The Best Fidelity ESG Funds in 2021 (Plus the Funds To Avoid)
Environmental, social, and governance (ESG) funds seek to invest in companies that do better on things like carbon emissions and shareholder rights. In 2021, Fidelity has almost doubled the number of their ESG funds. Find out which Fidelity funds could work for you (and which ones you should skip).
SustainFi September 28, 2021
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Is Fidelity a socially responsible company?
Fidelity is not the leader among fund managers on sustainability issues. Unlike BlackRock, which offers 30 ESG funds, Fidelity has not been outspoken about climate change or other ESG initiatives.
Research firm Morningstar gave Fidelity a low rating on sustainability because ESG investing is a tiny percentage of Fidelity’s assets under management. Fidelity’s ESG team is also small, and the firm doesn’t actively engage with companies on ESG issues.
However, there are signs that Fidelity is recognizing the shift to sustainable investing. Besides joining the Principles for Responsible Investment, Fidelity launched five sustainable funds in 2021 alone. And Fidelity International said that it would vote against directors at companies failing to deal with climate change or gender diversity issues.
Does Fidelity have green or ESG funds?
Fidelity offers 11 ESG and sustainable funds. These include nine mutual funds and two exchange-traded funds (ETFs). Both ETFs and mutual funds are collections of stocks or bonds, but ETFs are generally cheaper, more tax-efficient, and easier to trade.
Fidelity’s sustainable lineup is rapidly expanding: five out of 11 ESG funds launched in June 2021.
Fidelity funds have no minimum investments, and you can buy them through most brokers.
Fidelity ESG Funds
Here is an overview of Fidelity’s sustainable funds:
|Fund||Investments||Expense Ratio||Assets ($m)||2021 Performance||% Assets in Fossil Fuels||MSCI ESG Rating||Sustainalytics Rating|
|Fidelity U.S. Sustainability Index Fund (FITLX)||U.S. stocks||0.11%||1543||21%||2%||AA||5 / 5|
|Fidelity Environment & Alternative Energy Fund (FSLEX)||U.S. and foreign stocks||0.85%||550||22%||4%||AA||3 / 5|
|Fidelity International Sustainability Index Fund (FNIDX)||Foreign stocks||0.20%||386||10%||6%||AAA||3 / 5|
|Fidelity Sustainability Bond Index Fund (FNDSX)||U.S. bonds||0.10%||234||-1%||NA||A||NA|
|Fidelity Women's Leadership Fund (FWOMX)||U.S. and foreign stocks||0.90%||142||19%||2%||AA||5 / 5|
|Fidelity Water Sustainability Fund (FLOWX)||Water stocks||1.00%||99||20%||0%||AA||4 / 5|
|Fidelity Climate Action Fund (FCAEX)||U.S. and foreign stocks||1.05%||13||NA||0%||AA||5 / 5|
|Fidelity Environmental Bond Fund (FFEBX)||High-quality bonds||0.45%||12||NA||NA||AA||NA|
|Fidelity Sustainability U.S. Equity Fund (FSEBX)||U.S. stocks||0.90%||7||NA||2%||AA||5 / 5|
|Fidelity Sustainability U.S. Equity ETF (FSST)||U.S. stocks||0.59%||5||NA||3%||AA||5 / 5|
|Fidelity Women's Leadership ETF (FDWM)||U.S. stocks||0.59%||3||NA||2%||A||5 / 5|
Data as of 8/31/2021
Fidelity U.S. Sustainability Index Fund (FITLX)
Unlike other Fidelity mutual funds, the Fidelity U.S. Sustainability Index Fund (FITLX) is an index fund, meaning that it passively tracks a benchmark. In this case, the benchmark is the MSCI USA ESG Index, which includes U.S. stocks with high ESG scores as determined by MSCI ESG Research.
The fund invests in about 300 stocks included in its index, notably Microsoft, Google, and Tesla. Regarding ESG, FITLX has good ESG ratings from rating agencies Sustainalytics, MSCI, and Fossil Free Funds.
The fund is very cheap (0.11%), even compared to ESG ETFs. Performance has also been good. The fund did better than the non-ESG benchmark, Russell 1000 (a large-cap stock index), over its lifetime and in 2021. There is no minimum investment.
Fidelity Environment & Alternative Energy Fund (FSLEX)
The Fidelity Environment & Alternative Energy Fund (FSLEX) focuses on “alternative and renewable energy, energy efficiency, pollution control, water infrastructure, waste and recycling technologies.” It doesn’t screen investments based on ESG criteria like worker treatment or governance.
The fund holds about 50 stocks, including clean energy and cleantech companies like Tesla and NextEra Energy. However, we were surprised to see that Microsoft was the top holding and 11% of the fund’s assets. (Is Microsoft the most important company solving climate change?) This fund is not fossil free because energy companies are often the ones investing in renewables and alternative energy.
The fee (0.85%) is reasonable compared to other actively managed mutual funds but expensive compared to ETFs. Throughout the fund’s life, it did much worse than the S&P 500, returning 5.8% (vs. 10.8% for the S&P 500). There is no minimum to invest.
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Fidelity International Sustainability Index Fund (FNIDX)
FNIDX is the international version of FITLX. The fund tracks an index of international ESG stocks, the MSCI ACWI (All Country World Index) ex USA ESG Index. MSCI, the ESG rating agency, determines which stocks to include.
FNIDX invests in nearly 1,000 companies, including Chinese stocks Tencent and Alibaba. However, FNIDX’s ESG ratings are mixed, and fossil fuels are not excluded. Nearly 6% of the fund is invested in oil and gas stocks like the French oil company Total and the Russian natural gas producer Gazprom.
As an index fund, FNIDX is relatively cheap (0.20%), and there is no minimum investment.
Fidelity Sustainability Bond Index Fund (FNDSX)
Launched in 2018, the Fidelity Sustainability Bond Index Fund (FNDSX) invests in bonds of “companies with strong sustainability profiles.” This is an index fund, meaning that it tracks an index (in this case, the Bloomberg Barclays MSCI U.S. Aggregate ESG Choice Bond Index.)
In practice, the fund mostly invests in U.S. government bonds and the bonds of various government-sponsored agencies like Fannie Mae. So it’s not a fund that will solve climate change or generate high returns.
On the positive side, FNDSX is cheap (0.10%), and there is no minimum investment.
Fidelity Women’s Leadership Fund (FWOMX)
The Fidelity Women’s Leadership Fund (FWOMX) invests in companies that “prioritize and advance women’s leadership and development.” Started by Fidelity in 2019, FWOMX is an actively managed mutual fund that buys large and mid-cap U.S. stocks. The fund is managed by a woman, Nicole A. Connolly. She previously invested in natural resources, utilities, technology, and emerging markets.
To be included in the fund, companies must have:
- Women in the key roles in senior leadership, or
- At least one-third of the Board held by women, or
- Policies aimed at attracting, retaining and promoting women (such as parental leave)
The fund has around 130 holdings, including Microsoft, Nvidia, and Accenture. Although FWOMX has beaten its benchmark, the Russell 3000 index, since inception, it’s very expensive at 0.9%. There is no minimum investment.
🔔 Learn about other gender equality funds.
Fidelity Water Sustainability Fund (FLOWX)
Launched in early 2020, the Fidelity Water Sustainability Fund (FLOWX) invests in companies “helping to deliver safe, reliable, and easily accessible water.” There aren’t many water stocks out there, so, as of June 2021, FLOWX held only 28 investments. The top three were water utility American Water Works, Roper Technologies, and Halma Plc.
This fund is actively managed and invests domestically and internationally. FLOWX does what it promises (i.e., invest in water stocks), but it has failed to beat the S&P Global Water Index since its inception. (The index returned 51% compared to 45% for FLOWX.) FLOWX costs 1.0% in fees annually, but an ETF tracking the S&P Global Water Index, the Invesco S&P Global Water Index ETF (CGW), costs only 0.57%.
There is no minimum investment.
🔔 Learn which water funds other the best.
Fidelity Climate Action Fund (FCAEX)
Launched in June 2021, the Fidelity Climate Action Fund (FCAEX) invests in companies that are “removing, reducing, or mitigating the effects of climate change.” The fund invests in U.S. and foreign stocks of climate-aware companies. It is actively managed.
In July 2021, FCAEX owned 79 stocks. The top three were Microsoft, Alphabet, and Home Depot. The bulk of the fund’s investments were not in clean energy or cleantech, though it did have small investments in clean energy utility Iberdrola and several solar and wind companies. However, FCAEX is fossil free, earning an A rating from Fossil Free Funds.
It’s too early to judge the fund’s performance, though it’s very expensive (1.05%) and hasn’t yet attracted a lot of assets. There is no minimum investment.
Fidelity Environmental Bond Fund (FFEBX)
Also launched in June 2021, the Fidelity Environmental Bond Fund (FFEBX) invests in high-quality bonds of companies that are “recognizing, disclosing, and reducing environmental risk.” In July 2021, the fund’s investments included U.S. and German government bonds, European bank bonds, and corporate bonds. Although the fund invested in bonds issued by clean energy companies like wind developer Orsted, it is not a clean energy fund.
With a 0.45% expense ratio, FFEBX is expensive compared to ESG bond ETFs, which can cost less than 0.20%. Its track record is not yet clear, and the fund doesn’t have a lot of assets. There is no minimum investment.
Fidelity Sustainability U.S. Equity Fund (FSEBX)
Launched in June 2021, the Fidelity Sustainability U.S. Equity Fund (FSEBX) invests in companies that do well on ESG factors. FSEBX is an actively managed mutual fund, and Fidelity’s research team determines which companies are sustainable enough to merit inclusion.
The fund owns about 80 stocks, a lot of them tech companies. The top three are Microsoft, Danaher, and Salesforce.
FSEBX is expensive (0.9%) compared to ESG ETFs, small (under $10 million in assets), and doesn’t yet have much of a track record. There is no minimum investment.
Fidelity Sustainability U.S. Equity ETF (FSST)
Launched in June 2021, the Fidelity Sustainability U.S. Equity ETF (FSST) is an actively managed sustainable ETF. The fund’s managers try to beat the market while investing in U.S. stocks with good or improving sustainability practices based on their ESG profiles.
The last available holdings report showed investments in big tech stocks like Microsoft, Salesforce, Intuit, Nvidia, and Paypal. So FFST is not going after climate solutions.
Unlike most ETFs, this ETF is not transparent, i.e., you can’t see what stocks it owns each day, though holdings are released with a 30-day lag. This is done to protect the ETF’s manager trading strategy so that others can’t quickly replicate it.
FSST charges relatively high fees for an ETF (0.59%), doesn’t have a lot in assets or a long-term track record.
Fidelity Women’s Leadership ETF (FDWM)
The Fidelity Women’s Leadership ETF (FDWM) is another new, actively managed, non-transparent fund from Fidelity. In this case, the fund “invests in companies that prioritize and advance women’s leadership.”
These companies must:
- Include a woman on the senior management team, or
- Have a board with at least one-third of women directors, or
- Have adopted policies to attract, retain, or promote women
In practice, the ETF has been investing in big tech companies like Microsoft, Adobe, Nvidia, Intuit, and Salesforce, as well as in financials like PayPal and Bank of America.
Although the fund is expensive for an ETF (0.59%), it doesn’t yet have a track record, and its investments are not transparent. It also has under $3 million in assets.
🔔 Learn about other gender equality funds.
Which Fidelity ESG fund is the best?
Fidelity has expanded its ESG fund lineup though many of the new funds are expensive, small, non-transparent, and don’t have a track record. Having said that, FITLX is a good fund thanks to its low cost, good performance, and high ESG ratings.
🔔 Learn about ESG funds from Vanguard.