The top 20 ESG funds of the decade

March 1, 2024 5:13 PM

In spite of a political backlash in recent years, ESG funds delivered substantial returns from 2014 to 2024.

The past few years have been a whirlwind for ESG. After a political backlash and an exodus of investors, those three initials — standing for "environmental, social and governance" criteria — have, for many investors, gone from a badge of honor to a trio of scarlet letters.

Following the story induces a sense of whiplash. Just six years ago, BlackRock CEO Larry Fink wrote what became ESG's manifesto, extolling the importance of socially conscious investing.

"Society is demanding that companies, both public and private, serve a social purpose," Fink wrote in his 2018 letter to other CEOs. "To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society."

Investment flooded into ESG funds, which promised to funnel the cash only into corporations that benefited — or at least didn't harm — the planet and humanity. In 2021, investors around the world poured $649 billion into ESG-focused ETFs.

Then the tides turned. Prominent Republican politicians began railing against ESG, decrying it as "woke capitalism" that prioritized fuzzy ideals over profits. Former president Donald Trump called it "radical-left garbage." Florida governor Ron DeSantis signed a law banning state officials from investing public funds based on ESG criteria.

"Corporations across America continue to inject an ideological agenda through our economy rather than through the ballot box," DeSantis said in January 2023. "Today's actions reinforce that ESG considerations will not be tolerated here in Florida."

These political events took a heavy financial toll. In 2023, investors pulled $13 billion out of U.S. sustainable funds, according to Morningstar. Only 48 new ESG-labeled ETFs were introduced in the Americas — down from 104 in 2022 — and 36 were liquidated.

And yet in spite of all this, many ESG investments have remained highly profitable. Over the past decade, the top 20 sustainable funds have garnered an average yearly return of 13.57%, according to Morningstar Direct. In the past 12 months, their average gain was 18.29%.

READ MORE: The battle for the soul of ESG

Granted, those numbers are down from where they were in ESG's heyday. In 2021, the average 10-year and one-year returns were 17% and 33.7%, respectively.

But given the year ESG has had, the ability of these funds to stay in the black is notable — and raises doubts about the argument that investing according to one's values inevitably means sacrificing profits.

"It's a fallacy that sustainable investing underperforms," said Peter Krull, director of sustainable investments at Earth Equity Advisors in Asheville, North Carolina. "The reality is that any quality sustainable fund is going to be competitive with any traditional benchmark."

To learn about the top 20 ESG funds of the past 10 years, scroll through the cardshow below. All data is from Morningstar Direct, and is current as of Feb. 23, 2024.

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