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ESG investing: All You need to know

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Supporting companies with good environmental, social and governance track records makes ESG investing rewarding, as do the superior returns on ESG funds.

If the constant news reports of social unrest, health and environmental crises, and corporate bailouts have got you thinking about using your investment dollars to create change, you’re not alone. More Canadians than ever are putting their money into action through ESG investing, buying ESG funds and supporting companies that share their values on environmental, social and governance issues.

But embracing ESG principles as an investor isn’t just about making a difference—it’s also savvy financial behaviour. Companies that prioritize ESG factors are increasingly being recognized as having superior risk management, making them more profitable.

Ready to find out how you can earn more on your investments and put your money where your values are? Here’s everything you need to know about ESG investing, including how to invest in ESGs using a robo advisor like Wealthsimple or an online brokerage like Questrade.

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What is ESG investing?

As mentioned above, ESG stands for Environment, Social, and Governance. As such, ESG investments are holdings in companies (or funds that hold assets from an array of companies) deemed to be beneficial—or at least less harmful than their competitors—when it comes to the environment, social issues and corporate governance.

Companies are assessed by an independent third party, such as Morgan Stanley Capital International (MCSI), on a set of ESG criteria including the following:


  • air and water pollution
  • carbon footprint/greenhouse gas (GHG) emissions
  • resource consumption/energy efficiency
  • waste production
  • impact on wildlife/animal welfare


  • labour standards (fair pay and practices, workplace safety, etc.)
  • human rights
  • child and forced labour
  • community involvement
  • stakeholder/employee relations
  • product safety


  • executive compensation
  • board independence and accountability
  • transparency and disclosure
  • management structure and diversity
  • conflicts of interest
  • corruption
  • shareholder rights

Top ESG investing trends to watch for in 2020

Interest in ESG among individuals, institutional investors, and corporations has increased significantly in recent years and is expected to keep growing in 2020.

Here in Canada, for example, 72% of investors are interested in ESG-based and other forms of socially responsible investing—up from just 60% in 2018, according to a September 2019 poll by the Responsible Investment Association (RIA), a Canadian organization promoting the incorporation ESG factors into investment decisions.

And a survey published in May 2020 by the Morgan Stanley Institute for Sustainable Investing found that 80% of U.S. institutional investors (including corporate pension funds, endowments foundations and insurance companies) are now integrating ESG factors into their investment process, up from 70% in 2017.

This increased awareness of the importance of ESG has also prompted executives to change the way they manage their companies. This was never more clear than in August 2019, when the Business Roundtable—a cabal of nearly 200 CEOs who head up some of the largest companies in the U.S.—officially recognized ESG and sustainability principles in their updated “Purpose of a Corporation” document. In it, they pledge to “invest in employees; deliver value to customers; deal fairly and ethically with suppliers; support communities in which they work; and, generate long-term value for shareholders.”

The COVID-19 pandemic is likely to accelerate the adoption of ESG and impact strategies, as consumers and investors pay close attention to the way companies treat workers and protect the welfare of the community, notes Dustyn Lanz, CEO of RIA, in a column for Investment Executive.

“While social factors had previously been overshadowed by climate change in the ESG space, they are now moving to the forefront as companies will be remembered for how they treated their people and the communities in which they operate,” he says.

How to buy ESG investments

These days, you don’t need to pay out the nose for socially responsible investments. There are two very simple and cost-effective ways to buy ESG, which we’ll outline below.

Use a robo advisor

If you’re a first-time investor, or you don’t want to spend your time researching ESG investments, your best bet is to check out the best robo advisors in Canada. Many of them, including Wealthsimple, offer pre-fab portfolios of sustainable exchange-traded funds (ETFs), including those that track companies with positive ESG criteria.

In essence, these are complete, diversified portfolios designed to match your risk tolerance, allowing you to achieve solid returns on your investments with very little effort on your part. Plus, with fees well under 1%—as compared to the average 2% to 3% fees Canadians typically pay to invest in actively managed mutual funds—robo advisors will keep more of your investment earnings in your hands so you can reach your financial goals faster.

Wealthsimple is a solid option, as it recently revamped its SRI portfolios to completely screen out “naughty” industries — such as oil and firearms — while providing better diversification and lower fees. Wealthsimple also has a Halal Investing portfolio — an ethical investment fund of 50 stocks for clients seeking an option that’s compliant with Islamic law.

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DIY investing

More experienced investors who are comfortable choosing and placing their own trades can enjoy even greater savings on fees (not to mention a larger menu of ESG assets to invest in) by using one of the best online brokerages in Canada, such as Questrade or Wealthsimple Trade.

Our top choice is Questrade because it offers free ETF purchases and stock trading for as little as $4.95. 

But if you’re looking to cut costs to the bone, another good option is Wealthsimple Trade — a mobile-only app that allows clients to buy and sell stocks and ETFs for free.

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ESG funds to buy

With more and more ESG funds coming on the market, it’s difficult for investors to know which ETFs are best for their needs.

One of my favourite Canadian experts when it comes to ESG and sustainable ETF investing picks is Tim Nash, a.k.a. The Sustainable Economist. It’s his mission to educate the public about socially responsible and green investments, and I would suggest reviewing the excellent model ETF portfolios posted on his website. (His efforts to spread the word on sustainable investments were also recently recognized with a 2020 RIA Leadership Award.)

In the meantime, here are a few ETFs that track ESG criteria to get you started with your research:

Fund name
Asset type
iShares Jantzi Social Index
Canadian Equity
Canadian companies that meet a broad set of ESG criteria
Vanguard ESG U.S. Stock ETF
U.S. Equity
Mid- and small-cap U.S. companies, screened for ESG criteria
iShares MSCI KLD 400 Social ETF
U.S. Equity
U.S. companies with positive ESG characteristics.
BMO Government Bond Index ETF
Canadian Bond
Shorter-term government bonds.
iShares Core Canadian Short Term Bond Index ETF
Canadian Bond
Low cost, broad exposure to Canadian investment grade bonds with maturities ranging from 1 to 5 years.
Invesco Cleantech ETF
International Equity
Cleantech businesses (e.g., clean energy, environmental, sustainable/green products and services).
iShares MSCI EAFE ESG Optimized ETF
International Equity
Large- and mid-cap companies in developed markets, excluding North America, that have positive ESG characteristics.
BMO Balanced ESG ETF
Both global equity (60%) and fixed income (40%) securities, based on ESG ratings. Automatically rebalances quarterly.

Do ESG investments perform better?

In a word, yes. Multiple studies have shown that ESG investments perform just as well or better as their non-ESG counterparts, with less exposure to risk.

Here is but a smattering of the research available:

  • A 2014 Harvard Business School paper looked at ESG scores across U.S. companies over an 18-year period (1993 to 2010) and found that the highest-scoring ESG companies outperformed the low-scoring ESG companies.
  • A 2015 meta-study by the Morgan Stanley Institute for Sustainable Investing, which reviewed seven years of performance data for 10,228 open-end U.S. mutual funds, found that sustainable funds tend to have slightly higher returns and lower volatility than their traditional counterparts.
  • Despite history-making market volatility in March 2020 brought on by the global pandemic, 83% of Canadian responsible investment funds outperformed their average asset class return in the first quarter of the year, according to an RIA report. A significant majority (80%) also outperformed over the one-year period ending March 31, 2020.

ESG vs. Socially Responsible Investing (SRI)

While some investors and firms use terms such as ESG, SRI and impact investing interchangeably, there are nuanced differences between ESG and socially responsible investing.

First, ESG investors choose to invest in companies that are industry leaders for environmental, social and governance criteria; whereas SRIs will screen out entire industries entirely. For example, SRIs might exclude all oil or gas companies, even those with a lower carbon footprint than their competitors.

Second, SRIs use a moral lens, which means they also exclude companies that profit from so-called sin products such as tobacco, alcohol, gambling or pornography. That’s not necessarily the case for ESG investing, so long as the company has a high enough ESG score.

Finally, ESG investing weighs financial returns alongside sustainability criteria, while socially responsible investors put their values first and then consider what kind of monetary gains they can achieve.

RELATED: ESG, SRI, and impact investing: How do they differ?

Last words

It’s now easier than ever to invest in companies that care about the environment, society, and good governance. Take a hands-off, no-stress approach by opening an investment account with a robo advisor offering a ready-made sustainable portfolio, or choose your own low-fee ESG investments through an online discount brokerage.

Either way, you’ll feel great about sticking to your own ESG principles—and watching your money grow.

About our author

Tamar Satov
Tamar Satov, Freelance Contributor

Tamar Satov is an award-winning journalist specializing in the areas of personal finance and parenting. Her work has appeared in Canadian Living, The Globe and Mail, Today’s Parent, Parents Canada, Walmart Live Better and many other consumer magazines and websites.


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