In wild west of sustainable investing, which funds are the most responsible? (2023)

If 2020 was the year sustainable investing went mainstream, then 2021 was the year it was tested.

There was so much optimism at the end of 2020 as President Joe Biden was entering the White House and green stocks surged to all-time highs. Unfortunately, those hopes were dashed as it became clear that the United States wasn’t going to become the climate leader so many of us wanted it to be. Renewable energy stocks fell back to pre-election levels, and then dropped even further later in the year as the Democrats’ Build Back Better bill – that would have ramped up public investment in green infrastructure – morphed into Build Back Never.

It could have been a terrible year for sustainable investors. Military and oil and gas stocks (which sustainable funds tend not to own) shot up in value with the Russian invasion of Ukraine, while thematic funds focused on green technologies have fallen alongside the tech sector. But broader “do less evil” funds that incorporate environmental, social and governance (ESG) criteria remain resilient and have performed nicely, demonstrating the need for sustainable investors to remain diversified and not get too caught up in sexy cleantech.

(Video) The Future of Sustainable Investing

There’s no doubt that sustainable investors are affecting boardroom conversations, and these discussions dug deeper in the last year. Proxy voting is usually a dreadfully boring topic, but things got spicy in 2021. ExxonMobil’s annual general meeting was a turning point, when asset managers like BlackRock and Vanguard joined a small activist hedge fund, Engine No. 1, to elect three board members who could help steer the company toward a climate transition. With major asset managers now understanding ESG risks and opportunities, sustainable investors should get out their popcorn for the 2022 proxy voting season. Activist investors should be pushing companies much harder to get serious about going net-zero.

As of spring, the sustainable investment ecosystem is looking ripe for growth, with even more new mutual funds and exchange-traded funds (ETFs) on the market. The money is flowing, with assets invested in sustainable mutual funds and ETFs doubling from US$17 billion to $34 billion.

Sustainable investing is still a bit of a wild west when it comes to marketing and communications, but I’m happy to see some sheriffs riding to town.

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However, it is still a small slice of the $2-trillion market. Retail investors seem cautious about sustainable investing, and greenwashing is a huge concern. Serious criticisms around ESG rating systems are emerging, forcing the sustainable investment industry to prove that it is creating real impact. Morningstar recently removed more than 1,200 funds from its sustainable investment list for using ambiguous language in legal filings. There isn’t a lot of trust in the marketing and branding of sustainable investment funds, which is why research like this ranking of responsible funds is so important. Investors still need to take a hard look under the hood of any fund before they buy.

The good news is that we’re seeing further advancements in the areas of transparency and taxonomies that should rein in greenwashing. The Task Force on Climate-Related Financial Disclosures (TCFD) has emerged as the global standard for climate change reporting and disclosure. The European Union published a taxonomy for sustainable finance that, although controversial for the inclusion of natural gas and nuclear energy, provides us with a clear, common language across the financial sector.

Closer to home, the Canadian Securities Administrators published a notice that forces mutual funds and ETFs to declare openly what ESG strategies they are using, and ensure that these strategies are baked into their formal investment objectives. Sustainable investing is still a bit of a wild west when it comes to marketing and communication, but I’m happy to see some sheriffs riding to town.

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My final observation for 2021 is that the sustainable investment industry is suffering from a severe shortage of qualified labour. Back in 2008, when I started my career in investing with a master’s degree in sustainability, I couldn’t find a job to save my life. Any job postings in this space were overflowing with applicants, and I didn’t stand a chance. Now, every financial firm is trying to staff up in this area and is having a devil of a time finding people who can bridge the knowledge gap between sustainability and finance. I’ve long said that it’s easier to teach a sustainability expert about finance than to teach a finance expert about sustainability. So, if you’ve got a background in social or environmental studies, you might find it lucrative to switch careers into finance right about now.

Overall, 2021 was a mixed bag for sustainable investing. Lots of optimism and ecosystem development, but also lots of disappointment and frustration with the status quo. We are rapidly approaching a breakdown of our social and environmental systems, but finance is like a giant ship trying to change course in the water. Is it turning fast enough? Only time will tell.

Tim Nash is the founder of Good Investing.

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Corporate Knights ranked more than 1,000 mutual funds and ETFs based on their financial and sustainability performance and ESG-aligned management commitments.
Here are the top scorers.
FundsFinancial Score (3 years)Sustainability ScoreOverall Score
Canadian Equity
iShares ESG Advanced MSCI Canada Index ETF (XCSR)N/A97.3%97.3%
iShares ESG MSCI Canada Leaders Index ETF (XCLR)N/A94.2%94.2%
BMO MSCI Canada ESG Leaders Index ETF (ESGA)N/A92.4%92.4%
TD Morningstar ESG Canada Equity Index ETF (TMEC)N/A90.6%90.6%
NBI Sustainable Canadian Equity ETF (NSCE)N/A86.6%86.6%
NBI Sustainable Canadian Equity Fund Adv/ISCN/A86.6%86.6%
Desjardins RI Canada - Low CO2 Index ETF (DRMC)86.3%78.2%82.3%
Invesco S&P/TSX Composite ESG Index ETF (ESGC)N/A80.4%80.4%
iShares ESG Aware MSCI Canada Index ETF (XESG)N/A75.5%75.5%
iShares Jantzi Social Index ETF (XEN)42.1%99.1%70.6%
US Equity
Invesco S&P 500 ESG Index ETF (ESG)N/A97%97%
Desjardins SocieTerra American Equity Fund A Class94%100%97%
iShares ESG Advanced MSCI USA Index ETF (XUSR)N/A96.1%96.1%
TD Morningstar ESG U.S. Equity Index ETF (TMEU)N/A95.7%95.7%
Desjardins RI USA - Low CO2 Index ETF (DRMU)91.2%97.4%94.3%
iShares ESG Aware MSCI USA Index ETF (XSUS)N/A94.1%94.1%
iShares ESG MSCI USA Leaders Index ETF (XULR)N/A88.9%88.9%
BMO MSCI USA ESG Leaders Index ETF (ESGY)N/A88.6%88.6%
Fidelity Women's Leadership System Cur Hgd Fd AN/A80.8%80.8%
North Growth U.S. Equity Advisor Fund Series D70.6%64.6%67.6%
Global/International Equity
BMO Clean Energy Index ETF (ZCLN)N/A100%100%
Harvest Clean Energy ETF - Class A Units (HCLN)N/A99.7%99.7%
AGF Global Sustainable Growth Equity ETF (AGSG)N/A98.8%98.8%
iShares ESG MSCI EAFE Leaders Index ETF (XDLR)N/A98.3%98.3%
CI MSCI World ESG Impact ETF (CESG)N/A98.1%98.1%
BMO MSCI EAFE ESG Leaders Index ETF (ESGE)N/A97.8%97.8%
Desjardins SocieTerra Positive Change Fund A97.5%97.8%97.7%
Mackenzie Greenchip Glo Environ All Cap Fd A96%99.2%97.6%
Manulife Climate Action Fund Advisor SeriesN/A97.4%97.4%
Dynamic Energy Evolution Fund Series AN/A95.7%95.7%
Fixed Income Funds
BMO ESG Corporate Bond Index ETF (ESGB)N/A98.2%98.2%
NBI Sustainable Canadian Corporate Bond ETF (NSCC)N/A93.7%93.7%
BMO ESG US Corporate Bond Hgd C$ Index ETF (ESGF)N/A91.7%91.7%
BMO ESG High Yield US Corp Bond Index ETF(ESGH)N/A73.8%73.8%
NEI Global High Yield Bond Fund42.5%59.7%51.1%
Balanced Funds
Mackenzie Greenchip Global Environ Balanced FundN/A100%100%
TD North American Sustainability Balanced FundN/A99.2%99.2%
IA Clarington Inhance Monthly Income SRI Fund96.5%77.6%87.1%
Fidelity Climate Leadership FundN/A85%85%
Mackenzie Global Sustain Balanced53.7%79.8%66.8%

Methdology: Funds are scored according to 1) three-year net return percentile rank (50%) and 2) weighted sustainability rating* percentile rank based on analysis of their holdings** (50%). If the fund is less than three years old, its final score is based on #2, which is grossed up to 100%. Only funds that have an ESG mandate are eligible for the ranking. Qualifying funds must have at least two-thirds of their holdings rated in the Corporate Knights Research Universe. For balanced/corporate fixed income funds, the minimum threshold is 50% of the holdings to be rated in the Corporate Knights Research Universe.***

*Based on Corporate Knights’ rating methodology as deployed in the 2022 Global 100 Most Sustainable Corporations in the World ranking, which consists of 24 key performance indicators as follows: Clean Revenue, Clean Investment, Paid Sick Leave, Sustainability Pay Link, Energy/GHG/Water/Waste/VOC/NOx/SOx/Particulate Matter Productivity, CEO–Average Worker Pay Ratio, Board and Executive Racial and Gender Diversity, Supplier Sustainability Score, Percentage Tax Paid, Pension Fund Quality, Sanction Deductions, Injuries and Fatalities.

** Holdings that are red-flagged automatically receive a 0% CK Sustainability Rating Score. Red-flag holdings include companies that are classified in the Corporate Knights database for one or more of the following criteria: access-to-nutrition laggards, access-to-medicine laggards, adult entertainment, companies blocking climate policy, cement-carbon laggards, civilian firearms, controversial and conventional weapons, deforestation and palm-oil laggards, fossil fuels (energy), farm-animal-welfare laggards, for-profit prisons, gambling, gross corruption violations, harmful pesticides, illegal activity, oil sands laggards, severe environmental damage, severe human rights violations, thermal coal and tobacco.

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*** Corporate fixed income instruments are mapped to the ultimate parent company in the Corporate Knights Research Universe.
Sources: Corporate Knights Research, Fundata, Responsible Investment Association, Refinitiv, S&P Capital IQ, InfluenceMap, Norges Bank Investment Management (NBIM), Chain Reaction, NZ Super Fund, Stockholm International Peace Research Institute, American Friends Service Committee, Access to Nutrition Initiative, Access to Medicine Initiative, Motley Fool, animal welfare experts, Unearthed, Urgewald/GCEL, Deforestation Free Funds, Wespath, Sin Stocks, RedLightNetwork, Rainforest Action Network, Farm Animal Investment Risk and Return (FAIRR).

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FAQs

What is the most popular approach to sustainable investing? ›

Integration of environmental, social and governance factors into the investment process and positive screening – where investments are only considered if they meet particular sustainability criteria – are the most popular preferences, selected by 75% and 53% respectively.

What is sustainable and responsible investing? ›

Sustainable investing is an investment discipline that considers environmental, social and corporate governance (ESG) criteria to generate long-term competitive financial returns and positive societal impact.

Which ESG fund is best? ›

Best-performing ESG funds
FundExpense ratio5-year return
Payson Total Return0.82%13.68%
Evercore Equity0.96%13.35%
Praxis Growth Index A0.66%13.20%
Pax Large Cap Fund Individual Investor0.97%12.89%
6 more rows
21 Sept 2022

What are the 3 main parts to sustainability? ›

The figure at the top of this page suggests that there are three pillars of sustainability – economic viability, environmental protection and social equity.

What are the 3 main principles of sustainability? ›

The principles of sustainability are the foundations of what this concept represents. Therefore, sustainability is made up of three pillars: the economy, society, and the environment. These principles are also informally used as profit, people and planet.

What are the best ethical investment funds? ›

  • What is ESG?
  • Royal London Sustainable Leaders Fund.
  • Liontrust Sustainable Future Global Growth Fund.
  • BMO Responsible Global Equity Fund.
  • Baillie Gifford Positive Change Fund.
  • Impax Environmental Markets.
  • Guinness Sustainable Energy Fund.
  • Best Investment Platform for ESG Investing.
10 Nov 2022

What are sustainability funds? ›

Sustainable funds are those that use environmental, social, and corporate governance (ESG) criteria to evaluate investments or assess their societal impact. They may pursue a sustainability-related theme or explicitly aim to create measurable social impact.

Which is the best method for sustainable development? ›

5 Important Measures for Sustainable Development
  • (i) Technology:
  • (ii) Reduce, Reuse, and Recycle Approach:
  • (iii) Promoting Environmental Education and Awareness:
  • (iv) Resource Utilization as Per Carrying Capacity:
  • (v) Improving Quality of Life Including Social, Cultural and Economic Dimensions:

What is a responsible investment fund? ›

Responsible investment is an approach to investment that explicitly acknowledges the relevance to the investor of environmental, social and governance factors, and of the long-term health and stability of the market as a whole.

What are responsible investment solutions? ›

The PRI defines responsible investment as a strategy and practice to incorporate environmental, social and governance (ESG) factors in investment decisions and active ownership.

What are the top three ESG stocks? ›

Best ESG Companies, Stocks
RankCompanyESG Score
1Worthington Industries75.82
2J.B. Hunt Transport Services73.09
3Verisk Analytics72.79
4Texas Instruments72.63
25 more rows
24 Oct 2022

Who is the leader in ESG investing? ›

Jonathan Bailey, CFA, Managing Director, is Head of Environmental, Social and Governance (ESG) Investing at Neuberger Berman.

What is the biggest ESG index? ›

MSCI Inc. is the world's largest provider of Environmental, Social and Governance (ESG) Indexes1 with over 1,500 equity and fixed income ESG Indexes designed to help institutional investors more effectively benchmark ESG investment performance and manage, measure and report on ESG mandates.

What are the main components of sustainability? ›

Sustainability has three key components. They are protection of environment, economic growth and social development.

What are the main types of sustainability? ›

In any community in which economic activities are carried out in a specific environment, we find three interconnected forms of sustainability: environmental, economic and social.

What is the golden rule of sustainability? ›

In fact you can boil sustainability down to the following three golden rules: Take into account the environment and society when making economic decisions, and endeavour to minimize or mitigate the negative impacts.

What are the five sustainability principles? ›

The five principles of sustainable development are as follows:
  • Conservation of the ecosystem or the environment.
  • Conservation of biodiversity of the planet.
  • Sustainable development of the society.
  • Conservation of human resources.
  • Population control and management.

What are the 3 main aims of the sustainable global goals? ›

The Sustainable Development Goals (SDGs) aim to transform our world. They are a call to action to end poverty and inequality, protect the planet, and ensure that all people enjoy health, justice and prosperity.

What is the most successful investment fund? ›

Bridgewater Associates. Bridgewater is the world's largest hedge fund, with about $150 billion in capital. Since its founding in 1975, Bridgewater has returned $52.2 billion in gains to its investors – more than any other hedge fund on the planet.

Which fund is performing best? ›

Fund House Fund Category Fund Rank and Ratios Fund Parameters Investment Parameters Filter
Scheme NamePlan1Y
IDFC Tax Advantage (ELSS) Fund - Direct Plan - GrowthDirect Plan5.03%
Kotak Tax Saver Fund - Direct Plan - GrowthDirect Plan5.06%
Mahindra Manulife ELSS Kar Bachat Yojana - Direct Plan - GrowthDirect Plan4.49%
22 more rows

What are 3 types of funds? ›

A fund is a pool of money set aside for a specific purpose. The pool of money in a fund is often invested and professionally managed in order to generate returns for its investors. Some common types of funds include pension funds, insurance funds, foundations, and endowments.

What are the 3 funds? ›

A three-fund portfolio aims to diversify your portfolio across three asset classes: domestic stocks, international stocks, and domestic bonds. You can use a three-fund approach in most 401(k) accounts. Investors choose the allocation of funds that suit their goals.

What are the 4 main types of funds and what are their functions? ›

Generally speaking, there are four broad types of mutual funds: those that invest in stocks (equity funds), bonds (fixed-income funds), short-term debt (money market funds) or both stocks and bonds (balanced or hybrid funds). Every mutual fund is designed to spread around risk while capturing wider market gains.

What is the most important factor for sustainable development? ›

For sustainable development, factors such as preserving the environment and natural resources along with maintaining social and economic equality need to be followed.

What is the best sustainable solution among the following? ›

The correct answer is Recycling. Recycling is the best way to get rid of non-biodegradable waste. Burying will not have any effect on the non-biodegradable wastes.

What are the four types of investment funds? ›

Most mutual funds fall into one of four main categories – money market funds, bond funds, stock funds, and target date funds.

How do you determine if a fund is socially responsible? ›

Review the financial and social performance

In addition to the financial performance reporting, look into the social impact reporting that the fund provides. If a fund aims to achieve particular responsible investment goals, it should be reporting on them.

Why is responsible investment important? ›

Sustainable investing is important because it can help contribute to a better world. Investors can put their capital to work in a way that positively influences society so that we move towards a more sustainable future.

What are the 3 main dimensions of sustainable development? ›

They are integrated and indivisible and balance the three dimensions of sustainable development: the economic, social and environmental.

What are the 3 major components of every investment? ›

Any investment can be characterized by three factors: safety, income, and capital growth. Every investor has to pick an appropriate mix of these three factors.

What is responsible capital? ›

Responsible Capital is an impact private equity company headquartered in Zurich, Switzerland. We invest globally in the healthcare sector, with a particular focus on private hospitals, rehabilitation centers and specialist outpatient clinics.

How can an investor identify a responsible investment? ›

Responsible investments will typically use one or more of the following RI strategies:
  1. Shareholder engagement. Using shareholder power to influence corporate behaviour directly. ...
  2. Thematic investing. ...
  3. ESG Integration. ...
  4. Negative screening. ...
  5. Positive screening. ...
  6. Impact investing.

What are some ESG funds? ›

  • Vanguard FTSE Social Index Fund (VFTAX)
  • iShares MSCI USA ESG Select ETF (SUSA)
  • Parnassus Core Equity Investor (PRBLX)
  • iShares Global Clean Energy ETF (ICLN)
  • Shelton Green Alpha Fund (NEXTX)
  • 1919 Socially Responsive Balanced Fund (SSIAX)
  • AllianceBernstein Sustainable Global Thematic Fund (ATEYX)
  • Methodology.
2 Nov 2022

What is a green fund that is the ESG equity funds? ›

ESG funds are portfolios of equities and/or bonds for which environmental, social and governance factors have been integrated into the investment process. This means the equities and bonds contained in the fund have passed stringent tests over how sustainable the company or government is regarding its ESG criteria.

What are examples of ESG investments? ›

ESG factors are used to evaluate companies and stocks in those key areas.
...
ESG investing examples
  • 1919 Socially Responsive Balanced A (SSIAX)
  • Pax Large Cap Fund Institutional (PXLIX)
  • Thornburg Better World International I (TBWIX)
  • Parnassus Core Equity Investor (PRBLX)
  • iShares MSCI USA ESG Select ETF (SUSA)
7 Nov 2022

Who is responsible for ESG score? ›

These scoring systems can be from finance and investment firms, consulting groups, standard-setting bodies, NGOs, and even government agencies. Broadly speaking, however, there are two major categories of raters that generate ESG scores – these are external and internal stakeholders.

Who is the world leader in sustainability? ›

Unilever, Patagonia and IKEA once again have emerged as the most frequently recognized corporate leaders. For the tenth consecutive year, Unilever tops the ranking, recognized by 42 percent of respondents. Patagonia is in second place with 26 percent, while IKEA ranks third at 14 percent.

Who are the key players in ESG? ›

Research bodies, intergovernmental institutions, asset management firms and credit agencies are few of many who are changing finance and pushing the sector to incorporate ESG (environmental, social and governance) criteria.

Does Vanguard have any ethical funds? ›

Yes, we have a range of ESG funds that are designed to let you invest in line with your values and beliefs. ESG stands for 'environmental, social and governance' – these are the three broad categories that play a role in deciding what an ESG fund invests in.

Which banks are leading with ESG? ›

Global banks Standard Chartered, Citi, HSBC and JP Morgan rounded out the top five.
...
Global ESG ranking of the world's biggest banks: Which financial giants have the best credentials?
RankN: 752% of Total
1BNPParibas11.4
2Standard Chartered9.3
3Citi8.5
4HSBC8.1
24 more rows
1 Feb 2022

Why was kicked out ESG index? ›

In a blog post Wednesday, the S&P explained why it kicked Tesla out of its ESG index earlier this month. It said that Tesla's “lack of a low-carbon strategy” and “codes of business conduct,” along with racism and poor working conditions reported at Tesla's factory in Fremont, California, affected the score.

What are the 4 types of sustainability? ›

The four main types of sustainability are human, social, eco- nomic and environmental. These are defined and contrasted in Tables 1–4. It is important to specify which type of sustainability one is dealing with as they are all so different and should not be fused together, although some overlap to a certain extent.

What are the 4 four R's in addressing sustainability? ›

This 360-degree approach is based on what is popularly known as the four R's: Reduce, Reuse, Recycle and Recover.

What are the 5 principles of sustainability? ›

The five principles of sustainable development are as follows:
  • Conservation of the ecosystem or the environment.
  • Conservation of biodiversity of the planet.
  • Sustainable development of the society.
  • Conservation of human resources.
  • Population control and management.

What are the 5 P's of sustainability? ›

The 5Ps of the SDGs: People, Planet, Prosperity, Peace and Partnership.

What are the four C's of sustainable development? ›

Businesses always look for Compliance, Competitiveness, Continuity and Collaboration i.e. the 4Cs. These 4Cs pave the path towards Sustainability.

Which is the best example of sustainable development? ›

The two examples of sustainable development are: 1.Solar energy: Harnessing the solar energy to reduce pollution in the environment. 2.Crop Rotation : Planting different types of crops on the same land on a rotational basis for improving soil fertility.

Which of the four R's is most important? ›

We feel that Rethink! is the most important of the 4Rs. We encourage you to rethink your waste at every step from when you buy something new to when you get ready to throw something out. Make the 4Rs part of your life by actively rethinking how you can reduce, reuse and recycle right!

What do the 4 R's stand for explain? ›

The 4R means Reduce, Reuse, Recycle and Restore.

What does 4 R's stands for? ›

The 4Rs at Home and at the Office: Reduce, Reuse, Recycle and Recover! Before recycling, we must first REDUCE and REUSE!

What are the 3 main types of investments? ›

There are three main types of investments: Stocks. Bonds. Cash equivalent.

What are the 3 main investment categories? ›

Different types of investments
  • Cash.
  • Fixed interest.
  • Shares.
  • Property.

What are the four golden rules of investing? ›

The golden rules of investing
  • If you can't afford to invest yet, don't. It's true that starting to invest early can give your investments more time to grow over the long term. ...
  • Set your investment expectations. ...
  • Understand your investment. ...
  • Diversify. ...
  • Take a long-term view. ...
  • Keep on top of your investments.

Videos

1. InvestTalk - 9-19-2022 – Key Steps to Add Sustainable Investing Strategies to Your Portfolio
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2. Kopi Time E033: Prof Andreas Rasche on sustainable investing and corporate responsibility
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3. Sustainable Investing with Kacie Swartz
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4. Ethical investing: Doing more with your money
(Balance: Wealth Planning)
5. Social Responsible Investments and Sustainable Banking
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6. Can South Korea Lead in Promoting Responsible, Sustainable Investing in the Asia-Pacific?
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