(Bloomberg) — The powerful rebound in oil prices has turned exchange-traded funds tracking fossil fuels into some of the best performing in the U.S. this year. Strangely, the rally in crude has been pretty good for products aiming to safeguard the environment, too.A quirk in the way many environmental, social and governance indexes are built means several ESG funds hold stakes in big oil producers such as Exxon Mobil Corp. and Chevron Corp.Besides those two energy giants, the largest ETF in that category — the iShares ESG Aware MSCI USA ETF (ESGU) — has Hess Corp. and Marathon Petroleum Corp. among its stocks. The SPDR S&P 500 ESG ETF (EFIV) and FlexShares STOXX Global ESG Impact Index Fund (ESGG) also count Exxon and Chevron as holdings.“This is probably one of the most ultimate ironies you could come up with,” said Eric Balchunas, ETF analyst for Bloomberg Intelligence. “Some ESG ETFs are made to be very close to the benchmark — that way you don’t deviate too far away from the S&P, but you definitely dilute your ‘ESG-ness.’”As previously stuck-at-home Americans ramp up gasoline usage and embark on plane trips, oil prices are finally recovering, with Exxon and Chevron each up more than 25% in 2021.The rebound also has boosted funds such as the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) and VanEck Vectors Oil Services ETF (OIH). They’re once again attracting investors, with OIH’s inflows already eclipsing its total 2020 intake, according to data compiled by Bloomberg. They have also outperformed the S&P 500 this year.The reason oil companies are featured in ESG funds, alongside more traditionally green stocks like Tesla Inc. and Enphase Energy Inc., comes down to the index methodology. The MSCI Inc. gauge that ESGU tracks screens for firms involved in civilian firearms, controversial weapons, tobacco, thermal coal and oil sands. Exxon comprises nearly 0.6% of the fund, compared with SPDR S&P 500 ETF Trust (SPY)’s almost 0.7% stake.A spokesperson for BlackRock Inc. said that ESGU aims to include companies with positive ESG characteristics across all sectors. The firm added that it offers other funds that explicitly screen out fossil-fuel companies, and aims to provide clients with options. BlackRock also is using proxy voting to take action against companies it thinks aren’t doing enough to manage climate-change risks.Meanwhile, Sue Thompson, head of SPDR Americas Distribution at State Street Global Advisors, noted the importance of offering a range of green options.“One size rarely fits all when it comes to ESG investing,” she said. “Different clients have different needs and views around the best way to achieve investment goals.”As for the ESGG fund, the aim is to provide exposure to all sectors, so it can be used as a core equity holding, said Chris Huemmer, senior investment strategist at FlexShares.“After an analysis of Exxon and Chevron on all metrics used for the energy sector, the companies scored high enough for inclusion under our best-in-class methodology,” he said.So far this year, ESGU has rallied 12% — roughly in line with the S&P 500’s advance — while EFIV and ESGG have each climbed more than 10%.The inclusion of oil companies in a green fund points to the lack of a clear definition — at least in the U.S. — for what constitutes ESG investing. Some funds like the Vanguard ESG US Stock ETF (ESGV) take a more strict approach, excluding companies involved in adult entertainment, alcohol, tobacco, weapons, fossil fuels, gambling and nuclear power. Others such as Invesco Solar ETF (TAN) and First Trust Global Wind Energy Fund (FAN) are focused on just one aspect of the broader ESG universe.“I have seen products that either contain securities you wouldn’t think of as ESG or look very close to the S&P 500 benchmark,” said Bill Callahan, an investment strategist at Schroders. “Investors should look beyond just the name of a product that has ESG in the name, and look at what’s in the portfolio, and then decide if that meets their goals.”For some funds, the similarities to more mainstream indexes are intentionally designed, with the goal of allowing investors to hold the product as a core portion of their portfolio. BlackRock’s recently launched U.S. Carbon Transition Readiness ETF (LCTU) does that, counting Apple Inc., Microsoft Corp., Amazon.com Inc., Alphabet Inc. and Facebook Inc. as its top stakes.“There is a market for somebody who really wants to tilt a little to ESG, but not go overboard,” Balchunas said.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.