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2023 responsible funds guide: ESG investing matures while markets reel
Love it or hate it, you can no longer ignore ESG and responsible investment strategies. Where should conscientious investors put their money?
It wasn’t just a tough year for conscious investors: 2022 was all-round terrible in the markets. There has been little shelter from the financial storm. Both stocks and bonds fell, alongside real estate, tech stocks and cryptocurrencies.
One of the few segments of the market that went up was energy, as Russia’s atrocious war in Ukraine pushed natural gas and oil prices higher. Responsible investors tend to have more exposure to tech and less exposure to oil and gas, which helps explain why responsible funds largely underperformed.
While sustainably minded investors were spoiled with above-average returns in 2020 and 2021, keep in mind that the aim of responsible investing isn’t to beat the market every year.
Instead, the goal is to earn roughly the same as traditional investments over the long term while aligning more closely with our values and pushing companies toward sustainability.
It isn’t a big deal that responsible investments dragged this year, but it has given ammunition to critics. And these critics have gotten loud. Those on the left wing of the political spectrum claim that responsible investing is just a placebo for the climate crisis, akin to giving wheatgrass juice to a cancer patient.
Critics on the right are targeting the acronym “ESG” (environmental, social and governance), calling it a scam and using it as a political bogeyman. In 2022 alone, 17 U.S. states proposed or adopted laws to prohibit responsible investment strategies such as divestment from energy and weapons, which has already resulted in borrowing costs going up in many cases.
Talk about cutting off your nose to spite your face.
I worry that these constant attacks have undermined the public’s trust in responsible investing.
2023 Responsible funds
| Fund name | % Market weight covered by CK ratings | Weighted rating | Final score | Holdings date |
|---|---|---|---|---|
| International | ||||
| iShares ESG MSCI EAFE Leaders Index ETF (XDLR) | 95.8% | 22.8% | 99.3% | 6/30/22 |
| BMO MSCI EAFE ESG Leaders Index ETF (ESGE) | 95.2% | 22.7% | 97.9% | 6/30/22 |
| Invesco S&P Intl Developed ESG Tilt Idx ETF (IITE) | 93.6% | 21.2% | 95.9% | 6/30/22 |
| Desjardins SocieTerra International Equity Fund A | 95.3% | 19.9% | 90.5% | 6/30/22 |
| Desjardins RI Dev ex-USA ex-Cda Low CO2 Ind (DRMD) | 94.9% | 19.8% | 89.8% | 3/31/22 |
| Franklin ClearBridge Sust Intl Gth Fd Ser A | 96.0% | 19.7% | 88.5% | 6/30/22 |
| NEI International Equity RS Fund Series A | 94.8% | 19.7% | 87.1% | 6/30/22 |
| Wealthsimple Dev Mkts ex NA Soc Rsp Ind ETF (WSRD) | 86.1% | 18.8% | 84.4% | 5/31/22 |
| iShares ESG Aware MSCI EAFE Index ETF (XSEA) | 95.8% | 18.7% | 83.1% | 6/30/22 |
| TD Morningstar ESG International Eq Ind ETF (TMEI) | 93.3% | 18.3% | 77.7% | 6/30/22 |
| Global | ||||
| Harvest Clean Energy ETF – Class A Units (HCLN) | 85.0% | 32.4% | 100.0% | 6/30/22 |
| NEI Environmental Leaders Fund Series A | 98.5% | 27.4% | 99.7% | 6/30/22 |
| CI MSCI World ESG Impact ETF (CESG) | 96.7% | 27.1% | 99.4% | 6/30/22 |
| IA Clarington Inhance Global Equity SRI Class A | 98.0% | 25.8% | 99.1% | 3/31/22 |
| Manulife Climate Action Fund Advisor Series | 99.4% | 25.8% | 98.8% | 6/30/22 |
| AGF Global Sustainable Growth Equity ETF (AGSG) | 91.7% | 24.7% | 98.5% | 6/30/22 |
| Desjardins SocieTerra Positive Change Fund A | 93.5% | 23.4% | 97.4% | 6/30/22 |
| AGF Global Sustainable Growth Equity Fund MF | 85.1% | 22.2% | 96.2% | 3/31/22 |
| BMO Sustainable Opport Global Equity Fund Series A | 95.1% | 21.7% | 95.4% | 3/31/22 |
| FÉRIQUE Global Sustainable Development Equ Fd A | 97.0% | 21.6% | 95.1% | 6/30/22 |
| U.S. | ||||
| Invesco ESG NASDAQ 100 Index ETF (QQCE) | 100.0% | 26.8% | 100.0% | 6/30/22 |
| Desjardins SocieTerra American Equity Fund A Class | 99.4% | 24.6% | 97.3% | 6/30/22 |
| iShares ESG MSCI USA Leaders Index ETF (XULR) | 99.7% | 23.0% | 96.0% | 6/30/22 |
| BMO MSCI USA ESG Leaders Index ETF (ESGY) | 99.6% | 21.7% | 92.1% | 6/30/22 |
| Invesco S&P 500 ESG Tilt Index ETF (ISTE) | 100.0% | 21.1% | 91.4% | 6/30/22 |
| Invesco S&P 500 ESG Index ETF (ESG) | 99.8% | 20.6% | 90.4% | 6/30/22 |
| iShares ESG Aware MSCI USA Index ETF (XSUS) | 99.3% | 20.6% | 90.1% | 6/30/22 |
| Invesco S&P US Total Mkt ESG Tilt Idx ETF (IUTE) | 99.1% | 20.2% | 88.4% | 6/30/22 |
| Invesco S&P US Total Market ESG Index ETF (IUCE) | 99.9% | 19.6% | 85.8% | 6/30/22 |
| Mackenzie Bluewater US Growth Fd A | 94.0% | 19.5% | 85.5% | 3/31/22 |
| Canadian | ||||
| Desjardins SocieTerra Canadian Equity Income Fd I | 93.2% | 34.6% | 100.0% | 6/30/22 |
| Invesco S&P/TSX 60 ESG Tilt Index ETF (IXTE) | 98.5% | 32.2% | 99.3% | 6/30/22 |
| iShares Jantzi Social Index ETF (XEN) | 97.2% | 31.4% | 98.7% | 6/30/22 |
| CIBC Sustainable Canadian Equity Fund Series A | 92.9% | 29.9% | 98.1% | 6/30/22 |
| Desjardins SocieTerra Canadian Equity Fund A | 94.6% | 29.5% | 97.5% | 6/30/22 |
| TD Morningstar ESG Canada Equity Index ETF (TMEC) | 96.8% | 26.7% | 96.2% | 6/30/22 |
| Invesco S&P/TSX Composite ESG Index ETF (ESGC) | 94.3% | 26.2% | 95.6% | 6/30/22 |
| Invesco S&P/TSX Composite ESG Tilt Idx ETF (ICTE) | 93.6% | 25.6% | 93.7% | 6/30/22 |
| Desjardins RI Canada – Low CO2 Index ETF (DRMC) | 97.5% | 25.1% | 92.5% | 3/31/22 |
| iShares ESG Advanced MSCI Canada Index ETF (XCSR) | 93.3% | 25.0% | 91.9% | 6/30/22 |
The fund’s final score is the percent rank score (against other funds of the same category) of the fund’s weighted rating of the company-level ratings of the underlying portfolio holdings of the fund; the final scores range from 0% to 100% • Rating frequency: annual • The fund’s ESG characteristics and performance may differ from time to time as updated information and ratings become available. This rating does not evaluate the ESG-related investment objectives or ESG strategies used by the fund and is not indicative of how well ESG factors are integrated by the fund. Other providers may also prepare ESG ratings or scores for the fund using their own methodologies, which may differ from the methodology used by Corporate Knights.
Rebuilding trust in ESG
One way to rebuild that trust is by having stricter rules and regulations to help standardize the language used and ensure that investment funds aren’t greenwashing. The Canadian Securities Administrators brought forward guidance on the issue, but they’ve stopped short of establishing binding rules.
This needs to change, as Canada now lags behind the U.S. and Europe.
One place where trust in responsible investing remains strong is among institutional investors such as foundations and pensions. Activist campaigns from groups such as 350.org, Shift Action for Pension Wealth and Planet Health, and Stand.earth are working, and the so-called smart money is aggressively moving to adopt responsible investment strategies.
The 2022 Canadian Responsible Investment Trends Report showed that the industry is maturing. The top-level figure for assets under management dropped from $3.2 trillion at the end of 2019 to $3 trillion at the end of 2021. In the U.S., a recent report found that assets labelled as sustainable dropped by US$8.7 trillion during the same period. This sounds discouraging, but it turns out institutional investors are being more careful about how they classify their assets, confirming suspicions that greenwashing is now the biggest deterrent to growth. The public remains skeptical, and the responsible investment industry needs to take further steps toward building trust as it comes under heavier scrutiny from critics and regulators alike.
The long-term prognosis for responsible investing remains strong, and ESG issues are only becoming more relevant.
Companies with happier employees and diverse leadership are more profitable. Climate change risks and opportunities are emerging faster than expected. The tech sector is seeing a rash of bad governance structures implode, with CEOs running their companies like fiefdoms. Love it or hate it, you can no longer ignore ESG and responsible investment strategies.
What can responsible investors do?
There’s been lots of talk and voluntary guidance issued but very little action from North American regulators. It’s still a wild west for responsible investors, so rankings like this one are an invaluable resource. Sadly, the onus is still on us to decide which funds align with our values. The funds listed are not recommendations and should be viewed as a high benchmark and a starting point for your own research.
Remember, diversification is our best friend. Only equity funds are listed, so they should be combined in a portfolio with fixed income or bond funds. Additionally, the geographic ones (Canadian, U.S. and international) are more broad-based and should be the core of your portfolio. The global equity ones are more focused on green companies but tend to be less diversified and more volatile.
Investors should consider the risks and carefully decide how much to invest in each category. And if I’ve completely lost you with the previous paragraph, you might consider speaking to an expert before investing.
Tim Nash is the founder of Good Investing.
Methodology
Funds are scored relative to peer funds based on the weighted sustainability scores of their securities.
Eligibility criteria
Equity funds: at least 66.7% of holdings by market weight rated in the Corporate Knights Research universe; for balanced/fixed income funds: at least 50%.
Rating metric
Funds (mutual funds and ETFs) receive a rating based on the weighted sustainability rating* of each of the funds’ underlying holdings (“Weighted Rating”).
Holdings date
Fund ratings are based on the most recently available holdings breakdowns as provided by Fundata as of November 2, 2022.
Fund categories
A fund receives a Weighted Rating provided there are at least 12 funds within its fund category in the starting universe of funds that meet the minimum eligibility criteria stated above. Funds are categorized according to the classification system established by the Canadian Investment Funds Standards Committee at the “Fund Type” level of classification as provided by Fundata.
Fund scoring
Each fund receives a score that is based on the percent rank score of the fund’s Weighted Rating against other funds in the same category (“Final Score”).
Corporate Knights 2023 podium funds: Top three funds in category ranking
For fund categories where there are at least 12 RI (responsible investment) funds (defined below) that meet the minimum eligibility criteria, the top three scoring funds in each assessed fund category are allowed to communicate that Corporate Knights has ranked them as being among the top three responsible funds in the given category based on this methodology.
* Based on Corporate Knights’ rating methodology as deployed in the 2023 Global 100 Most Sustainable Corporations in the World ranking, which consists of 25 key performance indicators and 22 exclusionary red flags.
Previous Rankings
2022 RESPonsible funds
2021 eco-fund guide
2020 ECO-FUND GUIDE
2019 ECO-FUND GUIDE
