This may sound familiar: You’re ready to invest, but you want to avoid putting your money into companies that don’t match your values. You’ve heard a lot about environmental, social, and governance (ESG) investing, but you’re unsure if it’s possible to invest ethically without hurting your financial returns. Sound familiar?

Here’s the good news—ethical investing isn’t just a niche anymore. In 2024, more investors are looking for ways to grow their wealth and do some good. But the big question is: Can you stay true to your values and still make solid returns?

That’s where ethical ETFs (Exchange Traded Funds) come in. They let you invest in a way that aligns with your principles, supporting companies that meet certain ESG criteria. And the best part? You don’t have to sacrifice your financial goals to do it.

In this post, you’ll learn why ethical ETFs are getting more popular with ESG investors and how they compare financially to traditional ETFs. By the end, you’ll see why investing in ethical ETFs could be a smart move for your portfolio and the planet in 2024.

What Are Ethical ETFs?

The Financial Performance of Ethical ETFs

One of the biggest questions ESG investors often have is: “Can ethical ETFs match up to traditional ETFs in terms of returns?” The short answer is—yes, they can, and in many cases, they do.

In recent years, ethical ETFs have shown that doing good and earning strong financial returns aren’t mutually exclusive. Many ethical funds have delivered competitive performance, with some even outperforming traditional ETFs.

Why? Because more consumers and investors are favoring companies with sustainable practices, which in turn pushes these businesses to succeed in the long run. Companies that focus on ESG factors are often better at managing risks, staying compliant with regulations, and maintaining strong reputations—leading to financial stability.

While there’s always some debate about whether ethical ETFs will consistently outperform, we’ve seen a clear shift in the last few years. Investors are increasingly aware of the risks of ignoring ESG issues, such as regulatory fines or reputational damage. These factors can negatively affect traditional companies that don’t prioritize sustainability, making ethical ETFs a safer long-term bet in certain markets.

So, when you invest in an ethical ETF, you’re not just putting your money where your values are—you’re also betting on companies that are likely to be more resilient in the future. And that’s a win-win for both your conscience and your wallet.

Why Ethical ETFs Make Sense for ESG Investors in 2024

How to Choose the Right Ethical ETF

Choosing the right ethical ETF can feel overwhelming, but it doesn’t have to be. Here are a few simple tips to help you pick one that fits your values and financial goals:

1. Check the ESG Criteria: Not all ethical ETFs are the same. Each uses different ESG (Environmental, Social, and Governance) criteria to decide which companies make the cut. Some funds might focus on climate-friendly companies, while others prioritize fair labor practices or diversity. Make sure the ETF you pick aligns with what matters most to you.
2. Look at the Expense Ratio: Just like with any investment, fees matter. The expense ratio tells you how much the fund charges annually to manage your money. A lower expense ratio means more of your money stays invested. Look for ethical ETFs with reasonable fees—usually around 0.10% to 0.50%—so you don’t lose too much of your returns to management costs.
3. Consider Performance and Risk It’s important to review the historical performance of the ETF and understand how it has fared over time. While past performance doesn’t guarantee future returns, it can give you a sense of how the fund performs in different market conditions. Also, the risk level of the ETF should be checked. Some ethical ETFs are more focused on growth and might be riskier, while others are designed to be more stable.
4. Diversification: A good ETF should be well-diversified, meaning it invests in various industries or sectors. This helps reduce risk because you’re not relying too heavily on one company or industry. Ethical ETFs can focus on everything from clean energy to tech, so choose one that spreads your investments across different sectors.
5. Check for Overlap: If you already have other investments, be mindful of any overlap. Some ethical ETFs might hold the same companies you already invested in through other funds, which can reduce the benefits of diversification.

For a list of top-performing ethical ETFs, make sure to check out our curated list here, which will help you get started with your search.

Conclusion

Ethical ETFs are a powerful way to invest in 2024, combining financial growth with positive change. Whether driven by environmental concerns, social justice, or ethical governance, these funds allow you to invest in companies that align with your values.

And the best part? You don’t have to give up financial returns to do it.

With rising demand for sustainable investments, tougher regulations, and strong long-term potential, ethical ETFs are well-positioned to perform. By choosing the right fund, you can support companies that are making a difference while working towards your financial goals.