Sustainable investing has faced significant political and regulatory headwinds recently, but nuggets of opportunity remain for investors betting on soaring renewable energy investment, the climate transition, and even AI risk.
And despite recent outflows from sustainable funds, several surveys continue to show investor interest in sustainable investing. According to one conducted by the Morgan Stanley Sustainability Institute, 88% of global individual investors are interested in sustainable investing. Similarly, 86% of asset owners expect to increase their allocations to sustainable investments in the next two years.
We found three sustainable funds with ratings of Gold, the highest tier of the
Morningstar Medalist Rating
, denoting conviction in a fund’s ability to outperform. For more about sustainable investing, please check out the Morningstar Sustainable Investing Framework and our sustainable investing page.
The 3 Best Sustainable Funds and ETFs to Buy in 2026
We screened for the lowest-cost primary share classes with a Medalist Rating of Gold and 100% analyst coverage. All the funds on the list carry the ESG Intentional Investment tag and have at least $100 million in assets. All data is as of Feb. 3.
Boston Trust SMID Cap Fund BTSMX
Boston Trust Walden Small Cap Fund BOSOX
PIMCO Enhanced Short Maturity Active ESG Exchange-Traded Fund EMNT
Because the screen was created with the lowest-cost share class for each fund, some may be listed with share classes that are not accessible to individual investors outside of retirement plans, or they may be aimed at institutional investors and require large minimum investments. The individual investor versions of those funds may carry higher fees, reducing returns to shareholders. Medalist Ratings may differ among the share classes of a fund.
Morningstar expects the highly rated sustainable funds on this list to outperform their peers over a full market cycle. But though all these funds fall under the same theme, they may practice different strategies and behave differently. Investors need to do their homework to understand exactly what a particular fund invests in before buying.
Boston Trust SMID Cap Fund
Fund Size: $746.4 million
Morningstar Category: US Fund Mid-Cap Blend
Morningstar Medalist Rating: Gold
Prospectus Net Expense Ratio: 0.75%
Morningstar assigns an Above Average rating to the Boston Trust SMID Cap Fund management team and a High rating to its parent company, Boston Trust Walden. The team has an average of over five years with the fund; Richard Williams, the longest-tenured member, has been there for close to nine years.
The $746.4 million fund has gained 0.49% over the past year, while the average fund in its category is up 9.56%. The fund, launched in November 2011, has climbed 5.60% over the past three years and 7.63% over the past five.
PIMCO Enhanced Short Maturity Active ESG Exchange-Traded Fund
Fund Size: $211.1 million
Morningstar Category: US Fund Ultrashort Bond
Morningstar Medalist Rating: Gold
Prospectus Net Expense Ratio: 0.24%
Morningstar assigns a High rating to the PIMCO Enhanced Short Maturity Active ESG Exchange-Traded Fund management team and an Above Average rating to its parent company, PIMCO. The management team has an average of more than six years with the fund.
The $211.1 million fund has gained 4.65% over the past year, while the average fund in its category is up 4.72%. The PIMCO fund, launched in December 2019, has climbed 5.27% over the past three years and 3.22% over the past five.
Veteran leadership, specialized short-term expertise, effective collaboration, and a time-tested process makes Pimco Enhanced Short Maturity Active ESG ETF a best-in-class selection among ultrashort bond peers. This exchange-traded fund is more constrained than its sibling, Pimco Short-Term.
Lead manager Jerome Schneider heads a team of dedicated ultrashort and liquidity markets specialists. Co-managers include Andrew Wittkop and Nate Chiaverini, Pimco veterans whose expertise in rates/derivatives and corporate credit, respectively, creates complementary strengths. Also, co-manager Jelle Brons, a global credit specialist, focuses on ESG implementation. The team benefits from Pimco’s world-class global investment platform of analysts, traders, macroeconomic experts, ESG analysts, and risk managers.
The strategy focuses on short-term and liquidity markets. Investment-grade credit and securitized debt feature prominently (typically 65%-95% of assets) and deliver a yield advantage over peers. The ETF avoids less conventional areas, such as high-yield bonds, and non-US currencies but can invest up to 10% of assets in non-US developed markets and 5% in emerging-market debt. The managers dynamically adjust portfolio duration across their zero-to-one-year range. While the ETF extensively uses derivatives, Pimco has consistently proved its ability to manage these instruments effectively.
Paul Olmsted, senior analyst
