspects of corporate behaviour and management practices that are taken into consideration when evaluating a company’s sustainability and ethical impact. 

Environmental factors focus on a company’s impact on the natural environment. Social factors consider a company’s relationships with employees, communities, and customers. Governance factors assess a company’s leadership, transparency, and overall governance structure. 

ESG is used as a framework to evaluate the sustainability and ethical practices of companies and guide ethical investment decisions.

How do ESG fund managers decide what to invest in?

Index fund managers decide what constitutes an ESG investment by following specific criteria or benchmarks that have been established for ESG indices. These indices are constructed based on predefined ESG criteria and methodologies.

 Index providers, such as MSCI or FTSE Russell, evaluate companies based on their ESG performance and assign ESG ratings or scores. These ratings consider various data points, disclosures, and third-party assessments to determine a company’s ESG profile. 

Index fund managers then select companies that meet the predefined ESG criteria or weight companies based on their ESG scores to create an index fund that aligns with ESG principles.

How much do ESG index funds cost?

For most passive funds the cost is less than 0.5% per year. Each index fund charges an annual maintenance or management fee, which is referred to as the fund’s ‘expense ratio’ and given as a percentage of your investment. 

For active funds, you may have to pay 0.75% or more. A fund manager runs that type of mutual fund, so you’re paying for the time and expertise of the fund managers who decide which stocks to invest in. ESG ETFs are sometimes a cheaper option.

In addition, you may have to pay a trading fee when you buy or sell a stake in an ethical investing fund. Some trading platforms charge a fee each time you make an investment. This varies depending on the brokerage you use; most services don’t charge any commission, others charge a couple of pounds each time.

How to choose the right ESG funds for you

Our experts ranked the best index funds based on a range of factors, from the annual running cost to the risk profile of each fund. You should use the same features to pick the mutual funds that suit your expectations and investment goals.

• Annual management fee. Each mutual fund charges an annual fee as a percentage of your investment. Passive funds tend to be cheaper, while active funds are more expensive. When investing in ESG investment funds, you normally look to buy and hold for a few years. Small fee differences can add up to a big variation in investment performance over the long term, so you should favour mutual funds with the lowest maintenance fees.
• Fund size. The more money in an index fund, the more stable its performance is likely to be. Funds with low assets under management (AUM) can rely too heavily on the performance of one or two stocks and lack the diversification investors want for their ESG portfolios. 
• Index fund weighting. Each index fund tracks a stock market index, but there can be big differences in how the fund tracks its benchmark index. Pay close attention to the fund’s holdings and weighting in particular. An index fund that scales its weighting so that a larger percentage, say 10%, goes into one or two stocks is going to be far more affected by the performance of those companies than one which invests 5% in all stocks equally.
• Risk profile. Each index fund factsheet has to report its risk profile on a scale between 1 and 7, with 7 being the riskiest. This synthetic risk and reward measure (SRRI) is an industry standard that you can use to compare risk across asset management companies. Less risk is better, but many people choose to have a balance of different risk profiles in their portfolio, as the riskier ones can generate higher returns (as well as higher losses).
• Hedging and currency risk. Every index fund is denominated in a particular currency, such as GBP or USD. That means that fluctuations in the strength of that currency can act as a drag or boost on performance. If your fund is in GBP and the pound is weak relative to USD, that means the fund will underperform the same fund denominated in USD. Some index funds hedge their currency risk to avoid this, others don’t.
• Share class. Some funds generate income from dividends. For these types of funds there are two share classes: income and accumulation. The former means that any income is paid out automatically, while accumulation means the money is automatically reinvested. Accumulation is more convenient, while income means you might build up spare cash in your brokerage account. An index fund can be one or the other, while some offer a choice between both.

Are ESG index funds a good investment?

They are ideal for anyone who’s interested in socially or environmentally-conscious investing. ESG funds offer the opportunity to align investment portfolios with values by only supporting ‘good’ companies that exhibit positive characteristics.

These funds can also promote long-term sustainability and potentially mitigate certain risks associated with companies that have poor ESG performance. However, like any investment, ESG investing comes with its own risks and considerations.

One is the fact that ESG scores are often contested and there’s debate about which practices should be rewarded and punished by the ratings. There’s also the issue over which of the three criteria is most important, as there have been examples of companies like Tesla being removed from ESG funds because of its labour practices, while still being a positive force for change on the environmental front.

Ultimately, the big advantage of ESG mutual funds is that they allow you to invest in positive change without needing to sift through individual companies and their business practices. But you should always be careful to review the fund’s holdings, track record, prospectus, and fees to ensure it aligns with your objectives and values before you invest.

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