10 Best ESG ETFs in Canada for Ethical Investing in (2024)

Have you noticed how companies have put a strong emphasis on ESG in their corporate updates? ESG, or Environmental, Social, and Governance, has become a major factor in how investors look at companies.

While ESG doesn’t necessarily always have a direct impact on their business, it is more of a new corporate standard that companies are held at. Socially conscious investors are particularly interested in companies that follow strong ESG policies.

Given the current global shift towards renewable energies and climate awareness, Environmental policies have become an important part of how companies operate. Going carbon neutral has become a necessary short-term goal for almost every company worldwide.

As with any form of investing, ESG investing has both its pros and cons. On one hand, investing in a company with strong principles gives investors peace of mind that their money is doing good for the world.

On the other hand, focusing too much on ESG may distract you from things like company performance and growth. As always, research each company and create an investment strategy that works for you.

Best ESG ETFs in Canada for 2024

In this article, I will review 10 of the best ESG ETFs in Canada for 2024. Here are the ten ETFs I will be discussing for those who are looking to participate in ethical investing in Canada:

1. iShares ESG Aware MSCI Canada Index ETF (TSX: XESG)
2. iShares ESG Advanced MSCI Canada Index ETF (TSX: XCSR)
3. BMO MSCI Canada ESG Leaders Index ETF (TSX: ESGA)
4. TD Morningstar ESG Canada Equity Index ETF (TSX: TMEC)
5. BMO Balanced ESG ETF (TSX: ZESG)
6. BMO MSCI EAFE ESG Leaders Index ETF (TSX: ESGE)
7. Horizons Global Sustainable Leaders Index ETF (TSX: ETHI)
8. iShares ESG Advanced MSCI USA Index ETF (TSX: XUSR)
9. Invesco S&P 500 ESG Index ETF (TSX: ESG)
10. Vanguard ESG US Stock ETF (ESGV)

All facts and figures are accurate as of October 2022.

1. iShares ESG Aware MSCI Canada Index ETF

Here are some key facts about this ETF:

• Ticker Symbol: TSX: XESG
• Inception Date: March 18, 2019
• MER: 0.16%
• Number of Holdings: 119
• Net Assets: $184 million
• Distribution Yield: 3.47%
• Distribution Frequency: Quarterly

This Blackrock iShares ESG ETF is relatively new, having only been established in 2019. This ETF trades on the Toronto Stock Exchange and pays a quarterly distribution yield of 3.47%.

XESG focuses on holding blue-chip Canadian stocks that follow strong ESG policies. The top five holdings in XESG are Toronto Dominio, Royal Bank of Canada, Bank of Nova Scotia, Canadian National Railway, and Bank of Montreal.

It is meant to be a low-cost ETF that provides exposure to socially responsible companies to form a core holding in your portfolio.

2. iShares ESG Advanced MSCI Canada Index ETF

Here are some key facts about this ETF:

• Ticker Symbol: TSX: XCSR
• Inception Date: April 15, 2020
• MER: 0.17%
• Number of Holdings: 170
• Net Assets: $133 million
• Distribution Yield: 3.10%
• Distribution Frequency: Quarterly

The second Blackrock iShares ESG ETF on my list is the ESG Advanced MSCI Canada Index ETF. Compared to XESG, this ETF holds a larger number of small-cap and mid-cap stocks and is a broader representation of the TSX.

You will notice that many of the top holdings are the same between the two ETFs. XCSR’s top five holdings are Toronto Dominion, Royal Bank of Canada, Bank of Montreal, Bank of Nova Scotia, and Nutrien Ltd.

As an ETF with blue-chip Canadian stocks, you’ll notice it has no exposure to energy or companies involved in producing fossil fuels.

3. BMO MSCI Canada ESG Leaders Index ETF

Here are some key facts about this ETF:

• Ticker Symbol: tsx:ESGA
• Inception Date: January 15, 2020
• MER: 0.17%
• Number of Holdings: 38
• Net Assets: $88 million
• Distribution Yield: 3.43%
• Distribution Frequency: Quarterly

The first BMO Global Asset Management ESG ETF on my list is ESGA. This focuses on ESG leaders in Canada with a smaller core of blue-chip Canadian stocks.

For ESGA, the largest weighted holdings are Toronto Dominion, Enbridge Inc, Canadian National Railway Co, Bank of Montreal, and Bank of Nova Scotia. You might notice an absence of the Royal Bank and the presence of energy companies like Enbridge.

Regarding its MSCI ESG Rating, this ETF received a total score of 10.0 and a rating of AAA, which is the highest rating an ETF can receive.

4. TD Morningstar ESG Canada Equity Index ETF

Here are some key facts about this ETF:

• Ticker Symbol: TSX: TMEC
• Inception Date: November 23, 2020
• MER: 0.11%
• Number of Holdings: 80
• Net Assets: $11.5 million
• Distribution Yield: 3.44%
• Distribution Frequency: Quarterly

My only ESG ETF from Toronto Dominion is the ESG Canada Equity Index ETF. It was established in November 2020 and has a fairly balanced portfolio of 80 different Canadian ESG stocks.

Again, you’ll notice an emphasis on banking stocks for this ETF as the top holdings are Royal Bank of Canada, Enbridge Inc, Canadian National Railway Co, Canadian Pacific Railway Ltd, and Bank of Montreal.

TD Morningstar ESG Canada Equity Index ETF has received a AAA MSCI ESG Rating, which places it in the 100th percentile for ESG ETFs.

5. BMO Balanced ESG ETF

Here are some key facts about this ETF:

• Ticker Symbol: TSX: ZESG
• Inception Date: January 16, 2020
• MER: 0.20%
• Number of Holdings: 7
• Net Assets: $46 million
• Distribution Yield: 2.55%
• Distribution Frequency: Quarterly

ZESG is another Canadian ESG ETF from BMO Global Asset Management. This is a balanced portfolio which means that instead of holding individual stocks, it holds a basket of ESG ETFs.

Here are the seven different holdings that ZESG holds:

• BMO MSCI USA ESG Leaders Index (ESGY)
• BMO Government Bond Index ETF (ZGB)
• BMO MSCI Canada ESG Leaders Index ETF (ESGA)
• BMO MSCI EAFE ESG Leaders Index ETF (ESGE)
• BMO ESG Corporate Bond Index ETF (ESGB)
• BMO ESG US Corporate Bond Hedged to CAD Index ETF (ESGF)
• Cash

This ETF also has an MSCI ESG Rating of AAA, with 63% of the fund’s holdings having a rating of AA or higher, which are considered ESG Leaders. None of the holdings have a rating of B or CCC, which are considered ESG Laggards.

6. BMO MSCI EAFE ESG Leaders Index ETF

Here are some key facts about this ETF:

• Ticker Symbol: TSX: ESGE
• Inception Date: January 16, 2020
• MER: 0.28%
• Number of Holdings: 399
• Net Assets: $59.5 million
• Distribution Yield: 3.40%
• Distribution Frequency: Quarterly

ESGE is yet another ESG ETF from BMO Global Asset Management. This fund was established recently in 2020 and has provided investors with an annualized average return of -4.32% since its inception.

This ETF provides exposure to the EAFE investment market which stands for Europe, Australia, and the Far East. As an investment, it offers investors a chance to invest in stocks from regions that might otherwise be unavailable as individual stocks.

The largest holdings in ESGE are Roche Holding AG, ASML Holding NV, NOVO Nordisk A/S, AstraZeneca plc, and Totalenergies SE. Geographically, Japan has the largest allocation of stocks, with 23.13% of the portfolio.

7. Horizons Global Sustainable Leaders Index ETF

Here are some key facts about this ETF:

• Ticker Symbol: TSX: ETHI
• Inception Date: October 31, 2018
• MER: 0.55%
• Number of Holdings: 204
• Net Assets: $77 million
• Distribution Yield: 1.47%
• Distribution Frequency: Quarterly

ETHI is my only ESG ETF pick from Horizons ETFs on this list. This fund was founded in 2018 and tracks the NASDAQ Future Global Sustainability Leaders USD Index.

It holds 204 different stocks from a wide range of international stock markets with a 66.69% portfolio weight to American stocks. The five largest holdings are Apple Inc, Visa Inc Class A, Home Depot Inc, Mastercard Inc Class A, and Toyota Motor Corp.

This fund has an MSCI ESG Rating of AAA, and 51% of its holdings are considered ESG Leaders.

8. iShares ESG Advanced MSCI USA Index ETF

Here are some key facts about this ETF:

• Ticker Symbol: TSX: XUSR
• Inception Date: April 15, 2020
• MER: 0.22%
• Number of Holdings: 362
• Net Assets: $124 million
• Distribution Yield: 1.12%
• Distribution Frequency: Quarterly

XUSR Is another Blackrock iShares ESG ETF that trades on the TSX and was established in 2020. As its name suggests, XUSR tracks 362 American-listed stocks with reduced exposure to fossil fuels.

The five largest holdings in the XUSR ETF are Microsoft Corp, Visa Inc Class A, NVIDIA Corp, Home Depot Inc, and Eli Lilly. This fund has a 40% allocation to the Information and Technology sector.

For its MSCI ESG Rating, XUSR scores a AAA rating, with 51% of its holdings considered ESG Leaders and 0% as ESG Laggards.

9. Invesco S&P 500 ESG Index ETF

Here are some key facts about this ETF:

• Ticker Symbol: TSX: ESG
• Inception Date: February 14, 2020
• MER: 0.17%
• Number of Holdings: 305
• Net Assets: $131 million
• Distribution Yield: 2.00%
• Distribution Frequency: Quarterly

This Invesco Canada managed to grab the ESG ticker symbol on the TSX. It was established in 2020 and tracks the performance of the S&P 500 ESG Index.

The five largest holdings in ESG are Apple Inc, Microsoft Corp, Amazon.com Inc, Alphabet Inc Class A Shares, and Class C Shares.

ESG’s MSCI ESG Rating is AAA, with 35% of the holdings listed as ESG Leaders.

10. Vanguard ESG US Stock ETF

Here are some key facts about this ETF:

• Ticker Symbol: BATS: ESGV
• Inception Date: September 18, 2018
• MER: 0.09%
• Number of Holdings: 1,492
• Net Assets: $5.3 billion
• Distribution Yield: 1.44%
• Distribution Frequency: Quarterly

My one and only US-listed ETF is the Vanguard ESG US Stock ETF which was established in 2018. It trades on the BATS Global Markets Exchange based out of Kansas.

This ETF holds 1,492 US stocks with a familiar allocation to the five largest holdings: Apple Inc, Microsoft Corp, Amazon.com Inc, Alphabet Inc Class C, and Tesla Inc.

ESGV has an MSCI ESG Rating of AAA, with 31% of its total holdings considered ESG Leaders.

Here are other Vanguard ETFs you can consider, including all-in-one ETFs.

How To Buy ESG ETFs in Canada

What are ESG ETFs?

ESG ETFs are funds that are created with stocks of companies that have strong ESG policies. This provides peace of mind to investors who are looking to invest in sustainable companies.

Typically these ETFs do not hold stocks for companies that deal in fossil fuels or operate in industries that are deemed harmful to the Earth.

These ETFs also aim to include companies that reduce their carbon footprints and positively contribute to society.

ESG vs Socially Responsible Investing

ESG investing focuses mostly on corporate behaviour and the forward-looking policies of the company itself. While ESG policies are important, these investors are still looking to invest in profitable companies that are also sustainable and well-governed.

In contrast, Socially Responsible Investing takes things to another level. These investors are looking for companies that operate in industries that provide a positive impact on the world and society.

Not only do SRI companies need to be ESG-positive, but these investors also look at things like the treatment of employees and charitable donation amounts.

Is Ethical Investing Worth It?

In terms of investment return, we’ve seen that many of these ESG ETFs hold the same stocks as non-ESG funds. There is a noticeable absence of sectors like fossil fuels, but for the most part, it is a similar allocation of companies.

Ethical investing in Canada does provide investors with peace of mind that their money is being invested in companies that do better for the world.

If sustainability and corporate governance are important to you, then you will likely find ESG investing as a necessary portion of your portfolio.

Downsides of ESG ETFs

One downside of ESG investing is that we can often focus on things like the ESG Rating of a fund and ignore its performance or potential for returns.

Another potential downside is that many of these ETFs have similar stock holdings to non-ESG ETFs. With so many companies focusing on carbon neutrality and sustainability, the true purpose of ESG could be somewhat diluted now.

Ultimately, we have to weigh how much we value ESG principles versus the profitability of our investments.

FAQs

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• How To Buy ETFs on Wealthsimple Trade
• iShares Canada ETF List and Review
• Best Money Market ETFs in Canada
• Best Bond ETFs in Canada