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.

Our most recent reporting reveals a contradiction in the investing practices of Canada’s largest life and health insurers – Manulife, Sun Life and Great-West Lifeco. This disconnect is a financial and reputational liability. At a time when the science is unequivocal about the harm caused by fossil fuel combustion – from deadly air pollution to worsening wildfires – Canada’s life insurance companies remain out of step with both health science and global expectations for climate-aligned investing.

Fossil fuels directly threaten the people insurers protect

Fossil fuels are not an abstract threat to human health. Their combustion is responsible for millions of premature deaths every year. Air pollution is one of the world’s leading killers, contributing to respiratory disease, cardiovascular conditions and higher mortality from heat and wildfire smoke. Wildfire smoke, now an annual feature of Canadian summers, is up to 10 times more toxic than pollution from burning fossil fuels. One five-day period of wildfire smoke in Ontario in 2023 alone cost more than a billion dollars in healthcare impacts.

Last month saw air pollution caused by fossil fuel combustion in New Delhi reach record highs. Notably, Sun Life and Manulife are expanding their life insurance business in India and across Asia. Delhi’s air quality index maxed out at 500 – 50 is the limit recommended by the World Health Organization. Air quality indexes showed that actual data reached 850. People were warned not to go outside. Hospitals were filled with people struggling to breathe.

For life and health insurers, the implications are direct. Rising illness and mortality drive claims. Climate-fuelled disasters increase volatility and undermine long-term actuarial assumptions. Every dollar invested in fossil fuels is a dollar invested in future morbidity – and future costs.

A gap between pledges and practice

Yet despite this, Canada’s major insurers are lagging in redirecting their general account capital toward solutions good for both health and the climate. BloombergNEF shows that financial institutions should be targeting a low-carbon to fossil-fuel investment ratio of at least 4.8:1 by 2030 if they wish to align their portfolios with a 1.5°C warming future.

According to our recent analysis, based partly on estimates, none are close. Manulife is estimated at 2:1 – ahead of peers, but still far from alignment. Sun Life sits near parity at 0.9:1. Great-West Lifeco is furthest behind at 0.28:1. These ratios reveal that, to date, all three insurers are not yet aligning their investments in the clean-energy future they believe is both necessary and inevitable.

More troubling, none have yet set quantitative targets to increase renewable-energy or climate-solution investments in their general accounts – the portfolios used to protect policyholder liabilities. Manulife and Sun Life don’t fully disclose their fossil fuel exposure, forcing analysts to estimate their holdings.

Meanwhile, European peers AXA and Allianz and Canadian peers RBC and the Co-operators have moved toward clearer “climate solutions,” “low-carbon solutions” or “renewable energy” investment or lending targets that increase credibility and reduce the risk of greenwashing.

The business case for climate-healthy portfolios

Life insurance companies invest their client premiums so they can pay out future claims, which can sometimes be decades in the future. These long-duration insurance liabilities are perfectly suited to corresponding stable, long-term investments in renewable energy, clean infrastructure and climate-resilient assets. These investments reduce exposure to volatile fossil fuel markets and support healthier environments and healthier populations.

Insurers should be natural leaders in health and climate-solution financing. Leading medical institutions, including the Canadian Medical Association and the World Health Organization, describe fossil fuel financing as a direct threat to public health.

Three things insurers can do now

To realign their portfolios with their purpose and reduce risk, Canada’s life insurance companies can take three immediate steps.

1. Bring transparency to the numbers

Insurers can disclose clear, comparable data on fossil fuel exposure and renewable-energy investments within their general accounts. Without transparency, neither policyholders nor markets can assess credibility or progress.

2. Set clear investment targets

Life insurance companies need explicit, quantitative goals – whether framed as targets, envelopes or sleeves – for increasing their exposure to renewable energy and climate solutions. Vague “sustainable finance” labels are no longer enough. Real impact requires real numbers.

3. Integrate climate and health science into underwriting

If air pollution, wildfire smoke and extreme heat are driving mortality and morbidity, insurers should reflect that reality in their actuarial models and disclosures. Failing to account for these rising health risks leaves a critical gap.

Finally, insurers can use their influence to advocate for policy reforms that better align financial incentives with health and climate goals. If markets undervalue climate solutions today, life insurance companies – given their expertise – are well placed to help correct that.

Kyra Bell-Pasht is the director of research and policy at Investors for Paris Compliance.

The post How life insurance companies are undermining their own business model 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.

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.

This issue is not unique to TD. Western banks have spent the last few years setting targets and measuring their financed emissions – that is, the emissions resulting from their lending, investments and underwriting. The numbers are huge, indicating that banks face massive transition risk as the economy decarbonizes and corporate clients adapt, or fail. 

Now comes the hard part. What are they going to do about it? Unfortunately, what we’ve been told so far by the banks doesn’t measure up. TD and other banks produce hundreds of pages of climate reports that talk about governance and processes but don’t tell us how their day-to-day business is going to change. Meanw hile, TD saw the largest jump in fossil fuel financing of any bank in the world in 2022 and ranked dead last in BloombergNEF’s low-carbon energy versus fossil fuel financing ratio out of 100 global banks measured.  

Strip away the rhetoric and banks have four main things they can do to transition: portfolio realignment, client transformation, climate solutions investing, and positive public policy lobbying. Let’s flesh these out, using TD as the test case. 

Portfolio realignment 

Portfolio realignment is the obvious climate response, and the one that banks resist the most. Essentially it comes down to getting out of the business of serving high-carbon clients and into the business of serving low-carbon ones. Banks resist it because they can still make short- and medium-term profits serving fossil fuel companies that are driving the climate crisis, even as this leads to a tragedy of the commons that poses an existential threat to the banks themselves via economic and societal disruption. 

Most banks, including TD, therefore only tinker around the edges of portfolio realignment, making commitments that don’t change their books much, like saying that they won’t fund oil and gas activity in the Arctic or that they won’t take on “new” coal clients (while keeping their existing ones). They won’t even commit to ending financing of oil and gas expansion, which takes the bank in the opposite direction to net-zero. Some banks, though, do make more substantive commitments in this regard; for example, BNP Paribas has set a target to reduce its financing exposure to oil and gas. 

Client transformation  

Client transformation is the next potential strategy. Instead of replacing clients, this involves making them better. The challenge here is that the banks are not in the power position in this conversation, seeking to profit from clients who can go elsewhere. This is why banks call this “client engagement” and resist clarity regarding their assessment of clients’ carbon progress and accountability measures should clients refuse to change.  

This year, TD joins other Canadian banks in articulating the kinds of things it looks for when assessing client climate plans – yet stops short of establishing a clear framework based on the kind of work done by bodies like the U.K.’s Transition Plan Taskforce. It also includes no measures to hold itself or its clients accountable for progress, referring only to vague “discussions” and to “share resources” with those not setting targets. TD peers RBC and BMO at least float the prospect of dropping clients who don’t advance. 

Climate-solutions investing 

Climate-solutions investing is something that TD and most banks claim to be doing at scale. TD has set a $500-billion Sustainable & Decarbonization Finance Target that sounds incredibly impressive and mirrors similar commitments set by the other banks. With so much money being put into green finance, that’s the climate problem sorted, right?  

Unfortunately, as our recent securities complaint on this topic points out, the banks have no way of proving that this financing is “sustainable” or that it is actually “decarbonizing” anything since they don’t report on any emissions impacts. In fact, there are several deals done under this label that have increased emissions instead of reducing them. At its core, sustainable finance is a business segment for the banks designed to profit from ESG concerns in the marketplace. Likely in response to our complaint, three Canadian banks, including TD, admitted in their recent climate disclosures that they cannot say that sustainable finance reduces emissions – though it remains featured as a key pillar of TD’s climate plan. 

An alternative to vague “sustainable finance” is setting more specific financial targets that matter. One example is adopting a target for renewables financing. Another is equity investing by banks in climate solutions, which puts them in a controlling position to ensure positive emissions outcomes. BMO and CIBC have had such funds for a few years, and RBC joined them this year by pledging a billion dollars toward this. To make it real, the banks need to marry these financial commitments with credible impact reporting.  

Lobbying 

Finally, banks can help drive progress to their own net-zero targets by lobbying for public policy that enables this progress. Each says that it relies on factors beyond its control that will shape the emissions profiles of its clients, but few then follow up by saying they will add their considerable lobbying might to influence these factors. Case in point: banks will make little progress decarbonizing their mortgage portfolios without better provincial and municipal building codes. So, are they asking for them? 

TD says that it has created an ESG Advocacy Executive Forum, “to align on advocacy activities and facilitate co-ordination of our engagement efforts,” but it doesn’t say what those advocacy or engagement efforts are. InfluenceMap recently gave TD a D+ on lobbying, noting that the bank has generally limited its overt climate lobbying to financial disclosure issues but that alongside the other big Canadian banks it retains memberships in several industry associations “that have engaged in opposition to real-economy climate policies in Canada and globally.” TD is also a member of the very anti-climate U.S. Chamber of Commerce and makes political donations to dozens of U.S. politicians, including climate denier J.D. Vance.  

Overall, in the four main ways that banks can drive toward net-zero, TD is doing little – and in some cases pushing in the wrong direction. This gives investors no confidence that the bank is on track to meet its own commitment.   

While our shareholder proposal is filed with TD this year, it could equally be filed with any of Canada’s large banks that suffer the same shortcomings. This brings us to a final conclusion. There is a systemic failure in Canada’s banking system to drive toward net-zero, which poses a growing risk that regulators must address. We should not have to rely on shareholder proposals like ours (the results of which will be revealed at TD’s annual general meeting on April 18) to get banks to do more on this front. Other jurisdictions like the United States, the European Union and the United Kingdom are ahead of Canada in requiring more details from their banks, and we need the Office of the Superintendent of Financial Institutions to follow suit. 

Matt Price is executive director of Investors for Paris Compliance and and Kyra Bell-Pasht is its director of research and policy. 

The post Four ways Canadian banks can actually deliver on their climate promises 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.

Yet despite these pledges, banks and other financial institutions – sectors crucial to funding the low-carbon transition – stood by their traditional borrowers and investees in the fossil fuel business. The last 12 months have revealed a growing standoff between governments, civil society organizations and climate scientists on one hand, and the oil and gas industry and their partners in the financial sector on the other.

Several years ago, the oil and gas industry at least paid lip service to the need to become net-zero by 2050. Now even that sentiment is disappearing, as the industry explores new and large fossil fuel projects while promising to reduce its process emissions (although not final emissions) through the untested technology of carbon capture.

In the meantime, the mainstream financial industry has become a silent cheerleader, continuing and sometimes increasing its exposure to the oil and gas industry to reap investment gains and fees from the continued flow of fossil fuels.

Here’s a review of how the banking and investment industries journeyed through this global impasse in the last year – and some predictions for how those trends will shape 2024.

Banks, asset managers and pension funds missing in climate action

At COP28, the UN climate summit in Dubai in December, environmentalists praised an agreement to triple renewable-energy capacity and transition away from fossil fuels, although it fell short of a hoped-for fossil fuel phaseout.

Yet only days after this agreement, BloombergNEF reported that there has been no recent progress by the world’s largest banks in financing the energy transition.

The so-called energy-supply banking ratio (ESBR) – the measure of financing for renewable energy relative to coal, oil and gas ­– was 0.73 to 1 at the end of 2022, slightly less than the ratio of 0.75 to 1 in 2021. The banks’ performance on this measure is a far cry from the ratio of 4 to 1 that BloombergNEF estimates is needed by 2030 to avoid global warming of more than 1.5°C.

Regionally, banks in Canada, the U.S. and Mexico had an ESBR ratio of 0.5 to 1, while European banks had a much better ratio of 2.8 to 1.

In the asset management industry, progress on the climate transition worsened. According to an analysis of 13,000 equity funds by InfluenceMap, the percentage of managers practising effective climate stewardship shrank from 33% in 2021 to only 18% in 2022.

Even ESG-labelled funds (which take into consideration environmental, social and governance factors) in Europe increased their oil and gas exposure. Bloomberg reported that Article 8 funds – funds that promote ESG goals in general as defined by the EU’s Sustainable Finance Disclosure Regulation – had about 2.3% of their holdings in fossil fuel assets in the third quarter of 2023, up from 1.4% in early 2021.

And when it comes to pension funds – another critical component of the financial industry – several studies in 2023 found that pension managers are downplaying potentially catastrophic climate risks to their portfolios, putting future pension payouts in jeopardy.

Given this dismal record on lending and investment in the climate transition by mainstream finance, there will be growing pressure on banks, asset managers, fund companies and pensions to step up in 2024 by governments and civil society organizations as the oil and gas industry makes a last-ditch effort to launch new projects, such as liquefied natural gas terminals or oil sands carbon-capture projects.

In the U.S., more attacks on ESG

Meanwhile, as the prospect of another Trump presidency looms over the U.S., Republican attacks on ESG are expected to increase as candidate (and former ambassador to the UN) Nikki Haley gains support.

The world’s largest asset manager, BlackRock, has become a favourite target of Republican lawmakers for its supposed “woke” investing policy, and Haley has been attacked by some of her fellow candidates after meeting with BlackRock CEO Larry Fink as well as the heads of JPMorgan Chase and Goldman Sachs. “I love all the attention, fellas,” she said in response to one of the exchanges in a debate. “When it comes to these corporate people that want to suddenly support us, we’ll take it.”

Legislation in many Republican-controlled states has put up barriers to ESG investment managers, although many anti-ESG bills have been defeated over concerns of potential pension investment losses. The issue is expected to become more of a political football as the primary season gathers steam in 2024 and the House Judiciary Committee mounts an investigation into ESG.

Regulators continue to get tougher on ESG disclosure

On a positive note, the European Union put in place the Corporate Sustainability Reporting Directive (CSRD) – described by Sustainalytics ESG rating service as a “watershed moment” for corporate sustainability. Effective as of January 1, the CSRD is a sweeping framework, affecting 50,000 companies within the EU, including 10,000 non-EU-based companies with European operations, equivalent to 75% of total European company revenue.

The CSRD requires companies to disclose information on a range of ESG impacts from a corporate risk perspective, but also from a “double materiality” lens of real-world impacts on people and the environment. Disclosure on the full scope of carbon dioxide emissions is required, including Scope 3 emissions from companies when their products are used by customers.

National governments are responsible for administrating and enforcing the law. In an eye-catching move, France has introduced fines of €75,000 for non-compliance with CSRD, with an additional threat of five years’ jail time.

In the U.S., the Securities and Exchange Commission (SEC) is wrestling with a proposal to mandate CO2 disclosures by listed companies, including Scope 3 emissions by large companies. After delays caused in part by threats of court challenges from Republican-led states, the SEC is now aiming to release its rules by April. The SEC has signalled it may weaken the proposed rules, including possibly eliminating Scope 3 disclosures. The Canadian Securities Administrators (the umbrella group for Canadian securities commissions) has proposed its own set of climate disclosures but is now waiting for the U.S. rules to be finalized.

At the same time, California has introduced climate disclosure rules (including Scope 3) on companies operating in the state. The California law will help to establish a national standard in the U.S. since most large national companies operate in California. The new rules are supported by many large global corporations, including Apple, Ikea, Google, Microsoft, Patagonia and Salesforce.

In addition to these regional developments, the first International Sustainability Standards Board rules were released in June, establishing the first global standard for sustainability reporting. The accounting-based rules require companies to disclose social and environmental risks that could affect financial risk or value and include a mandate to disclose all scopes of CO2 emissions.

The International Organization of Securities Commissions has endorsed the new framework, paving the way for mandatory adoption by securities regulators around the world. The United Kingdom has indicated it will mandate the framework for U.K. companies.

When these rules come into full force in coming years, they will provide publicly available data on the social and environmental impacts of thousands of corporations worldwide, establishing a uniform and comprehensive ESG database for the first time for ratings agencies, asset managers and investors.

Green energy stocks on the upswing

Last year was not kind to renewable energy stocks. In 2023, share prices slumped under rising interest rates, which increased financing costs for wind, solar, hydro, battery and geothermal projects at a time when the industry was also battling supply chain problems.

There were fears the climate transition could be delayed by the cancellation of major clean energy projects, such as the termination of two large U.S. offshore wind projects by Danish renewable company Ørsted.

Still, the fundamental advantage of cheap, renewable power drove the industry to record levels of solar and wind deployment. The International Energy Agency projects that 2023 will see the addition of 440 gigawatts of renewable energy, more than the entire electricity capacity of Germany and Spain together.

With central banks signalling that interest rate increases could be over, stock prices for renewable-energy companies have partly recovered as prospects for the sector look better for 2024.

The S&P Global Clean Energy Index ended the final quarter of 2023 up 7.3% even though it finished the year down 20.1% overall. By contrast, the S&P Global Oil Index (measuring the performance of 120 major oil and gas companies) declined by 2.4% in the final quarter. Over the year, it was up by 4.9%.

Improving prospects for clean energy should help accelerate an already quickly moving climate transition in 2024, combatting financial industry inertia and political uncertainty in the U.S.

Eugene Ellmen is a former executive director of the Canadian Social Investment Organization (now Responsible Investment Association). He writes on sustainable business and finance. 

The post Four trends shaping sustainable finance’s future in 2024 appeared first on Corporate Knights.

The book’s insights struck a chord with people who felt a growing sense of economic inequality but didn’t have the data to back it up. I was one of them. It made me wonder, how much carbon pollution is being generated to create wealth for a small group of extremely rich households? Two kids, 10 years and a Ph.D. later, I finally have some answers.

In a new study, colleagues and I investigated U.S. households’ personal responsibility for greenhouse gas emissions from 1990 to 2019. We previously studied emissions tied to consumption – the stuff people buy. This time, we looked at emissions used in generating people’s incomes, including investment income.

If you’ve ever thought about how oil company CEOs and shareholders get rich at the expense of the climate, then you’ve been thinking in an “income-responsibility” way.

While it may seem intuitive that those getting rich from fossil fuels bear responsibility for the emissions, very little research has been done to quantify this. Recent efforts have started to look at emissions related to household wages in France, global consumption and investments of different income groups and billionaires’ investments. But no one has analyzed households across a whole country based on the emissions used to generate their full range of income, including wages, investments and retirement income, until now.

We linked a global data set of financial transactions and emissions to microdata from the U.S. Census Bureau and Bureau of Labor Statistics’ monthly labor force survey, which includes respondents’ job, demographics and income from 35 categories, including wages and investments. People’s wages we connected to the emission intensity of the industries that employ them, and we based the emissions intensity of investment income on a portfolio that mirrors the overall economy.

The results of our analysis were eye-opening, and they could have profound implications for producing more effective and fair climate policies in the future.

A view from the top 1%

Both our consumption- and income-based approaches reveal that the highest-earning households are responsible for much more than an equitable share of carbon emissions. What’s more surprising is how different the level of responsibility is depending on whether you look at consumption or income.

In the income-based approach, the share of national emissions coming from the top 1% of households is 15% to 17% of national emissions. That’s about 2.5 times higher than their consumer-related emissions, which is about 6%.

In the bottom 50% of households, however, the trend is the exact opposite: Their share of consumption-based national emissions is 31%, about two times larger than their income-based emissions of 14%.

Why is that?

A couple things are going on here. First, the lowest earning 50% of U.S. households spend all that they earn, and often more via social assistance or debt. The top income groups, on the other hand, are able to save and reinvest more of their income.

Second, while high-income households have very high overall spending and emissions, the carbon intensity – tons of carbon dioxide emitted per dollar – of their purchases is actually lower than that of low-income households. This is because low-income households spend a large share of their income on carbon-intensive basic necessities, like home heating and transportation. High-income households spend more of their income on less-carbon-intensive services, like financial services or higher education.

Implications for a carbon tax

Our detailed comparison could help change how governments think about carbon taxes.

Typically, a carbon tax is applied to fossil fuels when they enter the economy. Coal, oil and gas producers then pass this tax on to consumers. More than two dozen countries have a carbon tax, and U.S. policymakers have proposed adding one in recent years. The idea is that raising the price of these products by taxing them will get consumers to shift to cheaper and presumably less carbon-intensive alternatives.

But our studies show that this kind of tax would disproportionately fall on poorer Americans. Even if a universal dividend check was adopted, consumer-facing carbon taxes have no impact on saved income. Generating that income likely contributed to greenhouse gas emissions, but as long as the money is used to buy stocks rather than consumables, it is excluded from carbon taxes. So, this kind of carbon tax disproportionately affects people whose income goes primarily toward consumption.

A profit-focused carbon tax

What if, instead of focusing on consumption, carbon taxes addressed greenhouse gases as an outcome of profit generation?

The vast majority of American corporations operate under the principle of “shareholder primacy,” where they see a fiduciary duty to maximize profit for their investors. Products – and the greenhouse gases used to make them – are not created for the benefit of the consumer, but because the sale of those products will benefit the shareholders.

If carbon taxes were focused on shareholder income linked to greenhouse gas emissions rather than consumption, they could target those receiving the most economic benefits resulting from these emissions.

The impact

A couple of interesting things might result, particularly if the tax was set based on the carbon intensity of the company.

Corporate executives and boards would have incentive to reduce emissions to lower taxes for shareholders. Shareholders would have incentive, out of self-interest, to pressure companies to do so.

Investors would also have incentive to shift their portfolios to less-polluting companies to avoid the tax. Pension and private wealth fund managers would have incentive to divest from carbon-polluting investments out of a fiduciary duty to their clients. To keep the tax focused on large shareholders, I could see retirement accounts being excluded from the tax, or a minimum asset threshold before the tax applies.

Revenue generated from the carbon tax could help fund adaptation and the transition to clean energy.

Instead of putting the responsibility for cutting emissions on consumers, maybe policies should more directly tie that responsibility to corporate executives, board members and investors who have the most knowledge and power over their industries. Based on our analysis of the consumption and income benefits produced by greenhouse gas emissions, I believe a shareholder-based carbon tax is worth exploring.

Jared Starr is a sustainability scientist at UMass Amherst.

This article is republished from The Conversation under a Creative Commons license. Read the original article.

The post What if we slapped carbon taxes on shareholders not consumers? appeared first on Corporate Knights.

The professor – one Louis Chauvin – was a standout in McGill’s Desautels Faculty of Management. Wearing nubbly woolen sweaters and a full grey beard, he started each class with a brief meditation before launching into the subject at hand: the social and environmental devastation wrought by the corporate world the students were clamouring to enter. 

Chauvin framed the most urgent issues facing the planet – climate change, waste, pollution, slave and child labour – as accounting failures. Nowhere did these by-products of economic growth appear on balance sheets. He cited the old accounting adage “What gets measured gets managed” and made it clear that the converse also applies.

As a self-described impact-driven millennial, Keyes experienced a moment of existential panic. How would she reconcile her determination to do good in the world with a system so singularly focused on profit and growth? After receiving her designation as a chartered professional accountant (CPA) in 2013, Keyes entered the profession with one part trepidation, nine parts determination. 

As it turns out, her timing was perfect. Now the CEO of ESG Global Advisors, a boutique management consultancy in Toronto that advises companies and investors on environmental, social and governance (ESG) reporting and strategies, she has seen her team triple in the last year and a half. “I would not have stayed the course in this profession had I not felt that I was making a difference,” she says. 

In the last two decades, accounting has been transformed by the shift in corporate culture that has seen corporate social responsibility move from the margins to centre stage, and sustainability migrate from the marketing office to the banner flying over the entire operation. 

While the scope of work – reporting, auditing, risk assessment and assurances – hasn’t changed, the innards have. Accountants are being asked to measure different things, ask different questions and think in different ways. The bookkeeping that used to form the meat and potatoes of accounting – recording inputs and outputs, tallying profits and losses – now represents a fraction of the work, and the fraction that is doomed to fall, sooner or later, to artificial intelligence. “Integrated” or “sustainability” accounting, as the profession’s more recent iteration is being called, may in fact prove to be its salvation, demanding more nuanced, ambiguous and qualitative thinking: less about accounting for companies’ financials than about demonstrating their accountability – or lack thereof – to all stakeholders, including the planet. 

Of course, sustainability accounting is as prone to manipulation as any other form of the practice. But a survey of the current landscape suggests that there are more dreamers than schemers – and that many of industry’s most ambitious envelope-pushers are women.

For someone like Keyes, the work feels incredibly relevant and exciting. Nonetheless, like many in her profession and despite accolades – in 2022, Keyes was named a fellow by CPA Ontario, as a “trailblazer” in the worlds of ESG and sustainability – she doesn’t want to be called a warrior. 

The rise of activist accountants

The “warrior accountant” moniker has been gaining currency ever since British journalist Gillian Tett suggested, in a 2018 column in the Financial Times, that accountants, once typecast as enablers of capitalist exploitation and tax avoidance, might in fact be climate saviours: that “a new breed of activist warrior accountants could be the biggest revolutionaries of all,” as Tett put it. 

Keyes sees a danger in overstating her profession’s potential impact. “We are one piece of a big puzzle,” she says, estimating that two-thirds of the investment required to achieve net-zero by 2050 will come from the private sector. Accountants can help create transparency and guide decision-making within that sector, but Keyes says the kind of transformational change required to meet climate goals will require all hands – regulators, investors and policy-makers included – on deck.

Susan Todd agrees. A pioneer of sustainability accounting (and living proof that activism in the profession is nothing new), she is impatient to see the practice fully bear fruit. In the “heady” early days, she was convinced that once the best performers were exposed, capital would naturally flow to them. But having worked as a B.C.-based sustainability consultant for the better part of three decades, the president of Solstice Sustainability Works realizes that it’s not that straightforward. 

“You can’t have successful companies in a failed world,” she says, citing a market that lacks “sophistication” and analysts too fixated on short-term financial risks. For her, the term “non-financial disclosures,” often used to describe environmental and social performance, is evidence that the actual value of these factors is still not recognized: that people don’t fully grasp that “these chickens will come home to roost.” 

But there’s no question that things have come a long way since 1997, when Todd was contracted by Vancity to conduct the credit union’s first ever “social audit.” Assessing the co-op’s social responsibility performance, Todd drew on what she had previously considered discrete skill sets – her CPA designation and experience as senior audit manager for KPMG on the one hand and a master’s degree in resource and environmental management from Simon Fraser University on the other.

When I started, I had to explain to companies why they should care about ESG. Now they see reporting as the tail that wags the dog.

 

– Alyson Slater, head of sustainable investments, Manulife

“They didn’t want it done in a fluffy way,” Todd says of her Vancity employers. She found herself burrowing back into her textbooks, returning to first principles as she tried to come up with a meaningful way to measure social impact. 

Todd wasn’t alone. In the 1990s, progressive economists were pushing for what they called full-cost accounting: a triple bottom line that took profits, people and the planet into consideration. But as admirable and important as the project sounded, the tools were missing. Which factors to measure, and what weight to assign to each one? How to quantify labour practices or policies of diversity and inclusion? What value to put on biodiversity loss or water contamination? 

Sustainability standards have come a long way since then, an evolution that Alyson Slater has witnessed firsthand. In 2001, armed with a master’s degree in environmental studies from the University of British Columbia, she began working for the newly formed Boston-based Global Reporting Initiative (GRI). Founded in the wake of the 1989 Exxon Valdez oil spill, the GRI grew out of conversations between NGOs, labour unions and ethical investors who were determined to hold corporations responsible for their environmental impacts. Slater helped to formulate the second version of the GRI’s sustainability reporting guidelines, published in 2002. 

GRI now produces the most widely used sustainability reporting standards in the world. Over the span of her career, Slater, who has worked on financial-inclusion and poverty-reduction projects in Asia and is now the Toronto-based head of sustainable investments for Manulife, has seen a sea change in attitudes.

“When I started, I had to explain to companies why they should care about ESG,” she says, adding that many had “transparency jitters” about exposing the dark underbellies of their operations. “Now they see reporting as the tail that wags the dog, driving better performance and reducing risk.” 

Slater says that most companies, no longer afraid of standards, are now pushing for better ones. They’re coming. In April, Slater was named to the Canadian Sustainability Standards Board, a national body tasked with ensuring that the new suite of reporting frameworks being developed by the Frankfurt-based International Sustainability Standards Board (ISSB) are adapted to the Canadian economic context. Provincial regulators will adopt the standards, once finalized, and roll them out across the country over the coming years. Unlike the GRI standards, which are voluntary, the new ISSB standards are expected to become a mandatory part of the reporting framework Canadian companies use.  

Minding the audit gap

But standards alone won’t save the day. In the U.K. and Europe, where more rigorous reporting standards are already in place, there’s evidence to suggest that the large tax and accounting firms hired to prepare ESG reports are conflicted; if they’re too rigorous in their assessments and irritate management, they risk losing out on further consulting contracts. Recent reports from the U.K.’s Financial Reporting Council have pointed to widespread disclosure failures, prompting the council to issue a Statement of Intent on ESG that provides further guidance to accountants. Likewise, the European Central Bank recently reported that “banks do not yet sufficiently incorporate climate risk into their stress-testing frameworks and internal models.”

A damning October 2022 report by the London-based Carbon Tracker think tank found that 98% of 134 companies responsible for 80% of corporate industrial greenhouse gas emissions failed to adequately incorporate climate-related impacts into their financial statements. None of the companies – which are in the high-emissions fossil fuel, mining, manufacturing, automotive and technology sectors – met the measurement requirements of Climate Action 100+, the global investor-led initiative promoting corporate action on climate change. Barbara Davidson, the report’s lead author, attributed the failure to forward-looking assumptions that ignore climate impacts, resulting in statements that “overstated assets, understated liabilities and overstated profits.”

You can’t have successful companies in a failed world.

 

– Susan Todd, president, Solstice Sustainability Works

Net-zero aspirations have also opened up new avenues for creative accounting. Sectors unable to eliminate emissions in the near term will rely on “negative emissions” to deliver what looks like a net-zero balance sheet. In 2021, for instance, oil and gas giant Shell announced that it would be growing its gas business by 20% while still aspiring to climate neutrality: offsetting additional emissions with an expanded network of EV charging stations and carbon capture projects like reforestation. Critics panned the plan, saying it relied on technologies and plantable land that simply don’t exist. 

But overall, the trend in accounting is transformative. Jessica Fries is CEO of Accounting for Sustainability (A4S), an initiative established in 2004 by then–Prince Charles to bring the financial and sustainability communities together to drive change. She has seen it happen before her eyes. While she started her accounting career as a “specialist” in sustainability, Fries now operates in a world where it is part of the day to day. 

It’s a world that she says is in dire need of the hybrid mindset that bridges finance and sustainability and that offers unprecedented leadership opportunities for accountants. Today, Fries says, “accountants can drive sustainability into the heart of organizations.”

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