SPGM vs. NZAC: Is ESG Investing Worth It?

Both the State Street SPDR Portfolio MSCI Global Stock Market ETF (NYSEMKT:SPGM)and the State Street SPDR MSCI ACWI Climate Paris Aligned ETF (NASDAQ:NZAC)are global equity ETFs from SPDR, but they take distinctly different approaches. SPGM targets the full global stock market with over 2,900 holdings, while NZAC pursues a climate-focused strategy, screening for companies aligned with the Paris Agreement, and covers fewer securities. This comparison breaks down their costs, performance, risk, and portfolio construction.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500; beta is calculated from five-year monthly returns. The 1-yr return represents total return over the trailing 12 months.

SPGM is slightly more affordable with a lower expense ratio, while NZAC charges a modest premium for its climate alignment. NZAC also offers a marginally higher dividend yield, which may appeal to income-focused investors.

Performance & risk comparison

What's inside

NZAC tracks an index designed to align with the Paris Agreement, screening global large- and mid-cap stocks for climate risk and opportunity. The fund’s ESG screen distinguishes it from conventional global ETFs, and it has been available for over 11 years. With 688 holdings, it is more concentrated than SPGM, though its sector mix is similar: 32.42% in information technology, 17.3% in financials, and 11% in industrials. The largest positions are Nvidia, Apple, and Microsoft, reflecting a continued tech tilt.

SPGM spreads assets across more than 2,900 stocks, weighting 24.5% to technology, 17% to financial services, and 13% to industrials. Its top holdings are also Nvidia, Apple, and Microsoft, but with slightly lower weights. SPGM’s broader diversification and absence of an ESG screen mean it closely mirrors the global equity market, while NZAC’s approach may appeal to those prioritizing sustainability.

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What this means for investors

The biggest differentiator between these two exchange-traded funds is NZAC’s focus on environmental, social, and governance investing. This popular style of investing prioritizes companies that earn high scores in categories related to this investing theme. Proponents of ESG investing may be especially focused on supporting non-financial initiatives they care about, like green practices or social responsibility. Others argue that a focus on these ideas is also good business, as companies with high ESG scores also tend to perform well. A look at NZAC’s top holdings may bear this out. However, ESG investing also has opponents who point to issues like greenwashing, political vulnerability, or higher costs of business. Indeed, NZAC’s expense ratio is notably higher than SPDR’s, reflecting an increased cost to manage the ESG-focused fund.

One interesting thing to note is that the two funds’ top sector mixes and largest holdings are nearly identical, though SPGM’s broader base means its top three holdings carry marginally less weight in the overall fund. If you’re not specifically looking to use NZAC’s ESG criteria, SPGM may be the better choice, as it has a lower expense ratio, a nearly identical dividend yield, and has returned more to shareholders over the last one- and five-year periods.

Sarah Sidlow has positions in Apple, Microsoft, and Nvidia. The Motley Fool has positions in and recommends Apple, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.