Green mutual funds and exchange-traded funds, or ETFs, have proven they’re better at withstanding shocks in our era of economic uncertainty, and investors have taken notice. A January 2025 study by researchers at Universidad de Medellín found that green ETFs are especially attractive to institutional and long-term investors because they “demonstrate resilience and potential for outperformance during market downturns.”

Dare Ogunbona, chief executive officer at Green Advisors Limited, attributes this out-performance over the past year to investors’ keen interest in “future-facing” sectors such as cleantech, electrification and battery supply chains. These industries have demonstrated clearer project pipelines, more corporate capital expenditure and better economics along supply chains. The green stocks that did better are “mostly utility‑scale solar, wind and storage leaders with solid power purchase agreements, dividend growth and policy tailwinds,” he says. 

Better disclosure and strategy drive stronger index positioning, which draws capital, lowers funding costs and boosts valuation.

– Ray Tayyabi, vice president for ESG research, MSCI

The going has been so good that, in November, analysts at Jefferies Financial Group declared these the “glory days” for green investors. Aniket Shah, the firm’s global head of sustainability and transition strategy, told Bloomberg that investors have been too distracted by Trump’s anti-green rhetoric in the United States to recognize the “wonderful moment” that the green economy is enjoying around the world. 

Sustainability attracts capital

In our annual Responsible Funds ranking, Corporate Knights identifies the 10 top-scoring funds across four equity categories: Canadian, global, international and U.S. The sustainability rating is based on the methodology deployed in the Global 100 most sustainable corporations in the world ranking, which prioritizes several key metrics: sustainable revenue, sustainable investment and sustainable revenue growth, as well as mechanisms that link senior executive pay to sustainability targets. 

Green index funds are a major market category for passive investors. For example, about US$17 trillion in assets are benchmarked to MSCI indexes, of which $1.13 trillion tracks sustainability and climate benchmarks. “That’s about the same as infrastructure as an asset class globally,” says Rameez Ray Tayyabi, an executive director at MSCI. 

Sustainability and climate indexes have grown at 20% compound annual growth rate over the past three years, according to Tayyabi, and climate-indexed indexes have been the main driver of that growth. Investors are no longer focused on screening things out but on who is better- or worse-positioned for the energy transition, he says.

Firms with lower exposure to business risks from the energy transition appear in more green-themed funds and are weighted higher, which in turn leads to new passive inflows, Tayyabi explains: “Better disclosure and strategy drive stronger index positioning, which draws capital, lowers funding costs and boosts valuation.”

The dominance of decarbonization

Although U.S. President Donald Trump has cancelled more than $7.5 billion in grants for clean-energy projects and threatened another $12 billion, investments in clean energy continue to attract funds, especially with AI-driven demand for electricity and lower prices for renewables.

Even in the United States, Trump’s policy shift did not affect the demand for renewable energy, which is driven by market fundamentals: energy from renewables frequently costs less and is more stable than energy from fossil sources; states and cities are driving demand; and most corporate power purchasers, who signed record volumes of long-term clean power contracts in 2024, are still striving to meet climate targets.

Major investing firms are reading the writing on the wall and flocking to renewables. In February, for example, asset manager TPG acquired the U.S. solar developer Altus Power for $2.2 billion. In October, Ares Management bought a 49% stake in a diversified portfolio of renewable-energy assets in the United States operated by EDP Renováveis, in a deal that valued the total portfolio at $2.9 billion.

In a further indication of the dominance of decarbonization across portfolios, Brookfield announced in October that it had raised a record US$20 billion for its Global Transition Fund II, considered the largest private energy-transition fund in the world. Backed by an additional $3.5 billion in co-investments, the fund has effectively $23.5 billion to put to work and has already deployed $5 billion in the U.S. renewable developer Geronimo Power, France-based energy and storage developer Neoen, and Indian group Evren, which builds wind, solar and storage projects.

The global outlook for clean energy

“Clean energy has had a good year after a very dismal past five years,” Tim Nash, the founder of Good Investing, says in an email. But while energy demand has increased this past year, Nash says, he points out that declining interest rates have played a key role in the growth of investments. Globally, investment in clean energy for 2025 is about US$2.2 trillion, according to the International Energy Agency’s World Energy Investment 2025, the 10th edition of the report.

This rebound has shown that green ETFs have the potential for continued growth, but Nash points out that not just green ETFs have performed well this year: “The entire market has had a great year,” he says. “[And] not all green stocks have outperformed.”

However, Nash notes that market trends change quickly and so investors should not bother making predictions. The best approach, he says, is for investors to have a good plan and work with a financial planner to develop a suitable diversified portfolio that aligns with their values. “When markets go up we stick to the plan, and when markets go down we stick to the plan,” he says.

The factors driving the health of cleantech and green funds are expected to continue. Even if the unbridled growth of AI turns out to be a bubble, the broader electrification trend will continue to create demand for cost-competitive renewable energy, especially as big markets like Brazil and India double down on advanced power sources. 

But investors need to also brace up because over the long term, Nash believes, they will see more government regulation on social and environmental issues as well as an increase in consumer demand for socially and environmentally responsible products – both factors that have the potential to influence the sector.

For this, Nash says that investors interested in investing in renewable energy need “to be intentional,” especially considering that “it is a more volatile sector than the rest of the market.” 

Saint Ekpali is a Nigeria-based journalist who covers the environment, health and energy in Africa.

The Corporate Knights 2026 Responsible Funds ranking

The post The most sustainable equity funds in 2026 appeared first on Corporate Knights.

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.

Given the poor performance of green energy stocks and the chorus of opposition against anything viewed as “woke,” it’s easy to get lost in the narrative that the shine has worn off sustainable investing. But that’s not what I’m seeing. The negative sentiment doesn’t match the tremendous progress that is being made.

Sustainable investments soared in 2020 and 2021, and that was certainly when the shine was on. They mostly outperformed traditional investments, and we also saw tons of new funds launch, giving sustainable investors more options. It was a different story in 2022. Sustainable investments underperformed as oil prices spiked and a pronounced backlash against ESG (investing that optimizes environmental, social and governance factors) emerged, especially in the U.S. Comparatively few new ESG-labelled funds have been launched in the last two years.

Despite record oil-company profits and a surge in military share prices stemming from instability in the Middle East, most sustainable investments have quietly outperformed in 2023. But big financial firms like BlackRock aren’t talking about it anymore. Most of the media attention has been focused on the ESG blowback while ignoring the successes. We used to be concerned about greenwashing, but now it seems that many companies are deliberately staying quiet in what some are calling greenhushing – the practice of downplaying or keeping quiet about their sustainability initiatives.

Green stocks have come back to earth

That’s not to say there haven’t been lows. The worst-performing area for sustainable investors was certainly in renewable energy. Clean energy stocks performed tremendously in 2020 and early 2021, but in hindsight this was clearly a bubble.

Companies became way too over-valued, and share prices that once surged have settled back down. It didn’t help that tech companies in general have had a rough time since 2022, and now higher interest rates are negatively affecting utilities with high up-front capital costs for large green energy projects.

Those of us who invested in 2019 or earlier are still doing well, but I feel terrible for people who jumped on the green energy bandwagon in 2020. Now that prices have fallen back to more reasonable levels, I think investors should take another look to see if now is a good time to buy.

Negative sentiment hasn’t affected capital flows

Despite the negative sentiment and falling share prices of green energy stocks, the inflows of capital are still tremendous. According to reports from Bloomberg New Energy Finance and the International Energy Agency, green themes like renewable energy, green buildings and electric cars are seeing double-digit growth in capital investments.

The green economic transition is unstoppable. We can argue whether it’s happening fast enough to avoid the worst-case climate scenarios, but there is no denying the investment flows that continue to pour into the green economy.

A big reason for the increased money flow was the passing of the historic Inflation Reduction Act in 2022. We saw the benefits in 2023 with huge growth in green jobs in the U.S. Even better, the majority of these jobs are in red states. It’s hard to argue against the green transition when your livelihood (or the livelihood of someone you love) is dependent on it.

In Canada, the climate policy conversation, sadly, has circled back to attacks on the carbon tax. Whatever your politics, I think we can all agree that a carrot is more popular than a stick.

Anti-ESG funds have stalled

There was so much pushback against sustainable investing in 2022 that we saw the launch of several anti-ESG funds with ticker symbols like YALL and DRLL. You’ve probably heard of Republican presidential candidate Vivek Ramaswamy, but did you know that in early 2022 he co-founded Strive Asset Management, which offers “anti-woke” investment funds?

Although these funds got off to a roaring start with lots of initial investment, they haven’t seen nearly the capital flows that actual ESG funds experienced. I tracked one fund – the Constrained Capital ESG Orphans ETF – which invested in companies that are usually excluded by sustainable investors. It launched in May 2022 but failed to attract investors and closed, or “de-listed,” in June 2023.

Language has been standardized

I’ve been frustrated by people misusing and conflating various sustainable investment strategies. Divestment is different from ESG, which is different from impact investing. Thankfully, we now have a partnership between the CFA (Chartered Financial Analyst) Institute, the UN Principles for Responsible Investment and the Global Sustainable Investment Alliance to harmonize definitions of sustainable investment approaches.

Check out quick descriptions of the five approaches in the glossary (below).

Now’s the time to act

Amidst the economic turmoil this year, green sprouts are growing. People are increasingly recognizing that our economic system is broken and are actively looking for solutions. One of the easiest solutions to implement is shifting your investments in a more sustainable direction.

It’s still a challenge to pick the good funds amidst the greenwashers, so look to these lists for inspiration. Make sure you consider the risks before carefully deciding how much to invest in each category.

Corporate Knights reviewed 2949 funds and rated the equity funds deemed responsibly managed in four categories, with 40 funds listed below. Download the complete list.

FUND NAME	% market weight covered by Corporate Knights ratings*	Weighted rating**	Final score***	Holdings date
INTERNATIONAL
Invesco S&P International Developed Dividend Aristocrats ESG Index ETF (IIAE)	95.9%	20%	100%	2023-09-30
Franklin ClearBridge Sustainable International Growth Fund	93.7%	19%	95%	2023-08-31
iShares ESG MSCI EAFE Leaders Index ETF (XDLR)	94.9%	17.7%	85.2%	2023-09-30
BMO MSCI EAFE ESG Leaders Index ETF (ESGE)	95%	17.7%	83.3%	2023-09-30
Invesco S&P International Developed ESG Tilt Index ETF (IITE)	94.8%	17.7%	82.3%	2023-09-30
Wealthsimple Developed Markets EX North America Socially Responsible Index ETF (WSRD)	92.4%	17.4%	81.3%	2023-09-30
iShares ESG Aware MSCI EAFE Index ETF (XSEA)	96.9%	17.3%	79.4%	2023-09-30
TD Morningstar ESG International Equity Index ETF (TMEI)	94.9%	17.2%	78.4%	2023-09-30
NEI International Equity RS Fund	92.2%	17%	75.4%	2023-08-31
Desjardins SocieTerra International Equity Fund	92.4%	16.9%	74.5%	2023-09-30
GLOBAL
AGF Global Sustainable Growth Equity	95.5%	27.7%	100%	2023-03-31
Black Diamond Impact Core Equity Fund	92.5%	23.6%	99%	2023-06-30
NEI Environmental Leaders Fund	96%	21.7%	98.5%	2023-08-31
Mackenzie Betterworld Global Equity Fund	92%	21.7%	98.1%	2023-03-31
IA Clarington Inhance Global Equity SRI	95.8%	21.4%	97.6%	2023-03-31
VPI Sustainability Leaders Pool	75.5%	21.1%	97.1%	2023-09-30
Mackenzie Greenchip Global Environmental All Cap Fund	88.8%	20.6%	95.7%	2023-03-31
CI Global Climate Leaders Fund	87.6%	20.5%	95.2%	2023-03-31
Desjardins SocieTerra Positive Change Fund	89.4%	20.5%	94.8%	2023-09-30
Global Iman Fund	100%	18.7%	93.8%	2023-06-30
U.S.
Invesco ESG NASDAQ 100 Index ETF (QQCE)	99.3%	21.3%	100%	2023-09-30
Desjardins SocieTerra American Equity Fund	98.8%	20.9%	99.5%	2023-09-30
Invesco S&P 500 ESG Index ETF (ESG)	99.7%	17.7%	92.6%	2023-09-30
Invesco S&P 500 ESG Tilt Index ETF (ISTE)	99.8%	16.9%	91.1%	2023-09-30
Invesco S&P US Total Market ESG Index ETF (IUCE)	99.1%	16.8%	90.6%	2023-09-30
Mackenzie Bluewater US Growth Fund	97.7%	16.5%	89.6%	2023-03-31
iShares ESG Aware MSCI USA Index ETF (XSUS)	100%	16.1%	88.6%	2023-09-30
Invesco S&P US Total Market ESG Tilt Index ETF (IUTE)	99%	16.1%	88.1%	2023-09-30
iShares ESG MSCI USA Leaders Index ETF (XULR)	100.1%	15.8%	87.1%	2023-09-30
BMO MSCI USA ESG Leaders Index ETF (ESGY)	99.7%	15.8%	86.6%	2023-09-30
CANADIAN
iShares Jantzi Social Index ETF (XEN)	97.9%	21%	99.1%	2023-09-30
Desjardins SocieTerra Canadian Equity Fund	92%	18.2%	95.5%	2023-09-30
RBC Vision QUBE Fossil Fuel Free Low Volatility Canadian Equity Fund	89.1%	18%	94.6%	2023-06-30
iShares ESG MSCI Canada Leaders Index ETF (XCLR)	92.8%	17.8%	93.8%	2023-09-30
BMO MSCI Canada ESG Leaders Index ETF (ESGA)	95.8%	17.4%	92%	2023-09-30
TD Morningstar ESG Canada Equity Index ETF (TMEC)	95.5%	17.2%	90.2%	2023-09-30
Invesco S&P/TSX Composite ESG Index ETF (ESGC)	94.9%	17%	88.4%	2023-09-30
Invesco S&P/TSX Composite ESG Tilt Index ETF (ICTE)	93%	16%	84%	2023-09-30
Invesco S&P/TSX 60 ESG Tilt Index ETF (IXTE)	97.8%	15.9%	81.4%	2023-09-30
CIBC Sustainable Canadian Equity Fund	95%	15.7%	78.7%	2023-06-30

*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

GLOSSARY – Five common approaches:

Screening
Applies strict rules to decide what companies are in or out of a fund. Negative screening – also known as divestment – is common for “sin sectors” like tobacco, weapons and (increasingly) fossil fuels.

ESG integration
Considers environmental, social and governance factors within investment decision-making to lower exposure to financial and reputational risks. ESG-integrated funds don’t screen out particular companies.

Stewardship
This can include engagement with a company’s senior leadership on a wide range of ESG issues and voting for shareholder resolutions.

Thematic investing
Selects only companies that contribute to a sustainability “theme” like clean energy, water or green buildings.

Impact investing
Investing with the intention to generate measurable social and/or environmental impact.

Tim Nash is the founder of Good Investing.

The post Sustainable investments had secretly great year appeared first on Corporate Knights.

2023 Responsible Funds|Winter 2023

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?  

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2022 RESPonsible funds

2021 eco-fund guide

2020 ECO-FUND GUIDE

2019 ECO-FUND GUIDE

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The post 2023 Responsible Funds Guide: ESG investing matures while markets reel appeared first on Corporate Knights.

There was so much optimism at the end of 2020 as President Joe Biden was entering the White House and green stocks surged to all-time highs. Unfortunately, those hopes were dashed as it became clear that the United States wasn’t going to become the climate leader so many of us wanted it to be. Renewable energy stocks fell back to pre-election levels, and then dropped even further later in the year as the Democrats’ Build Back Better bill – that would have ramped up public investment in green infrastructure – morphed into Build Back Never.

It could have been a terrible year for sustainable investors. Military and oil and gas stocks (which sustainable funds tend not to own) shot up in value with the Russian invasion of Ukraine, while thematic funds focused on green technologies have fallen alongside the tech sector. But broader “do less evil” funds that incorporate environmental, social and governance (ESG) criteria remain resilient and have performed nicely, demonstrating the need for sustainable investors to remain diversified and not get too caught up in sexy cleantech.

There’s no doubt that sustainable investors are affecting boardroom conversations, and these discussions dug deeper in the last year. Proxy voting is usually a dreadfully boring topic, but things got spicy in 2021. ExxonMobil’s annual general meeting was a turning point, when asset managers like BlackRock and Vanguard joined a small activist hedge fund, Engine No. 1, to elect three board members who could help steer the company toward a climate transition. With major asset managers now understanding ESG risks and opportunities, sustainable investors should get out their popcorn for the 2022 proxy voting season. Activist investors should be pushing companies much harder to get serious about going net-zero.

As of spring, the sustainable investment ecosystem is looking ripe for growth, with even more new mutual funds and exchange-traded funds (ETFs) on the market. The money is flowing, with assets invested in sustainable mutual funds and ETFs doubling from US$17 billion to $34 billion.

Sustainable investing is still a bit of a wild west when it comes to marketing and communications, but I’m happy to see some sheriffs riding to town.

However, it is still a small slice of the $2-trillion market. Retail investors seem cautious about sustainable investing, and greenwashing is a huge concern. Serious criticisms around ESG rating systems are emerging, forcing the sustainable investment industry to prove that it is creating real impact. Morningstar recently removed more than 1,200 funds from its sustainable investment list for using ambiguous language in legal filings. There isn’t a lot of trust in the marketing and branding of sustainable investment funds, which is why research like this ranking of responsible funds is so important. Investors still need to take a hard look under the hood of any fund before they buy.

The good news is that we’re seeing further advancements in the areas of transparency and taxonomies that should rein in greenwashing. The Task Force on Climate-Related Financial Disclosures (TCFD) has emerged as the global standard for climate change reporting and disclosure. The European Union published a taxonomy for sustainable finance that, although controversial for the inclusion of natural gas and nuclear energy, provides us with a clear, common language across the financial sector.

Closer to home, the Canadian Securities Administrators published a notice that forces mutual funds and ETFs to declare openly what ESG strategies they are using, and ensure that these strategies are baked into their formal investment objectives. Sustainable investing is still a bit of a wild west when it comes to marketing and communication, but I’m happy to see some sheriffs riding to town.

My final observation for 2021 is that the sustainable investment industry is suffering from a severe shortage of qualified labour. Back in 2008, when I started my career in investing with a master’s degree in sustainability, I couldn’t find a job to save my life. Any job postings in this space were overflowing with applicants, and I didn’t stand a chance. Now, every financial firm is trying to staff up in this area and is having a devil of a time finding people who can bridge the knowledge gap between sustainability and finance. I’ve long said that it’s easier to teach a sustainability expert about finance than to teach a finance expert about sustainability. So, if you’ve got a background in social or environmental studies, you might find it lucrative to switch careers into finance right about now.

Overall, 2021 was a mixed bag for sustainable investing. Lots of optimism and ecosystem development, but also lots of disappointment and frustration with the status quo. We are rapidly approaching a breakdown of our social and environmental systems, but finance is like a giant ship trying to change course in the water. Is it turning fast enough? Only time will tell.

Tim Nash is the founder of Good Investing.

Corporate Knights ranked more than 1,000 mutual funds and ETFs based on their financial and sustainability performance and ESG-aligned management commitments.

Here are the top scorers.

Methdology: Funds are scored according to 1) three-year net return percentile rank (50%) and 2) weighted sustainability rating* percentile rank based on analysis of their holdings** (50%). If the fund is less than three years old, its final score is based on #2, which is grossed up to 100%. Only funds that have an ESG mandate are eligible for the ranking. Qualifying funds must have at least two-thirds of their holdings rated in the Corporate Knights Research Universe. For balanced/corporate fixed income funds, the minimum threshold is 50% of the holdings to be rated in the Corporate Knights Research Universe.***

*Based on Corporate Knights’ rating methodology as deployed in the 2022 Global 100 Most Sustainable Corporations in the World ranking, which consists of 24 key performance indicators as follows: Clean Revenue, Clean Investment, Paid Sick Leave, Sustainability Pay Link, Energy/GHG/Water/Waste/VOC/NOx/SOx/Particulate Matter Productivity, CEO–Average Worker Pay Ratio, Board and Executive Racial and Gender Diversity, Supplier Sustainability Score, Percentage Tax Paid, Pension Fund Quality, Sanction Deductions, Injuries and Fatalities.

** Holdings that are red-flagged automatically receive a 0% CK Sustainability Rating Score. Red-flag holdings include companies that are classified in the Corporate Knights database for one or more of the following criteria: access-to-nutrition laggards, access-to-medicine laggards, adult entertainment, companies blocking climate policy, cement-carbon laggards, civilian firearms, controversial and conventional weapons, deforestation and palm-oil laggards, fossil fuels (energy), farm-animal-welfare laggards, for-profit prisons, gambling, gross corruption violations, harmful pesticides, illegal activity, oil sands laggards, severe environmental damage, severe human rights violations, thermal coal and tobacco.

*** Corporate fixed income instruments are mapped to the ultimate parent company in the Corporate Knights Research Universe.
Sources: Corporate Knights Research, Fundata, Responsible Investment Association, Refinitiv, S&P Capital IQ, InfluenceMap, Norges Bank Investment Management (NBIM), Chain Reaction, NZ Super Fund, Stockholm International Peace Research Institute, American Friends Service Committee, Access to Nutrition Initiative, Access to Medicine Initiative, Motley Fool, animal welfare experts, Unearthed, Urgewald/GCEL, Deforestation Free Funds, Wespath, Sin Stocks, RedLightNetwork, Rainforest Action Network, Farm Animal Investment Risk and Return (FAIRR).

The post In wild west of sustainable investing, which funds are the most responsible? appeared first on Corporate Knights.

The COVID-19 crash came on suddenly. Investors panicked when they realized the severity of the situation, and there was talk that we could be headed into a depression. Central banks including the Bank of Canada and the U.S. Federal Reserve stepped in quickly, providing liquidity to prevent the bond market from collapsing. Many of us were afraid that it would be a repeat of the 2008/09 crash, when sustainability got thrown on the backburner. Fortunately, it feels like this time is different, as leading economies around the globe are baking social and environmental concerns into their economic recovery strategies.

It’s fair to assume that more of that baking lies ahead in Canada, with the appointment of impact investing maven Michael Sabia as deputy finance minister in November. The Canadian government is also in the midst of creating a Sustainable Finance Action Council to help ratchet up action on that front, and the Bank of Canada is launching a pilot project with major banks and insurance companies to assess and understand climate risk.

South of the border, things are looking even more optimistic. After four years of a White House that dismissed climate science, we’re seeing an administration that actually treats climate change like the crisis it is. The nomination of Janet Yellen to the role of Treasury secretary is encouraging, since she just co-chaired the G30 Working Group on Climate Change and Finance with Mark Carney, former governor of the Bank of Canada. Yellen has made her position clear: “Carbon must be priced appropriately to internalize the costs of polluting the planet.” A carbon tax in the U.S. would be a catalyst for further sustainable investment gains.

Sustainable investors are happy right now. According to the most recent report from the Responsible Investment Association, 80% of responsible investment funds have outperformed the average of their asset classes this year. The biggest winners have been the “doing more good” funds that invest in sustainability themes like cleantech and renewable energy. Electric car shares have been particularly impressive, with Tesla up eightfold (it’s now worth two and a half times more than ExxonMobil) and Chinese EV maker NIO up 20-fold.

Investors should be cautious since it’s unlikely that green sectors will continue to grow at such a rapid pace, but it does indicate markets have accepted that a green transition is underway and explains why sustainable investments have performed so well.

In addition to terrific financial performance, we’ve also seen the sustainable investment ecosystem mature considerably. Corporations are tripping over each other pledging to be net-zero by 2050, and 2020 saw the launch of a record number of new sustainable investment funds, including new exchange-traded funds (ETFs) from BMO, BlackRock and Wealthsimple. Sustainable investors now have more choice than ever, and demand is growing. A global report from Morningstar shows that more than US$347 billion poured into sustainable funds in 2020, eclipsing 2019’s record $160 billion of inflows. Much of that growth was in Europe, but in Canada, 41 new sustainable funds and ETFs were launched in 2020 alone, more than double 2019.

According to the 2020 RIA Investor Opinion Survey, 75% of respondents want their financial services provider to show them sustainable investment options, but only 28% of respondents have been asked if they are interested. For those of you who have been dragging your feet on switching your investments, consider this a kick in the butt to get it done ASAP. Almost every bank and financial advisor now has sustainable investment products on the shelf, and the myth that sustainable investments underperform financially has been thoroughly busted. If your advisor isn’t up to speed on these options, it’s time to find a new advisor (RIA has a marketplace for investment advice) or explore do-it-yourself investing. I’m hopeful that the 2021 Eco-Fund Ranking will be a helpful resource as you evaluate the options and decide which approach is right for you.

Tim Nash is the founder of Good Investing.

Corporate Knights ranked more than 1,000 mutual funds and ETFs based on their financial and sustainability performance and ESG-aligned management commitments.

Here are the top scorers.

Methodology: Funds are scored according to 1) three-year net return percentile rank (50%), 2) weighted sustainability rating percentile rank based on analysis of their holdings (40%), and 3) fund-manager intention to manage the fund according to responsible guidelines (10%). If the fund is less than three years old, its final score is based on #2 and #3, which are grossed up proportionately to 100%. Funds that do not have an ESG mandate or are not operated according to responsible guidelines are automatically excluded from the ratings. Funds that score in the highest or second-highest quintile among category peers receive a five-tree or four-tree rating respectively.

* Holdings that are red-flagged automatically receive a 0% CK Sustainability Rating Score. Red-flag holdings include companies that are classified in the Corporate Knights database for one or more of the following criteria: access-to nutrition laggards, access-to-medicine laggards, adult entertainment, companies blocking climate policy, cement-carbon laggards, civilian firearms, controversial and conventional weapons, deforestation and palm-oil laggards, fossil fuels (energy), farm-animal-welfare laggards, for-profit prisons, gambling, gross corruption violations, harmful pesticides, illegal activity, oil sands laggards, severe environmental damage, severe human rights violations, thermal coal, tobacco, alcohol, companies blocking climate resolutions, companies financing misleading media, industrial meat, nuclear energy, and companies most exposed to ESG and business-conduct risks.

Sources: Corporate Knights Research, Fundata, Responsible Investment Association, Refinitiv, InfluenceMap, Norges Bank Investment Management (NBIM), Chain Reaction, NZ Super Fund, Stockholm International Peace Research Institute, American Friends Service Committee, Access to Nutrition Initiative, Access to Medicine Initiative, Motley Fool, animal welfare experts, Unearthed, Urgewald/GCEL, Media Matters, MVIS, RepRisk

The post 2021 Eco-Fund Guide: The Ultimate Guide to Responsible Investing appeared first on Corporate Knights.

Nevertheless, sustainable or responsible investing (whichever term you prefer) has hit the big-time, particularly around the theme of climate change.

Michael Baldinger, head of impact investing at UBS wealth management, which manages more than US$4 trillion in assets, claims that sustainable investing is now the fastest-growing asset class at scale in the world.

It’s hard to argue with the numbers. The Global Sustainable Investment Alliance says there is a US$30 trillion pot of sustainable investments across various themes as of 2018, growing at about 12% per year. A lot of that growth is coming from pension funds and other institutional investors signed up to the UN-backed Principles for Responsible Investment, whose members control US$86 trillion.

Financial markets are driven by two powerful emotions: greed and fear.
As the outgoing governor of the Bank of England, Mark Carney, puts it, “Companies that don’t adapt [to the low-carbon economy] – including companies in the financial system – will go bankrupt without question. [But] there will be great fortunes made along this path aligned with what society wants.”

To wit: the top five coal companies in the U.S. have all declared bankruptcy since 2016, and Apple is now bigger than all the oil and gas companies on the S&P 500 combined, in large part because they have earned negative returns over the last decade, even after accounting for dividends.

Carbon-intensive companies are suffering because the alternatives are not just cleaner but cheaper. Renewables are now cheaper than coal in two-thirds of the world’s countries, according to Bloomberg New Energy Finance. BNP Paribas estimates that oil needs to come down to US$10 a barrel to be competitive with electricity-driven transport. This does not mean fossil fuels are going away tomorrow, but it does kill the growth story. For oil investors, the market’s realization of this inevitable decline could make the coal horror show look like Bambi.

This increasing speed of the energy transition is part of the reason why investors representing US$11 trillion in assets have made public their plans to divest from fossil fuels.

Perhaps more telling is that beyond these public declarations, many of the biggest investors in the world are selling off their fossil fuel holdings and loading up on green assets. For example, without any fanfare the $200 billion Ontario Teachers’ Pension Plan has dialed down its fossil-fuel equity holdings to just 1%. On the upside, the $306 billion Caisse de dépôt et placement du Québec (CDPQ) has grown its green investment book to $30 billion, earning commercial returns along the way, according to outgoing chief executive Michael Sabia.

Just in case anyone was in doubt whether sustainable investing is really about making money, the vampire squid of investment banking, Goldman Sachs, showed up this December pledging US$750 billion in financing over the next decade to profit from the climate transition and inclusive growth.

While economics are shifting in favour of sustainable investing, so is public sentiment. Call it the Greta effect if you like, but most people are no longer comfortable with the idea that their retirement investments may be helping to set the world on fire.

Andreas Utermann, chief executive of Allianz Global Investors, which manages US$600 billion, says, “Clients have changed their tune. They have said we need to take this more seriously, and that has sharpened the minds of asset managers.”

Despite all this action among big investors, it appears small investors are getting left behind. If you add up the assets of the 130 funds on offer in Canada that declare sustainability intentions in their official documents, it is less than 1% ($12 billion) of total fund investments ($1.6 trillion). That’s an even smaller fraction than they were at in 2003, when Corporate Knights published its first guide for responsible investors. What gives?

It boils down to a belief many people still hold that sustainable investing is about sacrificing returns. The theory is that investing to make a return is hard enough, and if you add social and environmental considerations into the mix you are at a disadvantage. The trouble with this theory is that investing is like hitting a curveball, which is a pretty good metaphor for the world we live in. Putting on a sustainability lens gives the batter a better sense of the ball’s trajectory and increases the chance of making solid contact.

To make things easier, Corporate Knights scores all the equity mutual funds and ETFs available in Canada according to how well their holdings line up with established sustainability criteria and, where available, their three-year financial performance record. While we’re not promising any home runs, the 36 funds listed below were deemed the worthiest for taking a swing at.

Eco-Fund Methodology

Funds are scored according to (1) three-year net return percentile rank (50%), (2) weighted sustainability rating percentile rank based on analysis of their holdings* (40%), and (3) fund manager intention to manage the fund according to responsible guidelines (10%). If the fund is less than three years old, its final score is based on #2 and #3, which are grossed up proportionately to 100%. Funds that score in the highest or second-highest quintile among category peers receive a five-tree or four-tree rating respectively.

* Holdings that are red-flagged automatically receive a 0% CK Sustainability Rating Score. Red-flag holdings include companies that are classified in the Corporate Knights database for one or more of the following criteria: companies blocking climate policy, farm animal welfare laggards, companies causing severe environmental damage, companies causing deforestation, forced and/or child labour, severe human rights violations, illegal activity, controversial and conventional weapons, civilian firearms, tobacco, thermal coal, for-profit prisons, access to nutrition laggards, access to medicine laggards, digital rights laggards, investor climate laggards and gross corruption violations.

Sources: Corporate Knights Research, Fundata, Responsible Investment Association, Refinitiv, InfluenceMap, Business Benchmark on Farm Animal Welfare (BBFAW), Norges Bank Investment Management (NBIM), Chain Reaction, Know the Chain, NZ Super Fund, Stockholm International Peace Research Institute, American Friends Service Committee, Access to Nutrition Initiative, Access to Medicine Initiative and Ranking Digital Rights.

The post Eco-Fund Ranking 2020: The ultimate guide to responsible investing appeared first on Corporate Knights.

I’m encouraged that the big pension funds in Canada are all moving in this direction, but my fear is that regular investors might get left behind. Most brokers and advisors are badly misinformed when it comes to environmental, social, and governance (ESG) issues and are not responsive to investors who want to clean up their portfolio. Now more than ever, people need to take control of their money and invest in companies that are poised to succeed in tomorrow’s economy. Sustainable investments have performed as well as traditional investments, so there is no need to sacrifice financial returns. If your advisor won’t listen to your requests, it’s probably time to find a new advisor or learn how to do it yourself.

The good news is that there are now more options than ever for sustainable investors in Canada! You’ll notice that most of the top funds listed below are quite new, and therefore lack a financial track record. The only fund in the group with long-term performance data is the Jantzi Social Index. It appears both as a mutual fund and as an exchange-traded fund (ETF). As expected, the ETF performed better financially due to its lower fee. Both Jantzi Social Index funds outperformed funds linked to the S&P/TSX 60, the traditional benchmark for Canadian equities. This should come as no surprise since the Jantzi Social Index has beat en the S&P/TSX 60 every year since 2011.

[pullquote]The challenge for investors is determining which funds are just paying lip service to the notion of “socially responsible” or “ESG” and which ones are truly sustainable.[/pullquote]

It feels like mutual fund and ETF providers are jumping on the sustainable investment bandwagon with new funds coming out all the time. The challenge for investors is determining which funds are just paying lip service to the notion of “socially responsible” or “ESG,” and which ones are truly sustainable. That’s where the CK Sustainability Ratings come in. Funds are penalized for including companies that are destructive for people and the planet, so greenwashers will fall to the bottom of the list. Top funds are unlikely to include any companies that sell weapons, tobacco or thermal coal. Top funds also tend to avoid controversial issues like factory farming, tropical deforestation and for-profit prisons. I won’t promise that every fund on this list is squeaky clean, but they do represent a great starting point for anyone looking for the most sustainable investment funds on the market today.

The biggest challenge will be for individuals to decide which funds are the best fit for both their financial risk/return profile and their unique personal values. Many of the funds on this list are “thematic,” only investing in green sectors, which tend to include smaller companies focused on growth. I would expect these specialized funds to be less diversified and more volatile. It’s never a good idea to put too many of our eggs in one basket, so investors need to carefully consider how much of their money to invest in each fund as part of an overall investment plan. At the same time, investors should dig into the holdings of these funds to make sure there isn’t any company in there that is a deal-breaker from an ethical perspective.

I hope this fund ranking proves to Canadians that they now have lots of good options when it comes to sustainable investing. It’s an exciting time to be following this trend as it moves further into the mainstream.

Tim Nash is the founder of Good Investing, an investment coaching firm whose goal is to help “one million Canadians invest intentionally.”

*Retail version named Mackenzie Global Environmental Equity Fund

Note: In both tables above, NA indicates no 3-year returns value available.

Methodology

1. The three-year after-fee compound returns are percent-ranked against funds in the same category to determine the 3-Year Compound Return Score, which is then weighted 50 per cent.*

2. Fund holdings are assigned a sustainability rating^, based on up to 21 indicators including percentage of revenues earned from “clean” products or services that benefit the planet, and then given a Weighted CK Sustainability Rating based on the weighted average score of its holdings**. This rating is percent-ranked against other funds in the same category to determine the Fund CK Sustainability Rating Score, which is then weighted 40 per cent.

3. The fund manager’s intention (yes/no) to manage the fund using responsible guidelines (identification made through the Responsible Investment Association – Canada) is assigned either 100 or zero per cent, which is then weighted 10 per cent.

* Note: If a fund is less than three years old and therefore has no three-year returns figure, its final score is based on fund holdings and fund manager’s intention only, then grossed up proportionately to 100 per cent.

** Holdings that are red-flagged automatically receive a zero per cent CK Sustainability Rating Score. Red flag holdings include companies which are classified in the Corporate Knights database for one or more of the following criteria: farm animal welfare laggard, industrial meat, high corporate fines, penalties or settlements, tobacco, controversial weapons, conventional weapons, small arms (hand guns), blocking climate policy, severe environmental damage, thermal coal, tropical deforestation, for-profit prison, repressive regime, Global Compact principles violators, gambling, pornography, or bank power asset financing for fossil power greater than renewable power.

Sources: Corporate Knights Research, FactSet (for revenue thresholds), Business Benchmark for Animal Welfare, Stockholm International Peace Research Institute, InfluenceMap, Oxford Sustainable Finance Programme, Global Canopy Programme, Enlace, Freedom House, RepRisk, NBIM, and Wespath.

The post The 2019 eco-fund ranking appeared first on Corporate Knights.

The World Bank has promised to stop virtually all lending for oil and gas projects in the developing world after 2019, sending a powerful message to global producers that financial institutions are reassessing the risks of fossil fuel development.

The manager of the largest fund in the world, the Government Pension Fund of Norway, has recommended that oil stocks be excluded from its equity benchmark index. This would essentially move all oil stocks from a mainstream investment to a speculative grade risk.

Swiss Re, the world’s second largest reinsurer, switched over the entire $130 billion (U.S.) it holds in liquid assets to track ethical indices, the latest move towards principled investments by the insurance industry.

The Caisse de dépôt et placement du Québec, the second largest pension plan in Canada with more than $270 billion in assets, is setting bold targets to shelter its portfolio against the impact of climate change, including plans to reduce the carbon footprint of the overall portfolio by 25 per cent by the year 2025, while increasing its exposure to climate friendly investments like wind power by 50 per cent.

BlackRock and Vanguard, which wield outsized clout (a combined $9 trillion) as the world’s two largest asset managers, are putting pressure on companies to explain themselves on issues including how climate change could affect their business.

Even the perennial climate bugaboo, ExxonMobil, has been forced to succumb to these investors’ demands and will now report on the impacts of climate change to its business – marking a milestone in a 28-year effort by activist investors.

While the sun sets on old ways of investing in the old energy economy, the sun is rising in the new energy economy.

In its first full year of performance through June 30, 2017, the Clean200 (representing the 200 largest publicly traded companies making significant revenue from clean energy) generated a return of 16.5 per cent versus a decline of 1.2 per cent for its fossil fuel benchmark, the S&P Global 1200 Energy Index.

The 2018 Global 100 Most Sustainable Corporations in the World Index (scheduled for release January 23) added another year of healthy outperformance compared to its benchmark, the MSCI ACWI, showing significant outperformance over the 13 years since the Global 100’s inception in 2005.

And the Greenchip Global Equity Fund, which invests in companies that operate in targeted environmental sectors, celebrated its 10th birthday ahead of its benchmark and ranked as the No. 1 global equity fund over the past year in the RBC Pooled Fund Survey.

There are three ways an average investor can catch this train.

If you are a member of a big pension plan, you can write your fund and request that it offer a socially responsible and climate friendly option, ideally as the default (as the HSBC U.K. pension plan has already done). If your fund is a defined benefit plan like the Canada Pension Plan, you can write both the fund managers and your finance minister to ask that they let go of risky investments in certain fossil fuels and boost investments in renewables to ensure they do not miss the clean economy transition.

If you pick your own stocks and funds, there are lots of ideas in the Clean200 and Global 100, not to mention the solid income returns you can get from retail green bonds like Solar Share and CoPower in Canada.

If you prefer to invest in funds that are investing their money and the power of their voice for a more just and environmentally friendly world, we have crunched the numbers for over 600 equity funds available to Canadian investors, and present the synthesis as Top 10 Better World Funds.

Methodology:

1. The 3-year returns are per cent ranked against funds in same category, then weighted 50 per cent.

2. The fund’s net market exposure to green versus red flagged holdings is per cent ranked against other funds from the same category, then weighted 40 per cent.

Green flagged holdings are companies that earn at least 20 per cent of their revenues from clean scores, or score top decile (90 to 100 per cent) on Corporate Knights Sustainability Rating methodology and have no red flags from the list below.

Red flagged holdings are those that have bottom decile scores (0 to 10 per cent) on CK Sustainability Rating, and/or are involved in or are laggards on any of the aspects listed below:

Nuclear energy; oil & gas, coal utility; pure-play thermal coal; thermal coal miner; utilities (>50 per cent renewable energy); access to medicine; animal welfare; corporate human rights; access to nutrition; conventional weapons; controversial weapons; blocking climate policy; sustainable cotton; tropical deforestation; child or forced labour violations; new energy finance; sustainable seafood; severe environmental damage; tobacco; sustainable palm oil; science-based targets; renewable energy commitments; gambling; pornography; for-profit prison; animal testing (non-medical); factory farm; small arms; GMO-pesticides; predatory lending; corporate crime (fines, penalties, convictions).

3. Focused small/mid cap equity – reclassified as “equity.” “North American equity” is reclassified as “global equity.”

4. The fund manager’s voting record is assessed, and weighted 5 per cent. The fund manager’s voting records for 10 environmentally related resolutions were tracked and received a score if it supported the vote or no score if it didn’t support the vote. The number of times a favourable vote out of all possible opportunities to cast a vote is calculated and weighted 5 per cent.

5. The fund manager’s intention to exercise voting rights using responsible guidelines according to Responsible Investment Association – Canada is given a score of 5 per cent.

6. The final score is the sum of 1, 2, 4 and 5 above. If a fund is less than three years old and therefore has no 3-year return, its final score is based on 2, 4 and 5 above grossed up proportionately to 100 per cent.

7. Only funds with at least 66.6 per cent of their holdings covered in the Corporate Knights Research Universe are eligible for the ranking (all companies with revenues > $1 billion U.S.).

8. Where a fund has no data for any one of the four indicators, the weight of the indicators for which data is available is scaled proportionately to 100 per cent.

Sources: Fundata, RIA-Canada, Proxy Insight, Corporate Knights Research Database

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