The Canadian market includes 38 environmental, social and governance (ESG) or “socially responsible” ETFs. The choice is so vast that it’s hard to navigate. I offer you some information to see more clearly.

There is no hiding place, I am a fan of passively managed funds. I will therefore limit myself to index ETFs offered by large providers. Good thing, because iShares and BMO have together developed a comprehensive, consistent and affordable product line. These two providers have created ETFs based on the ESG indices of reputable research firm MSCI, formerly known as Morgan Stanley Capital Indexes.

 

Equity ETFs

ESG equity index ETFs can be compared to salsa because they come in three versions: mild, medium and hot.

A first series, offered by iShares and whose name includes the word “aware” are a “mild” version of ESG equity ETFs. They aim to provide exposure to “cleaner” companies, without deviating too much from overall market performance. The portfolio is built by filtering out certain so-called “controversial” companies (e.g. tobacco companies or civilian firearms producers) and overweighting the “cleanest” companies.

Table 1: “Mild Flavor” ESG Equity ETFs

Name Ticker Lanch Management fees in %
iShares ESG Aware MSCI Canada ETF XESG 2019-03-18 0.20
iShares ESG Aware MSCI USA ETF XSUS 2019-03-18 0.25
iShares ESG Aware MSCI EAFE ETF XSEA 2019-03-18 0.25
iShares ESG Aware MSCI Emerging Markets ETF XSEM 2019-03-18 0.35
Source: iShares, March 2021

 

The second series (“medium” flavored), also offered by iShares, includes the word “advanced” in its name. This series adheres to the same philosophy, except that the exclusion filters are more stringent and the stock selection relies more on the criteria of “cleanliness” than on tracking error. Note that the “medium” flavor completely excludes stocks from the energy sector (oil and gas producers), which is not the case for the hot “flavor” series.

Table 2: “Medium Flavor” ESG Equity ETFs

Name Ticker Launch Management fees in %
iShares ESG Advanced MSCI Canada ETF XCSR 2020-04-15 0.15
iShares ESG Advanced MSCI EAFE ETF XDSR 2020-04-15 0.25
iShares ESG Advanced MSCI USA ETF XUSR 2020-04-15 0.20
Source: iShares, March 2021

 

As for the “hot” ESG ETFs, they are offered by both iShares and BMO (ETFs whose name includes the word “leaders”). These ETFs build their portfolios first and foremost around the “cleanliness” of the selected companies and are less concerned with tracking market performance, but strangely, do not rule out stocks in the energy sector entirely. Keep in mind that ESG portfolio management is not just about tackling climate change.

Table 3: “Hot Flavor” ESG Equity ETFs

Name Ticker Launch Management fees in %
iShares ESG MSCI Canada Leaders ETF XCLR 2021-03-05 0.15
iShares ESG MSCI USA Leaders ETF XULR 2021-03-05 0.20
iShares ESG MSCI EAFE Leaders ETF XDLR 2021-03-05 0.25
BMO MSCI Canada ESG Leaders ETF ESGA 2020-01-15 0.15
BMO MSCI USA ESG Leaders ETF ESGY 2020-01-15 0.20
BMO MSCI EAFE ESG Leaders ETF ESGE 2020-01-15 0.25
BMO MSCI Global ESG Leaders ETF ESGG 2020-01-15 0.25

Source: BMO, iShares, March 2021

 

All of these ETF series cover stocks in Canada, the United States and other developed countries (“EAFE”), while only the “aware” iShares series can invest in emerging market stocks. Finally, BMO offers a “leaders” global equity ETF. Note that the latter includes a very small portion of Canadian stocks, which corresponds to the weight of this market on a global scale. In addition, iShares ETFs, which are total market funds, enjoy greater diversification than their BMO counterparts, which focus on large and mid-cap companies.

 

Bond ETFs

Two bond ETFs grab my attention, the XSTB which invests with “clean” issuers and replicates the Canadian Short-Term Bond Index and the XSAB which replicates the Total Bond Market Index. These two ETFs have a maturity profile and credit quality similar to general market indices.

Table 4: ESG bond ETFs

Name Ticker Launch Management fees in %
iShares ESG Canadian Short-Term Bond ETF XSTB 2019-03-18 0.15
iShares ESG Canadian Aggregate Bond ETF XSAB 2019-03-18 0.18
Source: iShares, March 2021

 

Asset allocation ETFs

To complete the picture, iShares offers a series of asset allocation ETFs. These ETFs are a solution if you don’t want to mess around with your choice of stock and bond ETFs and how much weight to give to each. The equity weighting is invested in the underlying “advanced” funds. Canadian equities represent 30% of the total equity weighting, while the remainder is split between U.S. and International Equities (EAFE) according to market capitalization. On the bond side, the easiest route would have been to invest in existing ESG ETFs, however iShares made a rather confusing choice, investing only with government bond ETFs, including a very small portion of long-term US government bond ETFs. Nevertheless, asset allocation ETFs remain a cost-effective and efficient solution to building long-term capital while asserting your values. All you need to do is determine the right proportions of stocks and bonds for you, and one trade is enough to achieve global diversification in one fell swoop.

Table 5: Asset Allocation ETFs

Name Ticker Launch Management fees in % Stock/Bond Mix
iShares ESG Conservative Balanced ETF Portolio GCNS 2020-09-02 0.22 40/60
iShares ESG Balanced ETF Portfolio GBAL 2020-09-02 0.22 60/40
iShares ESG Growth ETF Portfolio GGRO 2020-09-02 0.22 80/20
iShares ESG Equity ETF Portfolio GEQT 2020-09-02 0.22 100/0
Source: iShares, March 2021

 

The final word

In my opinion, ESG investment products serve to meet the preference of certain investors, who want their portfolio to match their values. The more you choose a portfolio that emphasizes ESG factors (the “hottest”, in the analogy above), the more your portfolio performance will deviate – either positively or negatively – from the overall market performance. If you are well ahead of your financial goals, you can probably afford a stronger emphasis on “hotter” ETFs. But if you are late, a milder version should be considered. In addition, there are other strategies for expressing your social conscience, such as donating to charities of your choice. At least this way you will know the economic cost of your social engagement.