How to invest sustainably and still generate big returns with ASX ETFs

Sustainable or ESG investing involves incorporating environmental, social and governance (ESG) factors into the investment process alongside traditional financial analysis. 

ESG strategies seek to identify companies that demonstrate responsible business practices, effective governance, and sustainable long-term growth prospects, while managing exposure to risks associated with environmental and social issues.

A changing narrative

ESG or climate-focused investing boomed around 2021, as investors aimed to target climate-positive solutions alongside increased government investment in a more sustainable future. 

Research estimates that sustainable investment funds attracted a record US$645 billion in net inflows globally in 2021. 

Asset managers rushed to wrap products in ESG language. 

Ahead of the COP26 climate summit, governments competed to announce increasingly ambitious net-zero commitments. 

During this period, sustainability looked less like an investment theme than the future of finance itself.

However, the mood has since changed.

According to VanEck, ESG investing has become heavily scrutinised and politicised. 

Fund inflows quickly turned into outflows as greenwashing claims multiplied, and the acronym itself became a liability for some money managers.

Yet the investment questions ESG was designed to answer have not disappeared. Despite all the back and forth, ESG investing still offers investors a useful framework for understanding risk, governance and long-term business quality.

How to target ESG principles using ASX ETFs

Thanks to the rise of thematic investing, there are plenty of ESG and ethical ASX ETFs for investors to choose from. 

More importantly, there are funds that are vastly outperforming benchmark indexes, proving that sustainable and ethical investing doesn’t mean sacrificing returns. 

According to VanEck, ESG investing is often associated with managing risk. But it can also help investors identify opportunities.

Consider the energy transition – according to the International Energy Agency, global investment in clean energy technologies and infrastructure now exceeds US$2 trillion annually.

Whatever one’s views on ESG, that is a significant flow of capital and investors pay attention when capital is moving at that scale.

ASX ETFs to consider

There are plenty of ASX ETFs that sustainably focused investors can consider. 

However, two in particular have stood out in 2026. 

The first is the VanEck Global Clean Energy ETF (ASX: CLNE). 

It gives investors a diversified portfolio of 30 of the largest and most liquid companies involved in clean energy production, associated technology, and clean energy equipment globally.

In simple terms, it focuses on companies involved in clean energy production and related technologies.

Year to date, this fund has risen by an impressive 34%, far outpacing benchmark indexes like the S&P/ASX 200 Index (ASX: XJO). 

Another option to consider is the Betashares Capital – Betashares Climate Change Innovation ETF (ASX: ERTH). 

It offers a portfolio of up to 100 leading global companies that derive at least 50% of their revenues from products and services that help address climate change and other environmental problems by reducing or avoiding CO2 emissions. 

This covers clean energy providers, along with leading companies tackling green transport, waste management, sustainable product development, and improved energy efficiency and storage.

The fund has risen by almost 13% year to date. 

The post How to invest sustainably and still generate big returns with ASX ETFs appeared first on The Motley Fool Australia.

More reading

• Why this ASX ETF could be the simplest way to play the global clean energy boom
• 3 of the hottest thematic ASX ETFs for investors to target this week 
• These ASX ETFs are smashing record highs 

Motley Fool contributor Aaron Bell has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.