7 ESG Index Funds for Sustainable Investors in 2022

Environmental, social, and governance (ESG) investing helps you align your investments with your values. ESG index funds invest in companies with better than average carbon emissions, diversity initiatives, and governance. If you are looking to be a more responsible investor and save on fees at the same time, check out this list of the top ESG index funds.

SustainFi   Updated February 16th, 2022

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What are ESG index funds?

ESG index funds are mutual funds that consider environmental, social, and governance (ESG) factors. They try to include investments that are better for the environment, have better governance and diversity track records, and treat their employees better. Some ESG funds also exclude controversial industries like fossil fuels, gambling, or tobacco.

In addition, some ESG fund managers engage with management teams to make them commit to goals like reducing carbon emissions, using less plastic packaging, or having a more diverse workforce.

Index funds vs. mutual funds

Mutual funds put your money in baskets of securities like stocks or bonds. This way, you can invest in many companies without picking stocks. Because the funds are diversified, if something bad happens to one company in the basket, the impact on the overall portfolio isn’t huge.

Index funds are a type of mutual fund. But, unlike most mutual funds, which are actively managed by a portfolio manager and their team of analysts, index funds passively track an index like the S&P 500. As a result, index funds are much cheaper than actively managed funds, which cost 1% each year on average. 1% is a lot, given that there is no evidence that active managers can beat the market.

In contrast, a large ESG index fund from Vanguard, the Vanguard FTSE Social Index Fund (VFTAX), costs only 0.14%.

Index funds vs. ETFs

Unlike mutual funds, which can be bought and sold at the end of each trading day, exchange-traded funds (ETFs) trade on exchanges like stocks. ETFs are generally more transparent and tax-efficient. And they are mostly passive and therefore cheaper than most mutual funds. Unlike most mutual funds, ETFs don’t have a minimum investment, either. In contrast, Vanguard index funds have a $3,000 minimum investment.

Attracted by lower fees and minimums, more investors are choosing ETFs over mutual funds. However, index funds from companies like Vanguard are cheap enough to compete with ETFs. And index funds from Fidelity don’t have a minimum investment.

So we wouldn’t dismiss ESG index funds.

ESG Index Fund List

  • Vanguard FTSE Social Index Fund (VFTAX)
  • TIAA-CREF Social Choice Equity Fund (TICRX)
  • Calvert US Large Cap Core Responsible Index Fund (A) (CSXAX)
  • Fidelity U.S. Sustainability Index Fund (FITLX)
  • Calvert US Large Cap Value Responsible Index Fund (A) (CFJAX)
  • Fidelity International Sustainability Index Fund (FNIDX)
  • Fidelity Sustainability Bond Index Fund (FNDSX)

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The best ESG index funds

Here are some of the largest ESG index funds from established asset managers like Vanguard, Calvert (an ESG-only manager), and Fidelity.

FundExpense RatioAssets ($m)2021 Performance% Assets in Fossil FuelsMSCI ESG RatingSustainalytics Rating
Vanguard FTSE Social Index Fund (VFTAX)0.14%15,80027.7%0.8%AA4 / 5
TIAA-CREF Social Choice Equity Fund (TICRX)0.46%7,20026.2%5.4%AA4 / 5
Calvert US Large Cap Core Responsible Index Fund (A) (CSXAX)0.49%4,90025.3%1.8%AA3 / 5
Fidelity U.S. Sustainability Index Fund (FITLX)0.11%2,50031.6%2.5%AA5 / 5
Calvert US Large Cap Value Responsible Index Fund (A) (CFJAX)0.49%1,80024.0%4.0%AA3 / 5
Fidelity International Sustainability Index Fund (FNIDX)0.20%4337.7%7.5%AAA3 / 5
Fidelity Sustainability Bond Index Fund (FNDSX)0.10%269-2%2.7%A4 / 5

Data as of 2/15/2022

Vanguard FTSE Social Index Fund (VFTAX)

  • Expense ratio: 0.14%

Vanguard has pioneered low-cost index fund investing in the U.S. It makes sense that they also run the largest ESG index fund, VFTAX. VFTAX tracks the FTSE4Good U.S. Select Index, investing in large-cap U.S. stocks. VFTAX holds around 500 stocks, excluding controversial industries like tobacco, fossil fuels, adult entertainment, alcohol, weapons, gambling, and nuclear power. The exclusion of fossil fuels is broad. VFTAX doesn’t invest in companies that own oil, natural gas, or coal reserves or are engaged in oil and gas exploration, transportation, or servicing.

However, although VFTAX excludes “bad” companies, the index it tracks doesn’t seek out “good” companies. So VFTAX doesn’t try to invest more in clean energy companies or businesses with diverse leadership teams.

Like most ESG funds and broad market funds, VFTAX owns a lot of big tech stocks. Technology is around a third of its assets. The top five holdings are Apple, Microsoft, Amazon, Alphabet (Google’s parent company), and Tesla. The fund is cheap, and its 2021 performance has been similar to the S&P 500, despite better ESG scores and avoiding fossil fuels. (VFTAX has strong ratings from ESG rating agencies MSCI and Sustainalytics.) However, you must invest at least $3,000 to buy the fund.

🔔 Want to learn more? Read an in-depth review of VFTAX.

TIAA-CREF Social Choice Equity Fund (TICRX)

  • Expense ratio: 0.46%

Launched in 1999, TIAA-CREF Social Choice Equity Fund (TICRX) is a fund from Nuveen, a large asset manager. The fund tries to replicate the return of the U.S. stock market while including ESG criteria. Nuveen works with ESG rating agencies like MSCI to screen stocks on environmental standards, labor standards, management, and more.

Although TICRX doesn’t officially track an index, the fund managers try to mirror the risk-return profile of the Russell 3000 Index. Besides, the fund’s expense ratio is closer to an index fund than an actively managed mutual fund.

The fund has over 500 investments, including Microsoft, Tesla, and Nvidia, the top three. However, because the fund manager tries to perform close to the index, they have not fully divested from oil and gas stocks. For example, TICRX owns ConocoPhillips and Marathon Oil. However, the fund’s exposure the oil and gas is lower than that of the broader market.

The fund’s returns have been pretty close to the Russell 3000 Index, even though it has strong ESG scores from the rating agencies. TICRX has over $7 billion in assets and charges retail investors 0.46% annually.

Calvert US Large Cap Core Responsible Index Fund (A) (CSXAX)

  • Expense ratio: 0.49%

Calvert is a mutual fund manager that’s been solely focused on ESG investing for four decades. Besides doing proprietary research on ESG factors, they engage with companies on issues like climate change and gender pay equality.

Launched in 2000, the Calvert US Large Cap Core Responsible Index Fund tracks the performance of the Calvert US Large-Cap Core Responsible Index. It invests in large-cap stocks with better ESG characteristics while avoiding most fossil fuels and tobacco. The carbon emissions of the fund’s holdings are about half those of the Russell 1000 Index, which tracks large-cap U.S. stocks.

The fund invests in over 700 companies; about a third of them are in tech. The top three holdings are Apple, Microsoft, and Amazon. Calvert excludes companies like Meta Platforms (Facebook) because of privacy concerns, Berkshire Hathaway because of its fossil fuel reserves, and Johnson & Johnson because of product safety issues. The fund has been performing close to the Russell 1000, the large-cap non-ESG index. It costs 0.49% each year.

Fidelity U.S. Sustainability Index Fund (FITLX)

  • Expense ratio: 0.11%

Fidelity is one of the largest mutual fund managers in the U.S., and they have been expanding their suite of ESG Funds. The Fidelity U.S. Sustainability Index Fund (FITLX) tracks the MSCI USA ESG Index, which includes U.S. stocks with high ESG scores as determined by MSCI, a data provider.

The fund invests in around 300 stocks, notably Microsoft, Tesla, and Google. They exclude Apple and Amazon, popular holdings in other ESG funds. Microsoft alone is over 10% of the FITLX’s assets. The portfolio has strong ESG scores from agencies like Sustainalytics and MSCI. Oil and gas holdings are small. FITLX is very cheap (0.11%), even compared to ESG exchange-traded funds. We also like that Fidelity doesn’t require a minimum investment

Calvert US Large Cap Value Responsible Index Fund (A) (CFJAX)

  • Expense ratio: 0.49%

Another index fund from socially responsible investment manager Calvert, the Calvert US Large Cap Value Responsible Index Fund invests in ESG value stocks. They select attractively priced stocks from the 1,000 largest publicly traded U.S. companies. To be included, companies must also meet Calvert’s environmental, social, and governance criteria.

As a result, the fund doesn’t invest in companies that own oil and gas reserves or tobacco businesses. The portfolio’s carbon emissions are also about 40% lower than those of the Russell 1000 Index. Calvert excludes companies like Berkshire Hathaway, which has oil and gas holdings, and Exxon Mobil, an oil major. They also don’t like Uber because of controversies about passenger safety.

The fund has over 500 holdings, a lot of them in financials, industrials, and consumer names. The top three investments are JP Morgan Chase, Pfizer, and Bank of America. The fund costs 0.49% (Class A Shares) and has performed roughly in line with the Russell 1000 Index.

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Fees

0.25%

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Fees

$60/year

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Minimum

$100

Save and invest spare change

Fees

$3-$5 / month

Minimum

$5

Work with human advisors

Fees

0.49%-0.89%

Minimum

$100,000

Fidelity International Sustainability Index Fund (FNIDX)

  • Expense ratio: 0.20%

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 international companies, including semiconductor manufacturers TSMC and ASML Holding and Tencent.

FNIDX is one of the largest international ESG index funds, but you should be aware that it doesn’t exclude oil and gas companies. A lot of ESG funds don’t exclude them because they try to mirror the performance of the broader market while picking oil and gas stocks with better than average ESG scores. As a result, a fund like FNIDX owns stocks like Total, a French oil company, and Gazprom, a Russian natural gas producer.

On the positive side, FNIDX is relatively cheap (0.20%), and there is no minimum investment.

Fidelity Sustainability Bond Index Fund (FNDSX)

  • Expense ratio: 0.10%

If you are looking for a sustainable bond index fund, there aren’t a lot of choices. Launched in 2018, the Fidelity Sustainability Bond Index Fund (FNDSX) invests in bonds of “companies with strong sustainability profiles.” It tracks 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, yet it’s not a bad bond fund option. FNDSX is cheap (0.10%) and requires no minimum investment.


🔔 Exchange-traded funds are a good alternative to index funds. Learn about investing in other ESG ETFs.

NOT INVESTMENT ADVICE. The content is for informational purposes only; you should not construe any such information as investment advice.

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