An ETF, or Exchange Traded Fund, is a fantastic vehicle when you first begin investing in the market. ETFs were introduced in 1993 and have been growing in popularity ever since then.

In essence, an ETF is a basket of stocks that follows a particular index or trend. For example, you can purchase a tech ETF, which allows you to own a wide range of technology stocks.

There are quite a few benefits to investing in ETFs, including the ability to diversify your portfolio and lower management fees when compared to actively managed funds. They are also more tax-friendly than other investment vehicles, such as mutual funds, and tend to be less risky than owning one stock.

But for the more active investor, it’s better to steer clear of them. They often have lower profit margins and aren’t closely managed. For example, there are few scenarios when a company’s stock will be added or removed from an ETF- usually only when it follows an index, like the S&P 500 - whereas mutual fund managers actively remove stocks that are poor performers or will add ones outperforming the market.

Where ETFs are particularly nefarious is within ESG investing. To give you an idea, according to a recent study done by The 2 Degrees Investing Initiative, about 85% of all ‘green’ funds have unsubstantiated and misleading marketing, meaning they aren’t as green as investors may think. 

Because I am a fan of a more active approach and feel there are many great companies investing in sustainability right now, I will describe 4 businesses that could provide outsized returns and environmental impact.

1 of 4

Darling Ingredients (NYSE: DAR)

Our world generates 2 billion tons of waste annually, 33% of which is not managed in an environmentally safe manner. Darling Ingredients, Inc. is taking this issue head-on.

The company collects food waste and animal by-products and reimagines these materials into animal feed, fuel, and more. For example, it will take leftover bakery products and turn that into high-energy animal feed. They also have a business unit that takes animal fat and cooking oils and turns these products into diesel fuel.

The stock is up 250% in just one year and analysts remain bullish on the future of the company.

2 of 4

TPI Composites, Inc. (NYSE: TPIC)

TPI Composites, Inc is a leading wind-blade manufacturer and the only independent wind blade manufacturer with a global footprint. The company has about 13% of the global wind propeller market, with interest in its business growing every day.

Among the many benefits of wind power, this type of energy production releases no toxic pollution into our environment and is low cost. TPI is also beginning to invest in the manufacturing of electric vehicles, which produce zero exhaust emissions.

The stock has faced some volatility but is up 215% from its price one year prior.

3 of 4

Xylem, Inc. (NYSE: XYL)

According to Water.org, 785 million people today – 1 in 9 – lack access to safe water. Xylem is seeking to solve this issue by getting clean water into the hands of more people.

Working in public utility, residential, commercial, agricultural, and industrial settings, the business tests and treats water, distributes water to individuals who need it the most, and returns it to the environment.

The stock is up 63% in just one year and the future of this company remains bright. The U.S. is increasingly investing in its infrastructure under the current administration and emerging markets will continue to need companies focusing on this issue. 

4 of 4

Waste Management, Inc. (NYSE: WM)

Waste Management, Inc. is an American waste management and environmental service company.

In addition to its regular services, the company’s Renewable Energy Division has 7,600 trucks powered by natural gas – 1/3rd of which are running on gas reclaimed from the company’s landfills. Waste Management also generates electricity through decomposing waste, which it then sells to utilities.

Among the company’s impressive stock runup, nearly 47% from a year prior, it has increased its dividend payout every year for 16 straight years.

Disclaimer: I am not a financial advisor. Always do your own research and analysis before investing in anything.