The rise of ethical or impact investing has been well documented.
This strategy is sometimes referred to as ESG investing – based on environmental, social, and governance considerations.
Essentially, these strategies involve advancing particular social or ethical causes and generating financial returns.
Sometimes this might mean actively investing in companies that are engaged in a specific cause.
Conversely, investors may choose to actively avoid companies that do not align with their views on environmental or social causes.
For example, you may avoid companies engaged in manufacturing weapons, tobacco etc.
One way to pool these companies that fit into a category is through an ASX ETF.
Ultimately, investors still want to see their portfolio grow. So let's look at how some of the most popular ethical ETFs have performed so far this year.
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Betashares Australian Sustainability Leaders ETF (ASX: FAIR)
This fund aims to track the performance of an index (before fees and expenses) that are selected on the basis of both positive and negative screening.
This includes Australian companies that are deemed not to have direct or significant exposure to fossil fuels or engaged in activities deemed inconsistent with responsible investment considerations.
The Fund's methodology also preferences companies classified as 'Sustainability Leaders'. This is based on their involvement in business activities aligned to the United Nations Sustainable Development Goals.
Unlike other ethical funds, the FAIR ETF is focussed exclusively on Australian companies.
It is currently made up of 79 holdings. This includes blue-chip companies like Woolworths Group Ltd (ASX: WOW) and Telstra Group Ltd (ASX: TLS).
It has performed well so far in 2025, rising 5.20% in that span and more than 14% over the last year.
Vanguard Ethically Conscious Australian Shares Fund (ASX: VETH)
Offering slightly more diversification in its portfolio with 234 holdings, this ETF uses an exclusion methodology.
The index excludes companies that the index provider determines are involved in controversial conduct related to principles of the United Nations Global Compact.
For example, securities of companies that have a specified level of business involvement in fossil fuels, nuclear power, alcohol, tobacco, cannabis, gambling, adult entertainment or weapons.
Its largest holding by a significant margin is Commonwealth Bank of Australia (ASX: CBA). The big four bank makes up more than 13% of the fund.
It has already risen 7.52% this year – a strong return for investors.
Vanguard Ethically Conscious International Shares Index Etf (ASX: VESG)
This fund, also from Vanguard, is essentially the international version of the previous fund.
The ETF's index excludes securities of companies that have a specified level of business involvement in fossil fuels, nuclear power, alcohol, tobacco, cannabis, gambling, adult entertainment or weapons.
The index also excludes companies that the index provider determines are involved in controversial conduct related to principles of the United Nations Global Compact.
This is a heavily diversified, globally focussed fund that includes more than 1,400 holdings.
However, it is largely exposed to the US, with more than 70% of its holdings being made up of American companies.
This includes companies like Microsoft, Apple and Amazon.
So far in 2025 the fund has risen just 1.47%.
