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The Top 5 Sustainable Funds of 2023: AI, Anybody?

Overall, large-cap sustainable funds returned 24.1%, pacing the market.

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Large-cap sustainable funds returned 24.1% in 2023. That paced the benchmarks, but the year’s best-performing funds in this category boasted returns that nearly doubled the market’s. In 2023, the Morningstar US Large Cap Index returned 26.7%, and the S&P 500 returned 23.8%.

Sustainable investing encompasses a range of investment approaches that address the impact of climate change and other environmental, social, and corporate governance issues on their investments while seeking competitive results. “Responsible investing,” “ESG investing,” and “impact investing” are terms also used more or less interchangeably to describe the same set of approaches.

The top five sustainable funds of 2023 were Invesco ESG Nasdaq 100 ETF QQMG, a passively managed fund, and the actively managed Clearbridge Large Cap Growth ETF LRGE, Parnassus Growth Equity PFPGX, Nuveen Winslow Large Cap Growth Equity ESG NWLG, and Blackrock Sustainable US Growth BSGKX.

In 2023, the top sustainable funds were relentlessly committed to technology, which clobbered other sectors that year. Parnassus Growth Equity returned 45% in 2023. Portfolio manager Andrew Choi says the fund practices “responsibly compounding wealth,” and maintains that sustainable investing and traditional investing are not distinct concepts, but are rather intertwined. Choi also emphasizes that every company has a different ESG area that is important to analyze apart from the company’s financials and business model. “Sometimes [the investment thesis] is grounded in changes in management, market structure, moat, or sustainable considerations. It’s a holistic consideration of all the things that might matter and prioritizing the things that do matter.”

Another winner, Nuveen Winslow Large-Cap Growth, made a major bet on artificial intelligence. Fund co-manager Stephan Petersen believes it was “a natural fit for our strategy” that would “play out over many years,” with the winners including AI ecosystem players like semiconductors.

Investors were skittish about sustainable funds in 2023, pulling out more money than they put in. Still, these funds show they can be profitable. Choi remains optimistic about 2024, and he believes this will be the year that the real AI winners will stand out.

To identify the top sustainable funds of 2023, we screened U.S.-based funds within the Morningstar Large Cap category that identify as sustainable investments.

Invesco ESG NASDAQ 100 ETF

  • Return: 55.34%
  • Morningstar Medalist Rating: Bronze
  • Maximum Allocation: The technology sector
  • Top Holdings: Microsoft MSFT (13.00%), Apple AAPL (11.99%)
  • Notable: 10% portfolio weight is in AI stocks like Nvidia NVDA and Broadcom AVGO

ClearBridge Large Cap Growth ESG ETF

Parnassus Growth Equity Institutional

  • Return: 45.18%
  • Morningstar Medalist Rating: Bronze
  • Key Driver: Successful rally in the technology sector
  • Notable: 11% of the fund’s weight is in Microsoft

Nuveen Winslow Large-Cap Growth ESG ETF

BlackRock Sustainable US Growth

The author or authors own shares in one or more securities mentioned in this article. Find out about Morningstar’s editorial policies.

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Muskaan Hemrajani

Financial Product Specialist
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