Summary: Making a profit while helping a cause and trying to make a difference in the world might sound too good to be true. However, it’s more than doable with environmental, social, and governance (ESG) investing. In this guide, we’re taking a look at what ESG investing in Canada is and why it has become so popular in recent years, as well as offering our top three stock suggestions for Canadian residents looking to invest in environmentally-friendly companies through online brokers such as Interactive Brokers.
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What is ESG investing?
What is ESG investing?
ESG investing is often used interchangeably with sustainable investing, socially responsible investing (SRI). However, there are some clear differences between them.
For example, socially responsible investing is more about the exclusion of particular companies or niches due to their questionable ethics. On the other hand, in ESG investing, investors actively seek out companies with strong ESG ratings to include in their investment portfolios.
ESG ratings are calculated based on the company’s performance in regard to:
- Environment friendliness: This is the most important factor in ESG ratings, as it has to do with how the company treats animals, its stance in climate change, its carbon dioxide emissions, etc.;
- Social awareness: Social issues are no less important. How does the company treat employees? How diverse is it? Does it engage with social issues? These are only some questions that need answering;
- Governance: As the performance of a company and its policies depend on its leadership board, ESG investors are naturally concerned with the transparency of the governing bodies of the company they are investing in, the background of its shareholders and investors, corruption levels, etc.
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ESG investing — How to
There are multiple ways you can practice ESG investing. As mentioned, one of the ways is to find companies that have high ESG ratings. Another approach is to invest in exchange-traded funds (ETFs) that track the performance of companies that attract ESG investors.
Top 3 ESG stocks
In this section, we’ll focus on three Canadian companies with a good ESG rating:
- Royal Bank of Canada (TSX:RY);
- Brookfield Renewable Partners (TSX: BEPC);
- Dream Industrial (TSX:DIR.UN).
Note
Best Platform for Worldwide Stock Trading & Investing
-
Highly trusted multi-asset broker with clients in over 200 countries
-
Trade on 150 markets globally from a single platform (stocks, ETFs, futures, currencies, crypto & more)
-
Low commissions starting at $0 with no platform fees or account minimums
-
Easily fund your account and trade assets in 26 currencies
-
IBKR pays up to 4.58% interest on cash balances of $10k or more
Royal Bank of Canada
Royal Bank of Canada (TSX:RY) might not be directly involved with any environmental or renewable energy projects. However, it’s got an exceptionally high ESG rating thanks to its governance and social policies. Namely, according to the company’s Diversity & Inclusion page, around 46% of the company’s directors are female, and almost 25% are people of color, according to the 2021 diversity report. Similar numbers are observable in hiring statistics, as the company reported that around 57% of its workforce was female in 2021.
Moreover, the bank is known for its engagement with the community. Namely, together with its employees, it donated around $140 million to local charities in 2021 alone, and its RBC Future Launch plan is helping Canadians aged 15–29 gain work experience and hone their marketable skills.
Royal Bank of Canada stock price today
Brookfield Renewable Partners
Brookfield Renewable Partners (TSX: BEPC) ticks all environmental ESG boxes. Namely, it focuses on developing renewable and sustainable energy solutions on four continents with its portfolio of solar, wind, and hydro projects that contribute to the company’s $17.52 billion market cap.
The company has managed to maintain an annualized total return of 16%, and with its dividend yield ranging between 5% and 9%, its status as one of the top picks among green stocks is rather solid.
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Brookfield Renewable Partners stock price today
Dream Industrial
Dream Industrial REIT (TSX:DIR.UN) is a solid ESG investment for those looking to invest in the real estate sector.
The company has a $7.8-billion portfolio comprising a vast network of real estate projects not only in Canada but in the United States and Europe as well. More importantly, it has a Net Zero plan which it plans on realizing by 2035, reducing carbon dioxide emissions and mitigating the effects of its business on the environment. In addition, the company has a dividend yield ratio of almost 5%. Combined, these factors should adds to thestock’s quality as a long-term investment.
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Dream Industrial stock price today
Top 3 ESG index funds for Canadian investors
As mentioned, index funds that track the performance of ESG-oriented companies are a good alternative to investing in individual stocks.
- iShares ESG Aware MSCI Canada Index ETF (TSX: XESG): A comprehensive fund featuring Canadian companies of all sizes, each with solid ESG characteristics;
- IShares ESG Advanced MSCI Canada Index ETF (XCSR): A low-cost fund which nonetheless features some rather well-performing stocks, such as Royal Bank of Canda;
- BMO MSCI Canada ESG Leaders Index ETF (TSX: ESGA): A solid fund with $83.06 million in assets under management and a yield of about 3.40%.
Pros and cons of ESG investing
Pros
- ESG investing is future-oriented by nature, so investing in something like green stocks can prove profitable in the long run;
- Environmental issues are becoming more and more alarming, so the altruism that comes with ESG investments is good both for the investors’ conscious and the planet itself;
- ESG stocks are less volatile, as companies that attract environmentally aware investors tend to enjoy largely positive public sentiment.
Cons
- There are no official or universally agreed-upon measures that can help you determine which company is ESG-friendly. In other words, some companies may not be as green as they seem;
- If you choose to invest in ESG-friendly companies only, your pool of potential investment options will diminish. That, of course, means fewer opportunities for profit.
Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.
FAQs about ESG investing Canada
Why is ESG investing important in Canada?
The Canadian economy largely depends on natural and renewable energy resources. Therefore, embracing more environmentally-friendly energy solutions can help reduce pollution levels and address some pressing social issues.
How do I start ESG investing in Canada?
To start ESG investing in Canada, register an account at an online broker such as Interactive Brokers and start investing in companies with a solid ESG rating.
Are there specific ESG investing regulations in Canada?
There are no specific and official ESG regulations in Canada that companies have to meet. However, things might change in 2024 when Canadian Securities Administrators (CSA) starts demanding some kind of disclosure from larger financial institutions.
Is ESG investing worth it in Canada?
Environmental, social, and governance (ESG) investing has gained popularity in Canada as well as globally. This type of investing involves environmental, social, and governance considerations alongside financial performance, its goal being to align investments with social values. Therefore, this type of approach might be worth it for people who wish to practice more socially responsible investing.
Best Platform for Worldwide Stock Trading & Investing
-
Highly trusted multi-asset broker with clients in over 200 countries
-
Trade on 150 markets globally from a single platform (stocks, ETFs, futures, currencies, crypto & more)
-
Low commissions starting at $0 with no platform fees or account minimums
-
Easily fund your account and trade assets in 26 currencies
-
IBKR pays up to 4.58% interest on cash balances of $10k or more
