It pays to be a good person… At least for those who make ESG (environmental, social, and governance) investments.

• In 2020, The S&P 500 ESG index, a performance index of the largest socially responsible companies, outperformed the traditional S&P 500 with an annualized return of 10.09% vs. 6.87%.

THE EXPLANATION

ESG investing is a strategy of investing in companies that score highly on ethical and socially responsible factors (e.g. human rights, employee well-being, climate change, community involvement).

ESG investing allows investors to align their values with their investments while promoting corporate social responsibility. The COVID pandemic is likely to accelerate the ESG trend as consumers scrutinize companies for their responses to the pandemic and protests.

A record $45.7b was invested into global sustainable funds in the first quarter of 2020 but the total ESG funds still represent less than 1% of the $21t US investment market. Many of these funds have performed better than the benchmark S&P 500 return of -2.11% in 2020:

• Nuveen ESG Large-Cap Growth ETFNULG
  … 12.97% return
• iShares ESG MSCI USA ETFESGU
  … 0.84% return

On June 25, The Trump Administration proposed a change to pension and 401(k) plans that will make it more difficult for these funds to invest in ESG investments. The new rule would require funds to prove investments solely prioritize maximizing returns and economic criteria, making it harder to justify including ESG investments.

• Not so fast Donnie, the change is unlikely to finish before the 2020 presidential election and a Biden victory could shut the proposal down.

THE ACTION

In addition to those mentioned above, investors can find some of the top-performing ESG ETFs here. The following companies are ranked amongst the top 5 in Barron’s 100 most sustainable companies:

• V.F.VFC
  , Keysight TechnologiesKEYS
  , NVIDIANVDA
  , UniFirstUNF
  , and SalesforceCRM