10 best sustainable ETFs in Canada

For investors who prefer passive investments over active, here are a few options

Ian Tam, CFA 22 April, 2020 | 1:20AM

Sunrise

This article is part of our Earth Week special report

Earlier this week, I wrote about some of the best rated Mutual Funds in Canada that have identified as sustainable investments through their regulatory filings. Like mutual funds, the ETF world also has a rapidly growing set of available options for investors. Of the 965 ETFs available for sale in Canada, 39 identify as sustainable investments. Year-to-date, the majority of ETF launches in Canada have been focused on sustainability.

Canadian sustainable ETF launches

Exhibit 1

Source: Morningstar Direct, as of April 17, 2020

Due to the nouveau nature of this type of investment we often don’t have a long track record to rely upon, but the market turmoil that investors went through in Q1 gave us a glimpse into the downside protection afforded by investing sustainably.

Sustainable ETF Canadian category ranks

Exhibit 2

Source: Morningstar Direct, as of March 31, 2020

This table shows the universe of sustainable investments and how they ranked within their own category over the first quarter. For example, looking at funds that manage global equities, we can see that there were two ETFs that placed in the top quartile (top 25%) of peers, and five in the 2nd quartile (25-50%). Overall, several sustainable ETFs beat out their peers, with 18 of 25 sustainable ETFs placing in the top half of their respective categories in the first quarter on a risk-adjusted basis, after fees.

To find a few well-rated funds, I screened Morningstar’s ETF database to find all medalist-rated sustainable ETFs. Recall that the medalist ratings are Morningstar’s forward-looking assessment of a fund’s ability to outperform peers in its own category over the long term.

Medalist-rated sustainable ETFs, Canada

Source: Morningstar Direct, as of April 16, 2020

Morningstar’s Globe ratings (also in the table) are an assessment of the aggregate environmental, social, and governance (ESG) risk rating of the funds’ underlying equity holdings provided by our partners at Sustainalytics Inc. The ESG risk rating measures the degree to which a company's economic value may be at risk driven by ESG issues. Higher globe ratings imply lower levels of risk associated with the investment.

This article does not constitute financial advice. It is always recommended to speak to an advisor or financial professional before investing.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
iShares ESG MSCI Canada ETF18.41 CAD1.49
iShares Jantzi Social ETF21.80 CAD1.77
RBC Vision Women's Ldrsp MSCI Cnd ETF18.87 CAD0.00

About Author

Ian Tam, CFA  Iam Tam, CFA, is Director of Investment Research at Morningstar Canada.