There’s no shortage of stock funds that practice “socially responsible investing” (SRI) in one way or another. But for many of the more than 630 SRI funds, social conscience means excluding companies, such as those that offer alcohol, tobacco and/or gambling…are big polluters…or produce weapons. These funds often underperform broad stock indexes that don’t stress social responsibility.

But another kind of SRI fund—which additionally focuses on companies taking positive steps related to employees, communities, the environment and corporate governance—has become popular. That’s partly because research shows that stocks of companies with sound corporate behavior tend to retain the best employees, avoid scandals and have a better chance of matching or outperforming broad stock indexes.

Among these “environmental, social and governance” (ESG) funds, those structured as exchange-traded funds (ETFs) have an advantage. They tend to charge lower management fees—as low as 0.12% per year—especially some of the newest ones.

My favorites now…

Vanguard ESG US Stock ETF (ESGV) invests in US stocks of any size, although it’s dominated by large-cap technology and health-care companies. It holds about 1,250 stocks that meet the labor, human rights, ­anticorruption and environmental standards defined by the UN Global Compact principles. Launched in September 2018, it has a 0.12% annual expense ratio, the lowest of any ESG equity fund.

iShares ESG MSCI USA Small-Cap ETF (ESML) is more suited to investors who already have enough exposure to large-cap US stocks. This fund tracks about 900 medium- and small-cap stocks in an index of companies that rank high on 37 ESG measures. It was launched in April 2018 and has a 0.17% expense ratio.

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