- Global ESG assets reached $30 trillion in 2022 and are projected to exceed $40 trillion by 2030, representing over 25% of global assets under management (AUM).
- Funds with high ESG ratings are now increasingly viewed by analysts and fund managers as more likely to deliver superior returns in the future, underscoring the importance of ESG considerations in investment strategies.
- The Invesco Quantitative Strategies ESG Global Equity Multi-Factor UCITS ETF has consistently ranked among the top performers in the IA Global sector, delivering impressive returns of 27.85%, 37.62%, and 85.74% over the past 1, 3 & 5 years, respectively.
- Over the past 5 years, the Xtrackers MSCI USA ESG UCITS ETF 1C has achieved an impressive growth of 105.75%, significantly outperforming the IA North America sector average of 74.75%.
ESG (Environmental, Social, and Governance) funds have become a central focus for investors seeking both financial growth and ethical responsibility. As global ESG assets continue to grow, expected to surpass $40 trillion by 2030, these funds are proving that strong sustainability practices can align with competitive returns. No longer viewed as a trade-off, ESG investments have demonstrated impressive performance, with some outperforming traditional funds in recent years.
With almost 200 ESG focused funds available to UK investors there are no shortage of options available. To help investors navigate this landscape, we conducted a comprehensive analysis of 189 ethical funds available to UK investors. In this report, we feature 10 of the best performing ethical funds and provide access to a comprehensive report covering the performance, sector ranking and overall rating of all 189 ethically themed funds.
ESG Funds Performance Summary
We reviewed 189 ESG funds across various sectors to assess their performance over 1, 3, and 5-year periods. This analysis helped to determine how effectively these funds apply Environmental, Social, and Governance (ESG) criteria and their ability to generate returns.
Our findings show that only 15 funds, or 8% of the total, received a four or five-star rating. Of these, 6 funds (3.2%) earned the highest five-star rating, while 9 funds (4.8%) achieved a four-star rating, reflecting strong overall performance.
However, a significant number of the funds have underperformed, with 78 receiving a two-star rating and 38 earning just one star. This means that 61.4% of the ESG funds analysed have struggled to match or exceed the performance of their peers, highlighting the importance of careful selection when considering ESG-focused investments.
10 Best Performing ESG Funds
As sustainable investing grows, some ESG (Environmental, Social, and Governance) funds stand out for their strong performance, consistently outperforming peers while upholding high ethical standards. Our analysis of 189 funds highlights the varying effectiveness of ESG strategies in achieving both ethical and financial goals.
Below we identify 10 of the best-performing ESG funds that have consistently excelled over the past 1, 3, and 5 years. These funds have demonstrated resilience, earning four or five-star ratings, and maintaining a strong commitment to ESG principles.
1. Invesco MSCI World ESG Universal Screened ETF
The Invesco MSCI World ESG Universal Screened UCITS ETF aims to track the performance of the MSCI World ESG Universal Select Business Screens Index, excluding fees and expenses. This index includes large and mid-cap companies from 23 developed markets, all with high ESG ratings. The fund avoids investments in controversial industries like tobacco, thermal coal, and weapons, aligning with responsible and sustainable investing principles.
Using a replication strategy, the fund closely mirrors the index, investing in major companies such as NVIDIA, Microsoft, Apple, and Amazon across sectors like technology, financial services, and healthcare.
Over the past year, the fund returned 21.41%, exceeding the sector average of 15.8%. Its 3-year growth of 25.57% and 5-year growth of 77.47% also outperformed the sector averages, placing it among the top funds in the IA Global sector.
This strong performance reflects the fund’s ability to identify companies that not only meet ESG criteria but also offer solid financial growth, making it a compelling option for investors looking to combine ESG values with capital appreciation.
2. Invesco Quantitative Strategies ESG Global Equity Multi-Factor UCITS ETF
The Invesco Quantitative Strategies ESG Global Equity Multi-Factor UCITS ETF aims to exceed the MSCI World Index over the long term by investing in a global portfolio of equities that meet strict environmental, social, and governance (ESG) standards. The fund employs a multi-factor strategy, focusing on momentum, quality, and value, to identify high-potential stocks across developed markets.
With approximately £509.54 million in assets, the fund has delivered strong performance in the IA Global sector. Over the past year, it achieved a return of 27.02%, significantly outperforming the sector average of 15.8%. Its 3 year growth of 37.62% and 5 year growth of 85.74% further highlight its ability to outperform the sector, which averaged 12% and 54.27% over the same periods, respectively.
The fund's strategy focuses on sectors with high growth potential, such as technology, financial services, and industrials, and maintains significant exposure to developed markets in North America, Europe, and Asia. By balancing ESG principles with a focus on undervalued stocks and growth opportunities, this fund offers a strong option for investors seeking sustainable growth in global equities. Its consistent outperformance across multiple time frames underscores its ability to blend ethical investing with financial returns, making it an attractive choice for a diversified portfolio.
3. iShares MSCI USA ESG Screened UCITS ETF Acc
Launched in October 2018, the iShares MSCI USA ESG Screened UCITS ETF has consistently performed well, ranking among the top ESG funds in the IA North America sector. Over the past year, the fund achieved a return of 24.74%, significantly exceeding the sector average of 19.99%. Over 3 years, it posted growth of 36.16%, outperforming the sector average of 23.64%. Its 5-year performance is particularly notable, with a growth of 101.09%, far above the sector average of 74.75%.
The fund focuses on U.S. equities, selecting companies that meet strict ESG criteria while excluding industries with negative environmental or social impacts, such as tobacco, weapons, and thermal coal. It tracks the MSCI USA ESG Screened Index, aiming to provide total returns from both capital and income.
With $8.65 billion in assets under management, the ETF follows a passive investment strategy, closely replicating the index to align with its benchmark. Offering low ongoing charges of 0.07% and a diversified portfolio of companies with strong ESG ratings, this ETF is an appealing choice for investors seeking ethical investments alongside competitive returns. Its strong performance across various time frames further strengthens its appeal for those interested in U.S. equities with a sustainability focus.
4. iShares MSCI World ESG Screened UCITS ETF Acc
The iShares MSCI World ESG Screened UCITS ETF is a passively managed fund that tracks the MSCI World ESG Screened Index. With USD 2.86 billion under management, this exchange-traded fund (ETF) offers global diversification by investing in large and mid-cap companies from the Index, with a focus on those that meet strong Environmental, Social, and Governance (ESG) criteria.
The fund's performance has been impressive, delivering returns of 22.46%, 28.28%, and 79.41% over the past 1, 3, and 5 years, respectively. These results significantly exceed the IA Global sector averages of 15.8%, 12%, and 54.27%, demonstrating the ETF's ability to consistently outperform its peers in the ESG-focused space.
As the largest and lowest-cost option for tracking the MSCI World ESG Screened Index, this ETF offers a competitive advantage. By reinvesting dividends from its underlying holdings, the fund promotes compounding growth over time, further enhancing its performance.
The iShares MSCI World ESG Screened UCITS ETF provides exposure to global companies that not only demonstrate strong financial performance but are also committed to sustainability, aligning with ethical investment values. Its consistent outperformance highlights the potential benefits of integrating ESG factors into a global equity portfolio.
5. JPM Global Research Enhanced Index Equity (ESG) UCITS ETF
Launched in 2018, the JPM Global Research Enhanced Index Equity (ESG) UCITS ETF manages $6.93 billion in assets. The fund aims to achieve long-term returns that exceed its benchmark, the MSCI World Index, by actively investing in a global portfolio of companies.
The fund uses a Research Enhanced Index (REI) strategy, combining the cost-efficiency of passive investing with the potential outperformance of active management. This approach leverages insights from J.P. Morgan's extensive network of research analysts to identify undervalued stocks with strong growth potential.
The fund has shown outstanding performance, consistently outperforming benchmarks and peers. Over the past year, it achieved growth of 21.50%, surpassing the sector average of 15.8%. Over three years, it posted 31.19% growth, outperforming the sector average of 12%. Its 5-year growth of 84.42% also exceeded the sector average of 54.27%.
6. L&G Future World ESG Developed Index I Acc
The L&G Future World ESG Developed Index I Acc fund is a major global equity investment vehicle, managing £2,285.10 billion in assets. Its goal is to closely track the performance of the Solactive L&G Enhanced ESG Developed Markets Index Net Total Return (NTR). The fund invests at least 90% of its assets directly or through depositary receipts in securities within the benchmark index, ensuring strong alignment with ESG criteria.
The fund avoids companies involved in sectors like tobacco and arms, particularly those earning over 10% of their revenue from such activities. This passively managed fund has consistently performed well, earning a five-star rating in its sector. Over the past year, it delivered a return of 22.09%, outperforming the sector average of 15.8%. Over three years, it achieved growth of 26.03%, again exceeding the sector average of 12%. Its 5-year growth of 77.46% also surpassed the sector average of 54.27%.
A standout feature of this fund is its Climate Impact Pledge, which enables the exclusion of companies from the index that fail to meet specific climate goals. With a low ongoing charge of 0.20% and a strong track record of sector outperformance, this fund offers an efficient and reliable option for investors looking to gain exposure to global equities while adhering to stringent ESG standards.
7. Xtrackers MSCI Emerging Markets ESG Screened UCITS ETF 1C
The Xtrackers MSCI Emerging Markets ESG Screened UCITS ETF 1C passively tracks the FTSE All-World ex UK Index, representing large and mid-sized companies from developed and emerging markets globally (excluding the UK). The fund closely replicates the index by purchasing a proportional number of its shares, while also employing derivatives to manage risk, reduce costs, and enhance performance.
Over the past year, the fund delivered a return of 10.84%, outperforming the sector average of 9.23%. Its 3-year performance was even more remarkable, with a return of 3.84% compared to the sector average of -5.34%. The 5-year return of 40.80% also significantly exceeded the sector average of 19.06%, positioning the fund as a top performer in the IA Global Emerging Markets sector.
The fund’s broad sectoral exposure, spanning financial services, technology, and consumer cyclical industries, contributes to its strong performance. Geographically, it focuses on high-growth emerging markets like Taiwan, China, and India, enabling the fund to capture opportunities in dynamic regions with significant growth potential. This combination of broad sectoral and geographical diversification makes it a compelling choice for investors seeking a balance of growth potential and sustainable, ethical investment practices.
8. Xtrackers MSCI USA ESG UCITS ETF 1C
With $8.44 billion in assets, the Xtrackers MSCI USA ESG UCITS ETF 1C is consistently ranked among the top-performing funds in the North American sector. Over the past 1, 3, and 5 years, the fund has delivered returns of 24.51%, 34.94%, and 105.75%, respectively, outperforming sector averages of 19.99%, 23.64%, and 74.75%. These results highlight the fund’s strong ability to generate superior returns while adhering to ESG principles.
The fund’s primary objective is to track the MSCI USA Low Carbon SRI Leaders Index, focusing on large and mid-cap U.S. companies with lower carbon exposure and stronger ESG performance. It follows a physical replication strategy, investing directly in the underlying securities of the index, ensuring accurate representation of ESG leaders in the U.S. market.
The portfolio includes major technology firms like NVIDIA and Microsoft, combining a commitment to lower carbon footprints with solid financial performance.
9. Redwheel UK Climate Engagement Fund
The Redwheel UK Climate Engagement fund focuses on income and capital growth by primarily investing in UK equities. It follows an active ownership strategy, where fund managers engage directly with companies to influence environmental practices, ensuring that these firms are making progress toward sustainability goals.
The fund targets sectors crucial for climate transition, including financial services, energy, consumer cyclicals, and basic materials. While its main focus is on large-cap UK companies, it also includes some exposure to other developed markets for diversification. This active engagement, paired with selective investment and thorough analysis, has allowed the fund to consistently outperform peers in the IA UK All Companies sector.
Over the past 1, 3, and 5 years, the fund delivered returns of 21.95%, 28.62%, and 46.28%, respectively, surpassing sector averages of 18.26%, 9.18%, and 32.76%.
10. Rathbone Ethical Bond Fund
The Rathbone Ethical Bond Fund has demonstrated strong sector performance, consistently outpacing its benchmark within the IA Sterling Corporate Bond sector. Over the past year, the fund achieved a notable return of 12.76%, exceeding the sector average of 11.21%. This outperformance highlights the fund’s ability to generate competitive returns while adhering to a strict ethical investment framework.
Despite facing challenges in the broader bond market, the fund's three-year performance, though negative at -6.17%, remains better than the sector average of -7.74%. This resilience, especially in challenging market conditions, underscores the fund's strategic approach to managing risk while maintaining its commitment to responsible investing. Additionally, its five-year return of 5.92% is particularly strong compared to the sector average of -1.21%, further establishing the Rathbone Ethical Bond Fund as a standout performer in its category.
The fund’s strategy of focusing on higher-yielding, investment-grade UK bonds, combined with its rigorous ethical screening process, enables it to offer a solid balance of financial returns and ethical considerations.
The Expanding Role of ESG in Fund Performance
Ethical and sustainable investing is no longer a niche interest but a crucial consideration for growth-focused investors. Funds invested in companies with strong ESG practices are well-positioned for future growth, presenting significant opportunities for investors.
As the demand for ESG-focused investments continues to rise, the market has responded with a growing array of fund options that cater to this demand. Investors now have greater access to diversified, performance-oriented ESG portfolios, empowering them to align their financial goals with their ethical values. By prioritising both ESG integration and consistent returns, investors can potentially unlock the dual benefits of sustainable investing and robust portfolio growth.
Identifying which ESG funds perform the best has also never been easier. Yodelar's unique fund research tool provides investors with detailed insights into fund performance, sector rankings, and the overall quality rating for thousands of funds from over 100 management firms.
Summary
The ESG (Environmental, Social, and Governance) fund market is experiencing rapid growth as more investors prioritise sustainable and ethical investment practices. Our analysis of 189 ESG funds available to UK investors over the past 1, 3, and 5 years shows a wide range of performance, with some funds standing out as top performers, while others have underperformed.
The top 10 ESG funds identified in this analysis consistently outperform across sectors, employing a variety of approaches, from passively managed ETFs tracking ESG indices to actively managed funds with strict ESG criteria. These funds demonstrate a balance between ethical considerations and financial growth, making them attractive options for investors seeking sustainability without compromising returns.
However, not all ESG funds perform equally. Only 8% of the funds reviewed earned four or five-star ratings, while 61.4% underperformed their benchmarks, underscoring the importance of careful fund selection and quality investment advice.
Discover our high quality ESG portfolios
ESG Investing with Yodelar
Yodelar Investments has developed a range of risk-rated ESG portfolios designed to deliver growth while adhering to ESG standards, as defined by leading ESG metrics provider MSCI.
Yodelar’s portfolios are built on years of research and analysis, which involves the consistent evaluation of over 100 fund managers, tens of thousands of funds, and more than 30,000 investment portfolios. Our investment approach focuses on selecting funds that have consistently ranked among the top performers in their sectors. This quality-driven strategy aims to maximise growth for investors within a structured ESG framework, ensuring both sustainability and strong returns.
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