There are many different ways to make the world a better place, but did you know that you can also do it with your portfolio? The growth of investing in ESG, or environmental, social and governance issues, is rapidly increasing, and there’s an easy way for the average investor to participate in the trend.

Focusing on the E in ESG

Many investors who want to put some or all of their portfolio toward ESG factors do so because they want to improve the environment. However, the inclusion of social and governance issues may leave some wondering just how much of their investment will go toward supporting the environment. As it turns out, new data suggests that the environment part of ESG is garnering much more attention than social or governance issues, and that means there are more options in climate-only funds.

The Wall Street Journal reports that data from Morningstar indicates that mutual funds and exchange-traded funds specializing in environmental themes pulled in a lot more cash than ESG funds focused on other areas. The newspaper cited t

he growing public focus on climate change due to the COP26 global climate change summit as the reason for higher flows to environment-focused funds.

According to Morningstar, funds that named “low carbon or fossil-fuel-free” and “environmental” in their descriptions racked up $28.33 billion and $13.53 billion in inflows during the first 10 months of the year. The firm noted that some funds might have multiple attributes in its analysis, so some lows in certain funds show up more than once.

Meanwhile, funds with attributes of “community development” attracted $7.53 billion, while those with “other impact themes” racked up $5.99 billion in inflows, and “gender and diversity” funds gathered $5.12 billion. Investors who want to target improvement of the environment with their investments also have a larger number of funds to choose from at 165, compared to fewer than 100 funds each targeting gender, other impact and community development.

How well will companies hold to their ESG promises?

Another issue some investors may have when it comes to investing in support of the environment is whether the companies that they invest in will keep their ESG promises. Unfortunately, it seems that investors, in general, do not trust companies to keep their ESG promises.

Edelman’s 2021 Trust Barometer report found that 77% of Canadians feel that companies “frequently overstate or exaggerate their ESG progress.” They were especially concerned about companies working against greenhouse-gas emissions, among other issues.

However, investors can get around this problem by being more selective about the fund they choose or even picking certain stocks for their portfolio, which does require some extra work. Some ESG ETFs publish a list of their holdings, so investors who want to focus their portfolio on companies that are definitely working toward a better environment can start with one of those lists.

From there, they can look at each company and determine why it is in the fund. For example, a company like Tesla is obviously in an ESG fund because it is working toward a future without any greenhouse-gas emissions from cars. The company’s very focus is ESG, so it isn’t a matter of whether it can deliver on its ESG promises.

The question is how well Microsoft will keep its ESG promises, but with a company like Tesla, that is less of an issue because it was founded with a climate-change initiative in mind. For that matter, an investor who wants to pick their own climate-related investments may choose to target companies like those in solar energy and electric vehicles because of their focus on the environment.

An easy way to invest in ESG

The average investor may not want to pick their own stocks because of how much analysis is involved. As a result, the easiest way to invest in the environment is to choose an ETF or mutual fund that tracks an ESG index or otherwise picks ESG stocks for their portfolio.

One of the newest options is the S&P 500 ETF Index, and even though it was just developed, there is already a wide array of funds tracking it. The benefit of this index is that investors are tracking the S&P 500, minus any companies that do not have any ESG initiatives. This index also captures a wide array of ESG initiatives, so investors concerned about more than just the environment should find plenty to like.

Nasdaq suggested four climate-focused ESG mutual funds for investors targeting just the environment. They are the New Alternatives Fund Class A, the Janus Henderson Global Technology and Innovation Fund Class A, the Calvert Global Energy Solutions Fund Class A, and the Fidelity Select Utilities Portfolio.

The Janus fund is heavily focused on companies benefiting from technology improvements, while the Calvert fund targets companies whose primary business is solutions for sustainable energy. The Fidelity fund is focused on the utility sector, while the New Alternatives fund is focused on renewable energy.

An additional benefit of the four mutual funds Nasdaq suggested is that the minimum investment is low at around $5,000, making it easy for most investors to buy in. Fidelity also has some newer climate-focused funds that have no minimum investment, which are the Fidelity Climate Action Fund, Fidelity Environmental Bond Fund and Fidelity Sustainability U.S. Equity Fund.