Your guide to socially responsible investing in Canada

SRIs are investments deemed to meet a certain threshold of social responsibility.

❌ They exclude investments in industries considered “bad” for society such as fossil fuels, tobacco or firearms. 

✅ They include sectors that have a social benefit such as innovative healthcare, human rights or renewable energy.

SRIs also encompass investments in companies (outside of the forbidden sectors) that have a good record on environmental, social, and governance issues, known as ESG investing.

Companies are assessed by an independent third party, such as Morgan Stanley Capital International (MCSI), and receive a score indicating how well they comply with the ESG criteria. The higher the score, the better they are—at least as compared to their competitors—in regard to factors such as pollution, carbon emissions, human rights, health and safety, labour practices, diversity, corruption, transparency, and disclosure.

Of course, responsible investing isn’t just about supporting companies that respect the environment. There’s a whole slew of values — such as human rights, labour practices, health, and corporate governance — that firms can address while still earning profits and increasing value for investors.

Ethical investing is an offshoot of SRI, but with a more personal view of what industries are considered “bad” for society. A Halal portfolio, for example, will exclude interest-bearing investments as well as holdings in the alcohol, gambling, and pork industries so as to comply with Islamic law. Most socially responsible investors, on the other hand, would simply screen out the worst offenders among those asset classes.

Ethical investing does not necessarily have to be linked to religious practice. It can align with whatever values are important to you—be it veganism, pacifism, climate change, or anything else.

Examples of an ethical investments

• Faith-based funds: A Halal investment fund complies with Islamic law by excluding companies involved in alcohol, gambling, pork products, and interest-bearing financial services.
• Lifestyle-aligned portfolios: A vegan investment fund that avoids companies involved in animal testing, factory farming, or the production of animal products.

Impact investing seeks to create positive, measurable change in society, and is therefore considered part of socially responsible investing. With impact investing, you put your money into companies, non-profits, or other organizations that are actively doing good, such as providing progressive products or solutions in areas including clean energy, sustainable development or agriculture, housing, education, and healthcare.

As with all SRIs, impact investments can be assets of any kind — including stocks, bonds, or funds. The main difference is that impact investments don’t simply ensure that your financial earnings don’t come from unsavoury industries, they also lead to a constructive impact while boosting your wealth.

Examples of impact investments

• Renewable energy projects: Green bonds issued to finance wind farms, solar panels, or hydroelectric projects that reduce carbon emissions.
• Social impact funds: A fund that invests in affordable housing projects or microfinance institutions providing loans to small businesses in developing countries.

ESG investing evaluates companies based on their environmental, social, and governance practices. These factors help assess risks and opportunities related to sustainability, diversity, or corporate ethics. ESG criteria are often used within SRI to select or exclude investments.

Examples of ESG investments

• ESG-focused ETFs and mutual funds: Vanguard ESG U.S. Stock ETF (ESGV): Excludes companies involved in fossil fuels, tobacco, and weapons or the iShares MSCI KLD 400 Social ETF (DSI): Includes U.S. companies with high ESG ratings.
• High ESG-rated companies: Investing in a company like Unilever (NYSE:UL), recognized for its sustainable sourcing and commitment to reducing environmental impact.

Wealthsimple charges the same robo advisor fees (0.4% to 0.5% depending on your account balance) for SRI portfolios that it does for non-SRI portfolios. However, like any robo advisor, the fees charged by the firms that manage the ETFs are slightly higher than 'regular' ETFs at about 0.22%. 

Wealthsimple recently overhauled its SRI portfolios, which it began offering in 2016. Whereas the equity portion used to be comprised of ETFs from third-party providers such as iShares and Invesco—which may have included oil and gas companies with high ESG scores—those have now been replaced with Wealthsimple’s own SRI ETFs.

These funds completely screen out problematic industries, such as oil and firearms, while providing better diversification and lower fees.

Wealthsimple also has a Halal Investing portfolio, an ethical investment fund of 50 stocks for clients looking for an option that’s compliant with Islamic law.

Which ETFs are in Wealthsimple's SRI portfolios?

Here's how Wealthsimple is doing their socially responsible investing. 

Questwealth Portfolios is the most recent Canadian robo-advisor to offer SRIs, but it's been around since 2018 after a rebrand at the time. 

The SRI portfolios have the same diverse set of risk profiles as the five regular Questwealth Portfolios: conservative, income, balanced, growth, and aggressive. All of the portfolios are actively managed to monitor and respond to significant changes in market conditions.

Which ETFs are in Questwealth's SRI portfolios?

Questwealth's Socially Responsible Investing (SRI) portfolios are constructed using a selection of Exchange-Traded Funds (ETFs) that focus on companies meeting specific environmental, social, and governance (ESG) criteria. While the exact ETFs may vary based on the chosen risk profile (e.g., Aggressive, Growth, Balanced, Income, Conservative), commonly included ETFs in these portfolios are:

Justwealth typically constructs its portfolios using a variety of ETFs screened for environmental, social, and governance (ESG) criteria.

They offer 6 ESG portfolios with a range of returns from a Conservative Growth Portfolio of 0.96% and a Maximum Growth Portfolio of 11.80%.²

Here's the top 3 holdings of JustWealth's ESG Maximum Growth Portfolio, accounting for 85% of the it. 

And, for good measure, here are the top 3 holdings in JustWealth's ESG Conservative Growth Portfolio that make up 84% of it. 

This is Canada’s first “all-in-one” ESG exchange-traded fund, which is a great option for those who want the convenience of automatic rebalancing, but without paying a management fee to a robo advisor. Basically, it combines a bunch of BMO’s ESG ETFs into a single fund, weighted 60% into equities and 40% fixed-income assets, and rebalances quarterly. With an MER of just 0.20%, it’s a very low-cost, hands-off diversified SRI solution.

Tim Nash (a.k.a. the Sustainable Economist), calls this fund one of the cleanest large-cap global equity ETFs on the market, as it omits fossil fuels, gambling, alcohol, junk food, uranium and nuclear energy, armaments and militarism, destruction of valuable environments, animal cruelty, chemicals of concern, mandatory detention of asylum seekers, pornography and/or human rights violations. It has mostly U.S. tech and healthcare stocks and comes with an MER of 0.52%.

Nash recommends this fund as a complement to the one mentioned above since it covers the areas ETHI is weak in, such as emerging markets (China, Brazil, and India) and sectors including industrials and consumer staples. SDG screens out companies with low ESG scores and opts for those in the areas of clean energy and other United National Sustainable Development Goals. The MER is 0.49%.

With an MER of 0.12%, this is one of the lowest-fee U.S. equity ETFs that screens out sectors like oil & gas, tobacco, and weapons. However, it does include other businesses that some ethical investors may find problematic (such as pipeline and chemical companies), so weigh that into your investment decision.