ESG Investing: DZZF, ERTH, or IMPQ?

ESG (Environmental, Social, and Governance) investing is a strategy that focuses on investing in companies that aim to have a positive impact on the world, while also potentially providing financial returns. When considering ESG ETFs like DZZF, ERTH, or IMPQ, it’s important to understand their specific focuses and how they align with your personal investment goals.

DZZF, or the BetaShares Diversified Sustainable ETF, is designed as an all-in-one ETF solution that provides exposure to a diversified portfolio of sustainable assets. This can be a good option if you’re looking to keep your investment strategy simple while adhering to ESG principles. It covers multiple asset classes and regions, which helps in spreading out risk and enhancing diversification.

Adding ETFs like ERTH (which focuses on global companies that provide environmental solutions) or IMPQ (which is more focused on impact investing in Australian companies), can potentially increase your exposure to specific sectors within the ESG realm. This could align well with a strategy that seeks to support specific environmental or social outcomes. However, it’s important to consider that these ETFs might also concentrate your risk in narrower sectors or regions compared to a broad-based ESG ETF like DZZF.

Regarding the risk of greenwashing, where companies or funds may present themselves as more environmentally friendly or ethical than they actually are, it’s crucial to conduct thorough research. ETFs that specifically label themselves as ESG are required to meet certain standards, but the depth and focus of their commitment can vary. Reviewing the specific criteria and holdings of each ETF can provide better insight into how genuinely they adhere to ESG principles.

In terms of diversification, adding specific sector ETFs like ERTH or IMPQ to a portfolio that includes a broad-based ESG ETF like DZZF can offer a more targeted approach to sustainability, but it’s important to balance that with the overall risk and diversifi

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Hi James.

ESG starts to get a bit messy when you really dive into the details.

It also becomes a highly personal choice whether a certain ETF is considered suitable for the level of standards one is trying to invest with. There’s no real solution other than diving into the portfolio and seeing which companies are in there, what filters the fund uses and whether you’re happy with that for the fee being charged.

In general, adding sector ETFs is going to add complication, cost, and a likelihood of underperformance, given we know it’s hard to beat the index. But they could be used as a ‘satellite’ fund and a small position rather than a core holding.

DZZF definitely meets the goal of keeping it simple and going the ESG route while getting a good level of diversification.

All the best.
Dave