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.

Eligibility criteria

Equity funds must have at least two-thirds of their holdings by market weight rated in the Corporate Knights Research universe; for balanced/corporate fixed income funds, the minimum threshold is 50% of the holdings by market weight to be rated in the Corporate Knights Research universe.‡ 

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”).  

Example: XYZ Fund

Holdings date

Fund ratings are based on most recently available holdings breakdowns as provided by Fundata as of September 30, 2025. 

Fund categories

Funds are classified according to the classification system established by the Canadian Investment Funds Standards Committee (CIFSC) 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”). Scores range from 0% to 100%. 

Example: Canadian equity

Fund Name	Weighted Rating	Final Score
X Equity Growth	50%	100%
Y Canadian Equity	40%	67%
Z Value Fund	10%	33%
Omega Index Fund	5%	0%

Corporate Knights 2025 podium funds: Top 10 funds in category ranking

For fund categories where there are at least 12 RI funds (defined below) and at least 50 funds that meet the minimum eligibility criteria, the top 10 scoring funds in each assessed fund category are allowed to communicate that Corporate Knights has ranked them as being among the top 10 responsible funds in the given category based on this methodology. Four fund categories meet these conditions: 

• Canadian equity 
• global equity 
• international equity 
• U.S. equity 

RI funds are those funds that:

A. Have an ESG mandate or objective as identified from:

• The CIFSC list of qualifying funds,
• The Responsible Investment Association’s funds, and
• The TMX list of sustainable ETFs

and/or:

B. Are ESG-Related Funds* which are funds where the consideration of ESG factors plays a role in their investment process and confirmed by Corporate Knights Research review of the funds’ disclosures of their investment strategies in their prospectuses and due diligence with the fund manager/s.

* Based on the CSA Staff Notice 81-334 (Revised) ESG-Related Investment Fund Disclosure

Footnotes: 

*The sustainability rating is based on Corporate Knights’ rating methodology as deployed in the 2026 Global 100 Most Sustainable Corporations in the World ranking, which can be accessed here.

The post Responsible funds methodology appeared first on Corporate Knights.

In 2018, the Global Sustainable Investment Alliance (GSIA) identified that nearly $31 trillion is managed under responsible investment strategies globally. Canada is not immune from this trend: the Canadian Responsible Investment Trends Report found that as of 2018, more than $2 trillion in Canadian assets were managed according to one or more responsible investment strategies.

Much of this growth has been centred on ESG funds. According to Morningstar data, their value now surpasses $1 trillion USD globally. However, this phenomenal growth is beginning to reveal fault lines that have the potential to undermine the legitimacy of the ESG fund sector, especially if there is no improvement made to oversight or regulation.

For the ESG fund market to retain the confidence of investors, ESG funds must not only deliver returns, but must also generate the impacts in the real economy which they claim (i.e., lowering carbon). This is particularly important for climate-themed funds, which have been identified as a key instrument in driving climate finance and shifting investment from brown to green assets.

However, in the absence of any meaningful regulation to define green investment, prospective investors in climate-themed funds face a dizzying array of terminology — carbon constrained, carbon momentum, carbon neutral, climate aware, climate strategy, fossil fuel reserves free to name a few — with little indication of how these terms relate to the contents of the fund itself.

In light of this, InfluenceMap, a U.K. based think tank, analysed 118 ETFs marketed under a climate theme with an aggregate AUM of US$18 billion, four of which are sold to retail investors in Canada.

Surprisingly, the 118 funds analyzed had an aggregate exposure to thermal coal reserves roughly equivalent to that of the iShares MSCI World ETF. In other words, these funds, despite their climate positive marketing, ended up with an exposure to thermal coal reserves comparable to that of a mainstream global large cap benchmark.

In total, 22 funds were found to have exposure to thermal coal or oil and natural gas reserves. At the extreme end, two funds from Asia-based Fullgoal and Lion Asset Management companies were found to have thermal coal intensities (defined as tons per $million AUM) 50 times greater than the MSCI World ETF because of their large stakes in major Chinese coal producers. A range of other funds also contained major fossil fuel producing companies which investors would no doubt be surprised to find in a purportedly green fund: BlackRock’s iShares MSCI ACWI Low Carbon Target ETF, for example, holds shares in oil majors Chevron and Shell.

Notably, all four funds available to Canadian retail investors, with an aggregate AUM of $186 million, were found to have zero exposure to fossil fuel reserves. The funds, whose managers include RBC and BMO, are detailed in the table below.

Admittedly, there is currently no legal restriction to prevent a low carbon fund from investing in fossil fuel companies which means the funds analyzed are not necessarily in violation of their stated remits.  However, the findings speak to a broader issue regarding the lack of clarity for retail investors in this burgeoning sector.

BlackRock, in response to InfluenceMap’s findings, simply stated: “The fund is named low carbon to ensure investors understand the ETF is seeking lower carbon exposure, but it is not a no carbon fund.” While true, there is no guarantee that retail investors understand these labels in this way. Clear evidence that the labels are not used uniformly across the market is muddying the waters for climate concerned investors.

Moreover, while a low carbon label may not preclude a fund from investing in fossil fuel producers, it is reasonable for investors to expect that a fund labelled ‘Fossil Fuel Reserves Free’ would, indeed, be free of fossil fuel reserves.

Yet InfluenceMap’s research uncovered two State Street funds marketed as fossil fuel reserves free. The funds are worth a combined $100 million, with significant exposure to fossil fuel reserves through holdings in companies including German power company RWE and Brazilian mining giant Vale. It seems more than reasonable to assume that a typical retail client interested in investing in a climate sensitive manner would not expect to hold shares in a company like RWE, a major coal power generator and operator of the highly controversial Hambach lignite mine in Germany.

In response to InfluenceMap’s research, State Street argued the report had missed “important nuances,” particularly around the term “fossil fuel reserves” which, in their estimation, refers only to oil and gas and not to thermal coal. The clarification of this nuance is unlikely to placate retail investors who likely recognize thermal coal as the most CO₂ intensive fossil fuel.

Importantly, these issues are echoed by broader concerns surrounding impact washing, whereby a financial product is marketed as generating a positive impact environmentally, socially or otherwise, without any rigorous substantiation of this impact. Recent research from 2 Degrees Investing Initiative found that 85% of ESG-themed funds in their sample made unsubstantiated or misleading claims in violation of existing market regulation. These findings underscore the need for a clear, consistent and robust method of not only categorizing green or impact funds but also of measuring and verifying their effects on the real economy.

The European Commission is leading the way in attempting to remedy these challenges. It’s currently developing a suite of policy measures designed to regulate the industry including two new climate benchmarks against which climate-focused indices will be required to gauge their performance. The EU is also pursuing a Taxonomy for Sustainable Activities which will define what constitutes sustainable or green economic activity. However, despite the promise of these changes, progress remains slow. Last week EU governments agreed to delay the release of the Taxonomy until 2022 following some controversy over the potential inclusion of nuclear and coal-fired power plants.

Nevertheless, the Commission’s work represents a first step in the crucial process of generating improved oversight of this sector. Canadian regulators should take heed and refocus efforts on establishing mechanisms to ensure ESG funds are marketed according to a rigorous system in order to ensure this growing sector not only meets investors’ expectations, but also delivers the changes in the real economy that it promises.

Adrienne Buller is a research policy analyst with InfluenceMap.

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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.

In order to analyze the impact of both carbon intensity and exposure to green companies, we conducted explorative regression analyses using carbon intensity and exposure to green companies as variables that influence the 3-year compound return of the funds. The two environmental variables have been correlated with the financial return as single variables and in a multivariate regression that takes into account the impact of both variables in one function.

Results

The analysis for all 330 funds with a minimum 3-year history in the sample for carbon intensity suggests that the 3-year compound return is significantly influenced by the carbon intensity of the fund. A decrease of one tonne of CO2e/$m sales increased the 3-year compound return by .1 per cent. In other words, a reduction of 100 tCO2e/$m sales increased the 3-year compound return by 10 per cent. The same is valid for an increase in tCO2e/$m sales. An increase of 100 tCO2e/$m sales decreased the 3-year compound return by 10 per cent. The regression function is statistically significant and is able to explain about 13 per cent of the funds’ volatility.

We also found that expanded exposure to green companies increased the financial returns. Increasing the percentage of green companies in the fund by one per cent increased the 3-year compound return by .2 per cent.

The regression analyses for the combination of both carbon intensity and exposure to green companies explained 15 per cent of the funds’ volatility. The result of the combined analysis suggests that a reduction of the carbon intensity by one tCO2e/$m and an increase of the exposure to green companies by 1 per cent increased the 3-year compound return by .2 per cent.

These results suggest a significant negative impact of carbon intensity and a significant positive impact of exposure to green companies on the 3-year compound return of the funds in the sample. However, we did find an anomaly: Canadian funds with more green exposure underperformed funds with less green exposure. This may be because the Canadian stock market has an extremely small pool of green companies (less than one per cent of its equities are classified as green), as compared to global indices that tend to have a pool of green companies five times bigger than in Canada, adjusting for size.

Conclusions

Carbon intensity and exposure to green companies influenced the 3-year compound return of funds significantly. Funds with lower carbon intensity and higher exposure to green companies had a significantly higher financial return. On the other hand, higher carbon intensity and lower exposure to green companies decreased the financial returns of equity funds.

For Canadian equity the situation was a bit different. The high carbon intensity of Canadian equity funds decreased their financial returns, but there were not as many Canadian green companies that create good financial returns (less than one per cent of the S&P/TSX Composite is comprised of green companies). This creates a dilemma for Canadian equity funds going forward: funds which decrease their carbon intensity to increase their financial returns have limited opportunities for investments in green companies.

It seems that Canadian investors are still too dependent on carbon intensive investments and that there is a need for more green companies in Canada.

Olaf Weber is a professor at the School of Environment, Enterprise and Development (SEED), University of Waterloo and Editor: Journal of Sustainable Finance and Investment.

Click here to go back to the ranking landing page.

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