Introduction
Sustainable investing has been gaining popularity over the years as investors seek to align their values with their investments. One of the most popular forms of sustainable investing is through exchange-traded funds (ETFs). In recent years, international ESG ETFs have emerged as a popular option for investors seeking to invest in companies with strong environmental, social, and governance (ESG) practices outside of their home country.
What are International ESG ETFs?
International ESG ETFs are exchange-traded funds that invest in companies outside of the investor’s home country that have strong ESG practices. These funds typically track a specific index, such as the MSCI EAFE ESG Leaders Index, which includes companies from developed markets such as Europe, Asia, and Australia.
Why Invest in International ESG ETFs?
Investing in international ESG ETFs allows investors to diversify their portfolio while also aligning their investments with their values. These funds invest in companies that prioritize sustainability, social responsibility, and good governance, which can lead to better long-term performance and risk management.
The Benefits of International ESG ETFs
Aside from aligning with their values, investing in international ESG ETFs offers several benefits. One of the main advantages is diversification. By investing in companies across different markets, investors can reduce their exposure to country-specific risks and potentially benefit from growth in different regions. Another benefit is the potential for higher returns. Studies have shown that companies with strong ESG practices tend to perform better over the long term, as they are better equipped to manage risks and take advantage of new opportunities.
How to Invest in International ESG ETFs
Investing in international ESG ETFs is relatively easy. Investors can purchase shares of these funds through a brokerage account, just like they would with any other ETF. Some popular international ESG ETFs include iShares MSCI EAFE ESG Leaders ETF, Xtrackers MSCI EAFE ESG Leaders Equity ETF, and Nuveen ESG International Developed Markets Equity ETF.
Things to Consider Before Investing in International ESG ETFs
Before investing in international ESG ETFs, there are a few things to consider. It’s important to understand the fund’s investment strategy, including which companies it invests in and how it evaluates ESG practices. Additionally, investors should consider the fund’s expense ratio and other fees, as these can impact returns over time.
Performance of International ESG ETFs
While past performance is not a guarantee of future results, international ESG ETFs have generally performed well in recent years. For example, the iShares MSCI EAFE ESG Leaders ETF has outperformed its benchmark index over the past five years, with an annualized return of 10.29% compared to 8.54% for the MSCI EAFE Index.
The Future of International ESG ETFs
As sustainable investing continues to gain momentum, the future of international ESG ETFs looks bright. In fact, some experts predict that the market for ESG ETFs could grow to $1 trillion by 2030. This growth is likely to be driven by increased demand from investors who are looking to align their investments with their values and the growing awareness of the importance of sustainability.
The Bottom Line
International ESG ETFs offer investors an opportunity to diversify their portfolio while also aligning their investments with their values. These funds invest in companies that prioritize sustainability, social responsibility, and good governance, which can lead to better long-term performance and risk management. As sustainable investing continues to gain popularity, the future of international ESG ETFs looks bright.
