With rapid advances sparking broad enthusiasm for artificial intelligence, and with Big Tech spending billions to build infrastructure to meet the expected demand, even going so far as to reactivate Three Mile Island, investors rode a tsunami of rising valuations and increasing returns. Everyone with index funds in their portfolio – especially those tracking indexes that include U.S. equities – benefited one way or another from the AI trend. And even though markets were recently thrown into chaos over news about potentially disruptive AI tech out of China, most observers think the gold rush in AI isn’t over.

Last year was a good one for buyers of sustainability-focused index funds, too. Exchange-traded funds were popular in general: global net inflows nearly doubled in 2024 to more than US$1 trillion. While not often outperforming the broader market, sustainable ETFs all experienced strong growth, with the “Magnificent Seven” tech companies doing the heavy lifting.

“‘Doing less evil’ sustainable funds did a great job of tracking overall returns, despite horrible things like weapons manufacturers and for-profit prisons getting a bump from Trump’s win late in the year,” says Tim Nash, the founder of Good Investing, in an email. “Fortunately, Nvidia – one of the best-performing stocks in the entire market – has a strong sustainability rating and filled the gap nicely in sustainable funds that exclude less savoury tech companies like Amazon and Meta.”

Along with Nvidia, other common tech holdings for sustainable equity funds include Apple, Tesla, Alphabet and Microsoft.

The energy sector didn’t do any favours for sustainable investors in 2024, however. “Energy stocks lagged in 2024, which benefited investors who have divested from fossil fuels. However, green energy stocks had another abysmal year, so green investors can’t be too smug,” Nash says. “Niche clean-energy ETFs were some of the worst-performing ETFs in the market.”

The challenge of comparing funds with different sustainability metrics

To implement their strategies, ETF and mutual fund managers rely on widely varying data providers with their own divergent methodologies for rating companies. The lack of a standard taxonomy for sustainable finance makes these funds uniquely hard to compare, because there are so many different approaches for deciding what stocks they should contain. For example, Corporate Knights researchers give Nvidia a low sustainability score, while others, such as the ESG rating tool by the firm MSCI, put it higher. You can read a detailed explanation of the Corporate Knights methodology here.

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“Our taxonomy is different from others,” says Michael Yow, director of ratings at Corporate Knights. Yow’s research team takes a mostly quantitative approach, whereas other research providers use more qualitative definitions, so subjectivity can get into the investment, he says.

“We do this ranking to help investors cut through the noise and identify which funds stand above the rest when it comes to responsible investing,” says Toby Heaps, CEO of Corporate Knights, in a statement. “Our methodology meets the acid test of credibility, with 100% transparent and clear criteria for grading funds against peers according to the weighted sustainability score of their holdings.”

Here are each of the top sustainable ETFs in the four key categories used in the 2025 Responsible Funds ranking. Whether you’re looking for Canadian, U.S., international or global equity funds, these four achieved the highest sustainability level, according to the methodology used by Corporate Knights researchers.

This information is not financial advice. Speak with a professional advisor for financial planning.

* as at January 31, 2025

Top U.S. equity fund: Invesco ESG NASDAQ 100 Index ETF

This fund by Invesco Canada is an RRSP-eligible ETF (ticker: QQCE) that tracks the Nasdaq-100 ESG Index and reported an impressive 32.89% one-year return on January 31, 2025. For these higher returns, investors must be comfortable with higher risk of volatility. If you were to invest $100 in this ETF, you would pay a modest 22 cents toward management expenses.

QQCE was launched on November 15, 2021, and despite its relative youth, it has caught on with investors and already has $309 million (all amounts in Canadian dollars unless otherwise noted) in assets under management. Its top holdings are Microsoft, Apple and Nvidia. Apple ranks 69th on the Corporate Knights Global 100 ranking of the world’s must sustainable corporations. Two other G100 companies are among QQCE’s chief holdings: Tesla (#45) and Cisco (#54).

Top Canadian equity fund: RBC Vision QUBE FFF LV Canadian Equity Fd A

QUBE is an actively managed mutual fund for fossil-free investing. It uses an exclusion list based on the Carbon Underground 200 and another created with Sustainalytics. RBC Global Asset Management advertises this Canadian equity fund as a long-term investment with low-to-medium risk.

Created in 2021, this fund is weighted toward lower-risk stocks and sectors in the S&P/TSX Capped Composite Index. For example, as of December 31, 2024, the fund held 30% in financials, a lower-risk sector, and 0% in energy, a higher-risk sector.

This is an actively managed mutual fund, and for retail investors buying the Series A version, the cost to own is $1.89 per $100 invested, with a minimum investment of $500. QUBE has $188 million in assets under management, signifying ample liquidity. Its reported one-year return on January 31, 2025, was 21%, compared to 19.89% for the S&P/TSX Capped Composite Index.

Top international equity fund: Franklin ClearBridge Sust Intl Gth Fd Ser A

This is a sustainability-focused mutual fund that invests in equities issued outside the United States or Canada, and is also available as an ETF. This fund excludes fossil fuel companies and relies on ClearBridge’s proprietary ESG ratings. The managers take a “fundamental, bottom-up approach,” actively picking stocks according to their own best analysis and keeping most of their holdings in large companies. It has a medium risk rating and $314 million in assets under management.

The expenses for this actively managed mutual fund are slightly above average at 2.1%, or $2.10 for every $100 invested. Its one-year return as of December 31, 2024, was 15.12%, tracking closely with its benchmark, the MSCI EAFE Index.

“Many international stocks can be mispriced by markets, especially in the short term,” the firm wrote in a recent fund snapshot. “Active managers like ClearBridge can exploit these opportunities.”

This fund’s number one holding is SAP Software Solutions (G100 #58), a German cloud services provider with strengths in AI, whose one-year return at the time of writing was 58%, climbing from US$175.73 to $279.79. Following that is Novo Nordisk (G100 #62), a Dutch pharmaceutical giant, whose value has dropped precipitously since last summer. Schneider Electric, the first-place company on this year’s G100 ranking, is also among the fund’s top holdings.

Top global equity fund: CI MSCI World ESG Impact Index ETF

This medium-volatility ETF excludes fossil fuel companies and is available in two series, one in which exposure to foreign currency is hedged (CESG) and one that is unhedged (CESG.B), as well as a mutual fund version. It is advertised to investors who want to put their money into companies with strong environmental, social and governance (ESG) performance and “that have a positive impact on the environment and society.”

“Unlike many other ESG funds, which often hold very similar stocks to the broad market index and then apply a slight ESG tilt, CESG.B/CESG strictly screens for stocks that must meet several key impact metrics in order to be included in the fund,” a representative of CI Investments said in an email.

The total cost to invest in this low-carbon ETF is listed as 0.47% of its value, or $0.47 for every $100 invested. Created on September 12, 2019, and managed by CI Global Asset Management, this fund tracks the MSCI World ESG Select Impact ex Fossil Fuels Index. Its listed one-year return on January 31, 2025, was 0.3%, whereas its three- and five-year returns were both around 8%.

It has 72 listed holdings and its total assets under management are $61.2 million. Its current top holding is French IT company Dassault Systèmes, ranked 31 on the 2025 Global 100 list. Other G100 holdings include Ozempic-maker Novo Nordisk (#62) and the U.S. data processor and hosting provider Equinix (#72).

The post Meet the four most sustainable funds on the market for 2025 appeared first on Corporate Knights.

The first was a gender-diversity exchange-traded fund (ETF) that closed after three years when it failed to attract enough investors. The second and third were a pair of carbon-neutral ETFs that lasted less than a year because, according to Lala, investors didn’t want to pay higher fees to offset the carbon-credit trades.

“It was a painful decision,” Lala says of closing the Evolve North American Gender Diversity Index ETF in 2020. He thought the carbon-neutral ETFs tracking the S&P 500 and S&P/TSX 60 launched in 2021 might have a better chance, “but the market also told us that they weren’t interested in that either.”

Toronto-based Evolve is far from alone in its struggle to launch responsible investment (RI) funds that stick – and for different reasons. Hundreds of RI funds have been winding down in the United States and Europe in 2024 alone, and product development slowed significantly in the first nine months of the year when, according to Morningstar data, 246 new funds came to market globally, compared with 444 over the same period in 2023. Just 12 funds came to market in Canada in 2024 (as of mid-November), according to Morningstar, citing data from the Canadian Investment Fund Standards Committee. That’s down from 31 in 2023.

Some advisers say, ‘My clients don’t want this.’ But have you ever asked them?

– Tim Nash, founder, Good Investing

Morningstar says that after three years of high growth, managers are being more “selective and tactical” in their approach ahead of anti-greenwashing regulations in the United Kingdom and Europe. The European Union, which dominates the global RI fund market with an 84% share, followed by the United States at 11%, is also rolling out fund-naming rules to combat greenwashing, which could further shake up the RI fund industry. 

While there are still a lot of RI funds on the market, many investors – and the advisers who manage their money – remain skeptical of them. Some advisers claim there’s not enough demand from investors, while some investors say not enough advisers are raising the topic. Often-cited deterrents include higher fees for RI funds, performance and greenwashing concerns, and a lack of standardization that gives investors a benchmark for what’s truly sustainable.

Of roughly 3,000 funds reviewed by the Corporate Knights research team, only 290 were identified as having a responsible/sustainability-oriented investment approach. 

The 2024 Canadian RI Trends Report, released by the Responsible Investment Association (RIA) in November, says that performance concerns were a huge deterrent for institutional asset managers and asset owners surveyed, up significantly to 33% from 14% in 2023. The two concerns that came in higher – greenwashing and lack of standardization, at 44% each – were down from 64% and 57%, respectively, a year earlier. 

Retail investors push for green funds

It’s not all doom and gloom. The survey also showed that 70% of respondents believe retail investors are likely to drive RI growth over the next two to five years, fuelled by increased concerns about climate change and social justice. Regulators and institutional investors (which includes banks, labour unions and pension funds) followed closely behind. RIA says investors are demanding “quality responsible investments” that are “transparent, credible and financially savvy.”

Tellingly, just 29% of respondents believed financial advisers would drive RI growth.

What RIA describes as a “service gap” between advisers and investors is more like a gaping chasm: two-thirds of investors surveyed by RIA in 2023 want their advisers to tell them about RI, yet less than a third of advisers do. Anecdotally, some retail-level advisers say they’re not getting enough educational support from their financial institutions on how best to sell existing sustainable fund products. 

RIA is calling on advisers to better understand RI funds and strategies to help guide investor decisions. Two-thirds of the asset owners and managers surveyed in 2024 thought there should be an RI standard for advisers, and 13% said RI knowledge should be required in existing adviser designations.

As it stands, without those requirements in place, financial advisers have little incentive to offer sustainable investment options and strategies to their clients.

Financial advisers let perfect be the enemy of good

Tim Nash, a Toronto-based financial planner who founded Good Investing a decade ago to help investors align their values with their investment portfolios, says that some of his adviser peers underestimate demand for RI. “Some advisers say, ‘My clients don’t want this.’ But have you ever asked them?” Nash says. “There’s a tricky power dynamic between a client and an investment adviser. It does feel like investors have to step out on a limb a little bit to even broach the subject with their adviser.” 

Advisers that lean into this generally offer more holistic financial planning with their clients. As this becomes more mainstream, understanding and discussing these approaches with your clients is a great way to differentiate your practice.

– Fate Saghir, head of sustainability, Mackenzie Investments

Nash believes many advisers are avoiding RI because of inherent flaws in some companies and funds. For instance, some banks might have ties to oil companies, or some consumer brands might make and sell plastics made from oil products.

“They let perfect be the enemy of good and use that as an excuse to do nothing,” says Nash, who also gets feedback from some investors that the available investment options don’t go far enough. “There’s no way to completely eliminate fossil fuels or plastics from your portfolio because supply chains are so entrenched. I try to do a lot of education around doing less evil versus doing more good.”

There’s also the concern that sustainable funds underperform the benchmarks, which Nash describes as “an ongoing frustration.” While many RI funds underperformed in 2022, amid rising oil prices and a backlash against ESG investing in places like the United States, Nash says performance was on par with benchmarks in 2023 and 2024. “The goal with responsible investing is to earn about the same returns [as the benchmarks], and they’re nailing that,” he says.

Nash notes that RI isn’t just about returns but is also a way to protect portfolios. Companies that set targets and take action on environmental, social and governance issues are considered less risky because they pay closer attention to environmental management and are less likely to make a governance or social misstep.

“Investors should be focused on risk-adjusted rates of return, and, in my mind, responsible investments are a great way of earning very similar returns in a way that lowers our exposure to sustainability risks like climate change,” Nash says.

Sustainability isn’t just financial

Fate Saghir, senior vice president and head of sustainability at Mackenzie Investments in Toronto, says some advisers are hesitant to bring up RI in conversations with clients. “Sustainability isn’t just financial. It’s also asking about personal topics and issues like diversity and climate change. For many advisers, having that conversation could be uncomfortable,” she says. 

And while ESG is part of the know-your-client guidance set out by the Canadian Investment Regulatory Organization (CIRO) – the self-regulatory organization that oversees investment and mutual fund dealers in Canada – Saghir says the guidance uses language like “may” and “or,” which makes it sound optional. A CIRO spokesman said that advisers are encouraged to ask ESG questions as part of the know-your-client process, but it’s not a requirement.

Greenwashing concerns and a lack of standardization of what constitutes an RI fund are also a disincentive for some advisers, Saghir says. “There are different rating agencies with different methodologies that asset managers might use to incorporate ESG in their investment process, so there’s still a lot of uncertainty, even for the industry,” she says. “Advisers may be unclear on how to prove to a client that a fund is going to deliver on what it says it will from an ESG perspective. That’s why we’re advocating for standardization of disclosures that will create consistency and clarity and increase investor and adviser confidence.”

For advisers who want to broach sustainable investing with clients, Saghir suggests starting by asking about philanthropy and the charities they support. “It’s a great way to discover what their values are,” she says.

From there, she says that advisers can ask questions about whether clients want their investments to align with their social and environmental values, covering topics such as gender equality and climate change, and whether there are certain companies or sectors they want to avoid in their investment portfolios. 

“Advisers that lean into this generally offer more holistic financial planning with their clients,” she says, citing RIA’s trends report, which shows that 71% of investment assets in Canada employ at least one RI strategy. “As this becomes more mainstream, understanding and discussing these approaches with your clients is a great way to differentiate your practice.”

Belief versus business 

Lala notes that Evolve Funds has other products that fall into the RI category, including the Evolve Automobile Innovation Index Fund, which invests in companies involved in developing electric and autonomous vehicles, and the Evolve Cyber Security Index Fund, which invests in global companies involved in the cybersecurity industry, an increasingly important part of corporate governance mandates. Both are still trading and have performed well in recent years.

Still, he’ll likely hold off on launching another RI-specific fund until he’s convinced that investors and advisers have a stronger appetite for them. “It’s something that we believe in, but we also run a business. It costs a lot to launch and operate a fund, and it costs a lot to shut down a fund, so you really have to have pretty good conviction that it’s going to work.”

Brenda Bouw is a freelance writer and editor based in Vancouver.

Illustrations by C.J. Burton. 

2025 Responsible Funds

*Sum of a given fund’s underlying constituents’ weights that are rated by Corporate Knights.
**The weight of a constituent of a given fund multiplied by its rating by Corporate Knights, summed up for all of that fund’s underlying constituents.
***The score of a given fund (based on the percent-ranking calculation approach) derived by comparing its weighted rating against that of other funds in the same category.

The post Why are financial advisers shunning green funds? appeared first on Corporate Knights.