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3 Stocks That Go Beyond ESG to Make Your Portfolio More Impactful

By Justin Kuepper
Oct 07, 2022
The shortcomings of ESG investing have become increasingly apparent over the past few years. For example, climate activists are upset that many so-called ESG funds hold prominent fossil fuel companies. At the same time, conservative states have banned ESG funds because they don't contain enough fossil fuel companies.

Impact investing provides a way to avoid these problems. Rather than trying to remove fossil fuel companies (or other "sin" stocks) from benchmark indexes, impact investment funds go out of their way to invest exclusively in high-impact companies. This "inclusionary" approach could help solve both problems with the ESG movement.

Let's look at three stocks and ETFs that go beyond ESG to make a real impact on causes that matter.

#1. Carbon Collective Climate Solutions ETF (CCSO)

The Carbon Collective Climate Solutions ETF (NASDAQ: CCSO) is the brainchild of Carbon Collective – a climate-change-focused online investment advisor. The company's new actively-managed ETF invests in publicly-traded companies dedicated to solving climate change, enabling investors to contribute directly to solutions.

The fund's portfolio comprises about 200 companies within the clean energy, electrified transportation, efficient building, circular economy, sustainable food, and industrial electrification industries. These include well-known and under-the-radar companies across all market capitalizations, providing broad exposure to climate action stocks.

At the same time, the fund's 0.35% expense ratio is much cheaper than the average 0.42% that conventional ESG-focused ETFs charge. However, it's worth noting that the ETF only recently launched with about $7 million in assets under management. As a result, investors may have less liquidity on a day-to-day basis than larger funds.

#2. Hannon Armstrong Sustainable Infrastructure (HASI)

Hannon Armstrong Sustainable Infrastructure Capital Inc. (NYSE: HASI) is the first U.S. public company dedicated to investments in climate solutions. With more than $9 billion in managed assets and 30 years of experience, the company reduces six million metric tons of CO2 yearly while generating excellent risk-adjusted returns for investors.

The company's renewable energy portfolio spans utility-scale solar and wind assets, C&I solar assets, green real estate, stormwater remediation projects, and other efforts to mitigate climate change. These holdings finance an attractive dividend that recently reached 5.29%, making the stock an attractive holding for income investors.

In July, the stock fell sharply following a report from the short-selling firm Muddy Waters Research. The company issued a prompt rebuttal of the claims made by the research firm, but the stock continues to trade near its 52-week lows and well off of its highs. And the company expects the Inflation Reduction Act to expand its investable universe in the future.

#3. VanEck Green Bond ETF (GRNB)

The VanEck Green Bond ETF (NYSE: GRNB) holds U.S. dollar-denominated green bonds that finance environmentally-friendly projects in the U.S. and worldwide. With broad exposure to supranational, government, and corporate issues, the ETF is an excellent drop-in replacement or addition to a core bond allocation.

While investing in climate action stocks helps improve liquidity and sends a signal to the market, putting money into green bonds directly finances climate action projects. For instance, municipalities may issue green bonds to finance the construction of solar panels atop public buildings, meaning your capital helps directly reduce CO2 emissions.

The fund's portfolio includes about 350 different bonds with a five-year duration, making it a diversified middle-of-the-road option for investors. With a 0.2% expense ratio, it's also cheaper than most core allocation bond funds. At the same time, its four-star rating on Morningstar suggests it's a well-managed fund that provides regular income to shareholders.

The Bottom Line

ESG investing has become a pariah for both environmentalists and fossil fuel advocates. As a result, investors may want to turn their attention toward impact investments that take an inclusionary rather than exclusionary approach – including the three stocks above.

If you're interested in finding more impact investing opportunities, VirtueVest's screener can help you identify opportunities ranging from publicly-traded funds to crowdfunding opportunities. Or, check out our Impact Guide to calculate how much you need to retire and how to invest in a more impactful way to reach those goals.