Two Environmental, Social and Corporate Governance (ESG) ETFs
iShares MSCI KLD 400 Social ETF (DSI)
The largest ESG ETF is the iShares MSCI KLD 400 Social ETF (DSI), which is nearly indistinguishable from your average large-cap fund. That’s intentional: iShares made DSI so investors with a conscience can use it as a substitute for other large cap funds like SPY. Over the past year, the two funds’ returns have been identical. Over the past decade, DSI has gained 66%, vs. a 58% gain for the SPY. DSI has also outperformed slightly over the past five years, gaining 82% to SPY’s 78%.
DSI’s top holdings are all familiar names, with no apparent social skew: Microsoft (MSFT), Alphabet (GOOG), Procter & Gamble (PG), Verizon (VZ) and Coca-Cola (KO).
iShares MSCI USA ESG Select Social ETF (KLD)
iShares also has a smaller ESG investing fund, the iShares MSCI USA ESG Select Social ETF (KLD), which is more aggressively responsible than DSI. KLD holds a smaller number of companies (112 to DSI’s 400). Companies that have positive ESG scores relative to their peers and the broad market are more heavily weighted. As a result, the largest holdings include some unfamiliar names. The fund’s six largest positons are Microsoft (MSFT), 3M (MMM), Ecolab (ECL), Apple (AAPL), Accenture (ACN) and Henry Schein (HSIC). Ecolab is Minnesota-based provider of clean water technologies, and Henry Schein is a distributor of health care products (ranked number one in its industry for social responsibility).
Compared to the average large-cap equity fund, KLD has a slightly higher exposure to technology, industrials and real estate, and lower exposure to financials and energy. But its performance still tends to track the S&P 500 to within a few points (see table).
iShares also offers ESG ETFs focused on emerging markets and the EAFE region (developed markets outside of the U.S. and Canada).