‘it’s All Pointing To Even More Growth’
Hale says he doesn’t foresee ESG’s popularity waning any time soon.
For one: Investors have more options than ever. There are now almost 400 sustainable funds available, according to Morningstar, compared to just 139 in 2015. The breadth of funds makes it easier for investors to become aware of and invest in sustainable funds.
“There are now enough funds for anyone who wants to invest this way to have a full range of portfolio options allocated across stocks and bonds, large cap and small cap, U.S. and international,” he says. “From an investor standpoint, it’s good to have this many out there.”
Though the report did not break down the investments by age group, the funds are especially popular among millennial and female investors, says Hale. As millennials get older and have more money to invest, he expects ESG funds to grow even more.
That sustainable funds are performing well coupled with the fact that President Joe Biden may be more open to ESG funds than the Trump administration makes it more likely that they will become more widely adopted in 401 plans in years to come.
That means even more investors will be exposed to sustainable funds.
“It’s all pointing to even more growth,” Hale says.
Active Vs Passive Etfs
Most ETFs are passive, meaning they track an index and replicate its returns. However, recently a few active ETFs have been launched. Active ETFs are managed by a portfolio manager who picks investments, just like most mutual funds.
Active ETFs try to beat their benchmark and charge much higher fees for the potential for more gains. Expense ratios over 0.50% are the norm with active ETFs. For example, Gabelli Love Our Planet & People ETF , an active ETF, charges 0.90%, and SmartETFs Sustainable Energy II ETF charges 0.79%.
Further, these funds are not transparent, so you may not know their daily holdings.
Historically, passive funds have outperformed actively managed funds after fees, so paying more for an active ETF may not be worth it.
What Is An Esg Fund
ESG funds are mutual funds graded using ESG principles. ESG funds invest in companies that aim to have a sustainable and societal impact in the world, such as those with a small carbon footprint or diverse leadership boards.
ESG funds are not individual stocks. They are a collection of multiple stocks grouped together. Buying a fund rather than an individual stock can decrease risk since a fund holds shares of many companies rather than just one. If one company represented within your fund goes out of business, the fund should weather it better than if you owned stock in a single company that went under.
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Heres A List Of Canadian Etfs For Investors Who Want To Invest In A Sustainable Way
Back in August, I wrote about mutual funds that those who wish to invest in a sustainable manner could consider. Today, we turn our attention to the world of exchange traded funds, or ETFs.
It is true that there has been an explosion of sustainable investment products in Canada. That said, the relatively new nature of this investment type means that these funds do not have much of a track record that investors could use to make investment decisions. This is particularly true as it relates to ETFs, as of the 76 sustainable ETFs from Canadian-domiciled fund providers, 72 of them were launched after 2018.
Thankfully, Morningstars Quantitative Ratings for funds do not rely on an exhaustive performance history. The rating is Morningstars assessment of a funds ability to outperform peers in the future, based on our assessment of the parent company, the people managing the fund, and the process used by the fund managers. On aggregate, weve found that gold/silver/bronze rated funds have outperformed neutral and negative funds in periods after receiving these ratings.
To help with the search for sustainable ETFs, I leveraged this rating along with a screen on funds that have outperformed their category peers over the 12-month period ending August 31st, 2021 as a proxy for historical performance. The results are as follows:
This article does not constitute financial advice. Its always recommended to speak with an advisor or financial professional before investing.
Ishares Msci Kld 400 Social Etf
- Expense ratio: 0.25%
Launched in 2006, DSI tracks the MSCI KLD 400 Social Index, which is composed of 400 companies with the highest ESG scores in each sector. The index excludes alcohol, tobacco, gambling, weapons, nuclear power, adult entertainment, and GMOs. DSI still invests in fossil fuel companies. This ETF has a 0.25% expense ratio, which is not too bad, but higher than some of its peers.
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Ishares Msci Global Impact Etf
- Expense ratio: 0.49%
SDG invests in companies that derive over 50% of revenues from services or products that address at least one of the United Nations Sustainable Development Goals . The UN General Assembly adopted the list of 17 goals in 2015. In addition to climate change and biodiversity, UN SDGs include no poverty, zero hunger, good health and well-being, quality education, gender equality, clean water, and many others.
SDG has around 140 holdings with a tilt towards healthcare and consumer stocks. It is refreshing to see a sustainable fund that doesnt own a lot of tech in fact, SDGs exposure to tech is minimal . SDG invests in multiple geographies, notably the U.S. , Hong Kong , and Japan . Top holdings are a forestry company West Fraser, East Japan Railway, and wind turbine maker Vestas.
SDG is an interesting concept, though it is quite expensive .
Decide Where You Want To Have An Impact
In addition to checking expense ratios, make sure an ESG funds mission speaks to you. An investor should look for an ESG fund that is in alignment with their goals. Lets say social impact is of the utmost importance to you, specifically regarding diversity, equity and inclusion initiatives. You should seek a fund that rewards, in investment dollars, companies for high diversity, equity and inclusion scores on their boards, executive teams and with their employment practices, says Chavis.
» Is sustainability just a label? Learn about greenwashing
Think about whether there are particular missions youd like to support with your investment dollars, such as clean water, renewable energy or women in leadership. If theres an impact area thats really important to you, that may outweigh a slightly higher expense ratio.
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Bmo Responsible Global Equity Fund
Read the official factsheet
Moira ONeill, Head of Personal Finance at Interactive Investor
– Why Moira rates the fundThis is suitable for investors who want to beat a stock market benchmark over the long term but want a well-diversified actively managed fund that may be more concentrated that its peers but is more risk aware.
– “The fund has delivered consistently superior performance and has experienced managers. The fund is ethically screened and will invest only in companies whose products and operations are not considered to be harming the world, its people or its wildlife and are making a positive contribution to society.
The Cons Of Sustainable Funds
The lack of standardisation of what constitutes a sustainable fund opens the door to greenwashing. This is the cynical practice of applying a sustainable âlabelâ to a fund, while disregarding the core ideas of sustainable investing, just to attract funds from sustainable investors. Itâs a drawback that can be solved by proper due diligence from the investorâs part, but it requires additional work â which is in itself a stumbling block.
Sustainable funds can also be somewhat confusing. The ability to perform additional checks and investigate how a fundâs investments are selected requires a certain level of knowledge â which not all investors have. While investor education certainly helps, it does present an additional barrier. The higher the obstacles for sustainable investing are, the less effective it will be.
Zooming in, certain sustainable investing strategies also have their own specific shortcomings. In particular, negative screening â a common method for ESG indices â means that the number of companies will be smaller. This shrinks the available investment universe and negatively impacts investorsâ ability to diversify.
Still, despite these drawbacks, sustainable investing has picked up a momentum that shows no signs of slowing down.
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Top 20 Sustainable Investment Funds For 2020
by Rebecca Jones4 Feb, 2020
Ever wanted to invest in a sustainable investment fund but didnt know where to look for one? With the help of 3d Investing, we have compiled a list of 20 top-rated funds to give you a flavour of some of the most credible and diverse sustainable investment funds on the market. Each of these has been awarded 4 or 5 stars by 3d Investing, the UKs leading sustainable fund analyst.
3d goes over any fund with a claim to sustainability with a fine tooth comb weighing up its process, portfolio and management team to decide if its really doing what it says on the tin. A rating of 3 stars or above is seen as pretty exceptional, so these funds have really made the grade.
Remember though: none of the below constitutes investment advice. If you invest in any of these funds you do so at your own risk. Investments can go down as well as up and you may lose all of the money you invested especially if you are not investing for the long term. If you are in any doubt reach out to a financial adviser with expertise in sustainable investment.
Other Sustainable Investment Platforms We Considered
- Fidelity: Fidelity supports all types of investors. When it comes to ESG and socially conscious investing, it offers multiple options. These include thematic sustainable mutual funds and ETFs, as well as sustainable stocks. But it may not be the best choice for hands-off investors in search of a wide range of SRI portfolio options.
- Earthfolio: Earthfolio is an automated platform that solely promotes sustainable investing. It offers personal asset allocation and ongoing portfolio monitoring f0r each client, and it uses a vast range of ESG funds. The only downside is that you’ll be responsible for a $25,000 account minimum and 0.50% annual fee.
- E*TRADE Core Portfolios: With E*TRADE’s automated account, you can tailor your portfolio so that it follows a socially responsible investing strategy. E*TRADE will then invest in companies that consider socially responsible criteria. One drawback is that the platform doesn’t offer tax-loss harvesting.
- Axos Invest: Axos Invest’s managed portfolios are quite versatile, allowing investors to invest toward multiple goals and targets, while offering access to socially responsible investments. One thing to consider is that the platform doesn’t offer joint or custodial accounts.
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Research Your Investment Provider
There is much more to sustainable investment than the different types of sustainable funds you can choose from. Its worth researching how committed any investment fund provider is to embedding sustainability across their business.
This can cover everything from what they require of their suppliers in support of sustainability goals, like using exclusively renewable energy resources, to diversity on their board, to the things they take into account as standard when investing your money, whether its in a fund thats specifically labeled sustainable or not.
One important element is a dedicated sustainable investment research team, particularly where a provider has developed their own methodology with those attitudes, priorities, and values embedded throughout the investment process.
Managed Investing And Robo
Suppose you like the idea of sustainable investing but dont have the time to research companies yourself. In that case, you could consider managed portfolios and/or robo-advisors that focus on socially responsible companies. Here are some to consider:
- E-Trade Core Portfolios
- TD Ameritrade Essential Portfolios
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Ishares Esg Aware Msci Eafe Etf
- Expense ratio: 0.20%
ESGD tracks an index of developed market stocks ex-U.S. and Canada with positive ESG characteristics, as defined by MSCI. Launched in 2016, it is the largest developed market ESG fund by assets under management. Its top three regions are Japan, the UK, and France. ESGD excludes tobacco stocks, certain weapons companies, and companies experiencing severe business controversies. However, the fund does invest in fossil fuels. Oil and gas holdings include BP at almost 1% of assets. As a result, ESGD has a very low rating from Fossil Free Funds despite a high ESG rating from MSCI .
The Choice Between Investing Sustainably And Performance Is Not Mutually Exclusive
This article is part of our Earth Week special reportAlthough the concept of responsible investing is not new, it has certainly made its way to the limelight over the last number of years, capped off by a substantial inflow of funds into these products in the US and coupled with a record high number of sustainable product launches. In Canada, there have been 64 new sustainable fund launches in the last five years, including 11 new products launched so far this year. Many Canadian financial institutions are also signatories of the United Nations Principles of Responsible Investing which shows commitment to incorporating environmental, social and governance issues into the investment analysis and decision-making process.
The COVID-19 pandemic showed investors that the choice between investing sustainably and performance are not mutually exclusive. In the US, the majority of sustainable investments outperformed their peers through the deep drawdown seen over Q1, a trend that weve also seen amongst Canadian fund managers.
Morningstar defines sustainable investments in three ways:
ESG Funds – funds that use ESG considerations when picking companies or are actively engaging with company management around these areas
Impact Funds – investment strategies that seek to make a measurable impact alongside financial return on issues like gender & diversity, community development, etc., or
For a higher-resolution image of the table above, .
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Ishares Esg Advanced Total Usd Bond Market Etf
- Expense ratio: 0.12%
Launched in June 2020, EUSB has a similar risk and return profile to EAGG despite stricter exclusionary criteria. Both EAGG and EUSB invest in USD-denominated government and corporate bonds with high credit quality. Holdings are screened for ESG characteristics.
EUSB has more exclusionary screens. EAGG excludes civilian firearms, controversial weapons, tobacco, thermal coal, and oil sands. EUSB adds exclusions of adult entertainment, alcohol, guns, for-profit prisons, fossil fuels, gambling, GMOs, nuclear power, nuclear weapons, palm oil, and predatory lending. This is the only sizeable ESG bond ETF that excludes fossil fuels . As a result of its tougher investment criteria, EUSB only has around 2,400 holdings versus nearly 3,500 for EAGG.
Tdam’s Sustainable Investing Approach
At TDAM, sustainability is a long-term investment. This firm-wide approach helps our investment teams tackle ESG integration and adopt processes for their mandates. Our ESG Engagement Committee, comprised of diverse and seasoned professionals, oversees our ESG strategy and efforts.
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Us Esg Assets Under Management
In the U.S., ESG fund assets under management reached $357 billion in December 2021, up from $236 billion at the end of 2020.
According to Morningstar Direct, sustainably managed assets in the U.S. reached $357 billion in December 2021, up 51% from the end of 2020. The growth was driven by a strong interest in ESG issues following the coronavirus pandemic and the Black Lives Matter movement. It also helped that ESG funds outperformed conventional funds in the first quarter of 2020.
Green Bond Issuance In 2021
Green bond issuance hit $517 billion in 2021.
Climate Bonds Market Intelligence
1 The Morningstar sustainable fund universe includes funds that claim to have a sustainability objective or use binding ESG criteria when selecting investments. The universe excludes funds that only employ an exclusionary approach, such as screening out tobacco or controversial weapons. The universe also excludes money market funds, feeder funds, and funds of funds.
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What Exactly Are Sustainable Funds
These are products that utilise sustainable strategies in their portfolio construction process. Just like any other mutual fund, this can be done via passive or active methods.
The creation of various ESG indices â such as the S& P 500 ESG or the MSCI ESG Leaders Index â has also enabled passive investors to become sustainable investors, as the index provider has done the work of identifying âgreenâ companies.
The most common ways these indices select their portfolios are through:
â Negative screening: Excluding specific types of companies
â Integration: Rather than strict exclusion, positive ESG companies are overweighted while those deemed more negative are assigned lower weights
â Impact Investing: Investing in companies deemed to be able to generate a positive and measurable ESG impact
On the active-management side, fund managers may refer to ESG indices and use them as a guide. However, they will also add their own strategies and selection criteria to the mix. Furthermore, some of these additional strategies are simply unavailable to passive funds. One example is active ownership, which involves actively engaging with company management to drive pro-sustainability changes in their businesses.
What Is Socially Responsible Investing
SRI is any general investing strategy that considers not only traditional measures of risk and return, but environmental, social, and corporate governance factors as well.
The term socially responsible investing is often used interchangeably with terms such as ESG investing, socially conscious investing, or sustainable investing. For information on various SRI strategies, review our common questions.
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Desjardins Societerra Positive Change Fund A
Sustainability score: 99.2%MER: 2.62%
The fund aims to provide long-term capital appreciation by investing primarily in the equity of corporations that operate in the cleantech sector throughout the world, including emerging markets. These companies contributed to: avoiding 2,700 tons of CO2 emissions per year the treating of 300 megalitres of water and the recycling of 180 tons of waste.