Investing in an environmentally-friendly ETF, or exchange-traded fund, is a great way to make a positive impact on the planet while also potentially growing your portfolio. An ETF is a type of security that can track the performance of multiple assets at one time and often have lower management fees than mutual funds.

When it comes to environmentally-friendly ETFs, there are a variety of options available. Many of these ETFs focus on renewable energy investments, such as solar and wind power. Others invest in companies that pursue sustainable strategies like reducing their carbon emissions or improving their water management practices.

Many investors are now looking for opportunities to invest in companies that prioritise environmental conservation and sustainable practices, popularly known as ESG investing. The Environmental Exchange-Traded Fund is a popular investment option that allows for the diversification of holdings while focusing on environmentally responsible companies. This trend stems from the growing awareness of the importance of sustainable investing and environmental responsibility in recent years.

This article will discuss the top-performing environmental ETFs currently available in the market. We will also evaluate their holdings and environmental impact.

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Environmental, Social, and Governance (ESG) Criteria

ETFs that are environmentally responsible usually consist of companies that adhere to particular ESG standards. These standards may encompass various factors such as environmental, social, and governance considerations.

• Environmental Criteria: Evaluating how a company affects the environment by examining its carbon emissions, how it manages resources, and efforts to reduce waste. 
• Social Criteria: Assessing how well a company treats its employees, customers, and local communities, which includes evaluating fair labour standards, diversity and inclusivity, and involvement in community activities.
• Governance Criteria: The task is to analyse the management structure, board makeup, executive pay, and shareholder privileges of a company. 

Top 5 Best Environmental ETFs

iShares Global Clean Energy ETF (ICLN)

The iShares Global Clean Energy ETF is a popular environmental ETF that tracks the S&P Global Clean Energy Index. This index includes companies involved in clean technology and renewable energy, such as solar, wind, and hydro. The fund has a global reach and invests in established clean energy companies as well as emerging market leaders. Investors are attracted to the potential for growth in the renewable energy sector, and the ETF has shown strong performance in recent years.

Invesco WilderHill Clean Energy ETF (PBW)

The Invesco WilderHill Clean Energy ETF invests in companies that are working towards cleaner energy and conservation. The fund tracks the WilderHill Clean Energy Index, which consists of renewable energy sectors like solar, wind, geothermal and biofuels. PBW helps investors get access to small and mid-sized companies that are leading the way in transitioning to cleaner energy sources. It has a good track record in attracting investors looking for growth in the clean energy industry.

SPDR S&P Kensho Clean Power ETF (CNRG)

The SPDR S&P Kensho Clean Power ETF invests in companies that produce and store clean energy. The ETF tracks the S&P Kensho Clean Power Index through the use of artificial intelligence to select clean power companies. It includes companies engaged in renewable energy generation, energy storage, and enabling technologies. This ETF is ideal for investors seeking exposure to advanced technologies and innovative solutions that are driving the shift towards clean power.

First Trust Global Wind Energy ETF (FAN)

The First Trust Global Wind Energy ETF is dedicated to the wind energy industry and follows the ISE Clean Edge Global Wind Energy Index. This index encompasses wind turbine manufacturing, project development, and operation companies. Investing in FAN allows individuals to invest in both onshore and offshore wind energy companies across the world. The ETF's concentrated focus in the wind energy sector offers investors an opportunity to tap into the industry's rising significance in the renewable energy market.

VanEck Vectors Environmental Services ETF (EVX)

The VanEck Vectors Environmental Services ETF invests in companies that offer environmental solutions and services. It follows the NYSE Arca Environmental Services Index, which involves companies in waste management, pollution control, and environmental consulting. The EVX ETF invests in companies related to waste recycling, water treatment, and sustainable infrastructure. It is a good option for investors looking for opportunities in the environmental sector other than renewable energy.

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The Bottom Line

Environmental ETFs provide a way for investors to back sustainable companies and capitalise on the green economy's growth. ETFs, such as those listed here, each provide different opportunities to invest in various aspects of the environmental sector.

By investing in an ETF with a sustainability focus, you can support your values while also potentially diversifying and growing your portfolio. However, like any investment, be sure to thoroughly research and understand the ETF before investing. This means reading up on the fund's performance, risk level, and strategy so that you can make an informed decision. Ultimately, investing in a green ETF is one way to align your investments with your values while also potentially benefiting from market returns.

It is important to remember that there are no guarantees when it comes to investing, and past performance is not necessarily indicative of future results. As with any investment, be sure to understand the risks involved before you make your decision.

Be sure to consult a financial professional for advice tailored to your individual needs before making any investment decisions. However, with careful research and strategic planning, you can use environmentally-friendly ETFs to potentially diversify your portfolio and make a positive impact on the planet.

Find more ESG-related financial and investing news here.

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