Investing, Stock Market

10 Best ESG ETFs in Canada For 2023

If you’re a value-weighted investor, you ought to consider investing in environmental, social, and governance (ESG) ETFs.

With ESG ETFs, you will gain low-cost portfolio diversification without sacrificing your personal values.

Fortunately, we have dozens of ESG ETFs in the Great White North with Canada being one of the world’s top ambassadors of renewable energy. In addition, some of the world’s biggest renewable energy companies are based in Canada.

This presents a great opportunity for value-centric investors looking to gain peace of mind while achieving long-term capital growth.

The fundamental question is — which ESG ETF should you invest in? It may not be easy to decide as there are many options to choose from. 

In this article, we’re going to look at the 10 best ESG ETFs in Canada that distinguished themselves with competitive fees, returns and yields.

Best ESG ETFs in Canada

10 Best ESG ETFs in Canada

There are different ESG ETFs in Canada with different characteristics. To make the most of your ethical investing, it’s worth investing in the best ESG ETFs out there.

Fortunately, I have done the hard job for you by identifying the best ESG ETFs in Canada that are traded on the Toronto Stock Exchange.

Let’s go over each of them! 

1. iShares ESG Advanced MSCI Canada Index ETF (XCSR)

  • Date of inception: Apr 15, 2020
  • Management fee: 0.15%
  • MER: 0.17%
  • Number of holdings: 170
  • Price to Earning ratio: 12.05
  • Average return since inception: 15.24%
  • Dividend yield: 3.02%
  • Distribution frequency: Quarterly
  • Risk level: Medium

This ESG ETF was launched in 2020 to provide exposure to the returns of the MSCI Canada IMI Choice ESG Screened 10% Issuer Capped Index.

XCSR invests across small-large-cap Canadian stocks that adhere to environmental, social, and governance (ESG) standards. Accordingly, the ETF invests less in companies in the fossil fuel industry and other riskier industries.

As of November 7, 2022, XCSR had the following top 10 holdings: 

HoldingAllocation
TORONTO DOMINION10.55%
ROYAL BANK OF CANADA10.37%
BANK OF MONTREAL6.41%
BANK OF NOVA SCOTIA5.91%
CANADIAN IMPERIAL BANK OF COMMERCE4.21%
NUTRIEN LTD4.06%
SHOPIFY SUBORDINATE VOTING INC CLA3.71%
INTACT FINANCIAL CORP2.71%
SUN LIFE FINANCIAL INC2.61%
NATIONAL BANK OF CANADA2.38%

To achieve its investment objective, the ETF allocates funds in the following sectors as of November 7, 2022:

SectorAllocation
Financials50.44%
Materials15.79%
Information Technology8.11%
Industrials7.08%
Consumer Staples4.89%
Consumer Discretionary4.54%
Communication3.35%
Real Estate2.61%
Utilities2.43%
Health Care0.49%

As of October 31, 2022, XCSR provides investors with a -13.35% 1-year return and a 15.24% return since inception.

2. iShares ESG Aware MSCI Canada Index ETF (XESG)

  • Date of inception: Mar 18, 2019
  • Management fee: 0.15%
  • MER: 0.16%
  • Number of holdings: 119
  • Price to Earning ratio: 13.69
  • Average return since inception: 5.69%
  • Dividend yield: 3.34%
  • Distribution frequency: Quarterly
  • Risk level: Medium

XESG was launched in 2019 to provide exposure to the returns of the MSCI Canada IMI Extended ESG Focus Index.

The ETF also invests in small-large-cap Canadian companies that adhere to environmental, social, and governance standards. Below are the top 10 companies the ETF invests in as of November 7, 2022:

HoldingAllocation 
TORONTO DOMINION6.28%
ROYAL BANK OF CANADA5.98%
BANK OF NOVA SCOTIA4.56%
CANADIAN NATIONAL RAILWAY3.73%
BANK OF MONTREAL3.64%
ENBRIDGE INC3.51%
BROOKFIELD ASSET MANAGEMENT INC CL3.36%
CANADIAN PACIFIC RAILWAY LTD3.36%
SUN LIFE FINANCIAL INC2.87%
SUNCOR ENERGY INC2.59%

The 119 companies XESG invests in are distributed across the following sectors as of November 7, 2022:

SectorAllocation
Financials35.51%
Energy20.21%
Industrials12.53%
Materials12.06%
Information Technology5.37%
Utilities5.04%
Consumer Staples3.8%
Consumer Discretionary2.45%
Communication1.41%
Real Estate1.15%

As of September 30, 2022, the ETF provided investors with the following returns:

  • 1-year: -6.98%
  • 3-year: 5.79%
  • Since inception: 5.69%

3. iShares ESG Advanced MSCI USA Index ETF (XUSR)

  • Date of inception: April 15, 2020
  • Management fee: 0.20%
  • MER: 0.22%
  • Number of holdings: 362
  • Price to Earning ratio: 20.11
  • Average return since inception: 9.72%
  • Dividend yield: 1.10%
  • Distribution frequency: Quarterly
  • Risk level: Medium

XUSR is another ESG ETF from BlackRock that was launched in 2020 to track the returns of the MSCI USA Choice ESG Screened Index.

The ETF provides exposure to mid-large companies in the US that adhere to the minimum standards of ESG.

As such, XUSR provides less exposure to companies in the fossil fuel industry and other riskier industries. Below are the top 10 companies the ETF invests in as of November 7, 2022:

HoldingAllocation
MICROSOFT CORP10.73%
NVIDIA CORP2.37%
VISA INC CLASS A2.18%
HOME DEPOT INC1.98%
ELI LILLY1.95%
MASTERCARD INC CLASS A1.87%
PEPSICO INC1.65%
COCA-COLA1.62%
THERMO FISHER SCIENTIFIC INC1.28%
BROADCOM INC1.27%

The 362 companies the ETF invests in as of November 7 2022 are distributed in the following sectors:

SectorAllocation
Information Technology38.84%
Health Care13.72%
Financials12.12%
Consumer Discretionary9.56%
Industrials8.62%
Consumer Staples5.89%
Real Estate4.41%
Materials3.93%
Communication2.61%
Utilities0.17%

As of September 30, 2022, XUSR provided a 1-year return of 15.16% and a 9.72% return since inception.

4. iShares ESG Aware MSCI USA Index ETF (XSUS)

  • Date of inception: Mar 18, 2019
  • Management fee: 0.20%
  • MER: 0.22%
  • Number of holdings: 312
  • Price to Earning ratio: 18.54
  • Average return since inception: 9.24%
  • Dividend yield: 1.17%
  • Distribution frequency: Quarterly
  • Risk level: Medium

This ETF seeks to provide exposure to MSCI USA Extended ESG Focus Index. The 312 holdings of the ETF are US stocks that adhere to the minimum standards of ESG. 

Below is a highlight of the top 10 holdings of the ETF as of November 7, 2022:

HoldingAllocation
APPLE INC6.59%
MICROSOFT CORP5.14%
AMAZON COM INC2.43%
TESLA INC1.56%
ALPHABET INC CLASS A1.5%
ALPHABET INC CLASS C1.45%
UNITEDHEALTH GROUP INC1.36%
JPMORGAN CHASE & CO1.28%
EXXON MOBIL CORP1.25%
NVIDIA CORP1.17%

The companies the ETFs invest in are distributed across the following sectors as of November 7, 2022:

SectorAllocation
Information Technology27.03%
Health Care15.19%
Financials11.22%
Consumer Discretionary9.89%
Industrials8.88%
Consumer Staples7.08%
Communication6.44%
Energy5.83%
Real Estate2.89%
Materials2.74%

Compared to other ESG ETFs on this list, XSUS has a high management fee and MER. However, it is made up of competitive returns and Price to Earning ratio.

Below are the annual returns of the ETF as of September 30, 2022:

  • 1-year: -11.51%
  • 3-year: 9.21%
  • Since inception: 9.24%

5. BMO MSCI Canada ESG Leaders Index ETF (ESGA)

  • Date of inception: January 15, 2020
  • Management fee: 0.15%
  • MER: 0.17%
  • Number of holdings: 38
  • Price to Earning ratio:
  • Average return since inception: 2.93%
  • Dividend yield: 3.22%
  • Distribution frequency: Quarterly
  • Risk level: Medium

ESGA is another best ESG ETF in Canada offered by BMO Global Asset Management. The ETF seeks to track the returns of the MSCI Canada ESG Leaders Index by investing in ESG-oriented companies in Canada.

The MSCI Canada ESG Leaders Index doesn’t invest in companies that earn significant revenue from gambling, alcohol, tobacco, civilian firearms, conventional weapons and other anti-ESG practices.

Accordingly, this ETF invests 100% of funds in Canada with 99.95% allocation on stocks and 0.05% on cash and cash equivalents. 

As of November 8, 2022, the ETF has the following top 10 holdings:

HoldingAllocation
TORONTO-DOMINION BANK/THE13.69%
ENBRIDGE INC9.31%
CANADIAN NATIONAL RAILWAY CO8.16%
BANK OF MONTREAL7.34%
BANK OF NOVA SCOTIA/THE6.76%
BROOKFIELD ASSET MANAGEMENT INC6.64%
NUTRIEN LTD4.90%
ALIMENTATION COUCHE-TARD INC4.40%
SHOPIFY INC4.31%
INTACT FINANCIAL CORP3.08%

The 312 companies the ETF invests in are distributed in the following sectors as of November 8, 2022:

SectorAllocation
Financials42.13%
Energy13.61%
Industrials12.18%
Materials11.06%
Consumer Staples5.64%
Information Technology4.61%
Utilities4.05%
Consumer Discretionary3.03%
Communication Services2.81%
Real Estate0.88%

As of October 31, 2022, ESGA provided investors with the following returns: 

  • 1-year: -13.59%
  • 2-year: 5.53%
  • Since inception: 2.93%

6. BMO MSCI EAFE ESG Leaders Index ETF (ESGE)

  • Date of inception: January 16, 2020
  • Management fee: 0.25%
  • MER: 0.28%
  • Number of holdings: 399
  • Price to Earning ratio:
  • Average return since inception: -2.68%
  • Dividend yield: 3.27%
  • Distribution frequency: Quarterly
  • Risk level: Medium

This is another ESG ETF from BMO. The ETF was launched in 2020 to replicate the returns of the MSCI EAFE ESG Leaders Index.

To achieve its investment objective, ESGE invests in developed equity markets with the exception of Canada and the United States of America. Accordingly, the ETF invests more funds in Japan and UK

The MSCI EAFE ESG Leaders Index that ESGE invests in mid-large-cap international companies with higher ESG ratings. This excludes companies that earn significant revenue from:

  • Gambling
  • Alcohol
  • Tobacco
  • Civilian firearms
  • Conventional weapons 
  • And other anti-ESG practices

That said, below are the top holdings of ESGE as of November 8, 2022:

HoldingAllocation
ROCHE HOLDING AG3.46%
ASML HOLDING NV3.05%
NOVO NORDISK A/S2.81%
ASTRAZENECA PLC2.80%
TOTALENERGIES SE2.10%
UNILEVER PLC1.76%
COMMONWEALTH BANK OF AUSTRALIA1.71%
HSBC HOLDINGS PLC1.63%
AIA GROUP LTD1.56%
SAP SE1.52%

The 399 holdings of the ETF are distrusted into the following sectors as of November 8, 2022:

SectorAllocation
Financials17.44%
Health Care16.42%
Industrials15.18%
Consumer Discretionary10.29%
Consumer Staples9.67%
Materials7.91%
Information Technology7.76%
Communication Services4.74%
Energy4.43%
Utilities3.20%
Real Estate2.96%

In addition to high fees, the ETF had the following low returns as of October 31, 2022:

  • 1-year: -17.84%
  • 2-year: 0.83%
  • Since inception: -2.68%

Notwithstanding, the ETF has a competitive dividend yield with wide diversification.

7. BMO MSCI USA ESG Leaders Index ETF (ESGY)

  • Date of inception: January 15, 2020
  • Management fee: 0.20%
  • MER: 0.22%
  • Number of holdings: 278
  • Price to Earning ratio:
  • Average return since inception: 6.66%
  • Dividend yield: 1.32%
  • Distribution frequency: Quarterly
  • Risk level: Medium

The last BMO’s ESG ETF on my list is ESGY. This ETF was launched in 2020 to track the returns of the MSCI USA ESG Leaders Index.

As such, ESGY invests in mid-large-cap Us companies with higher MSCI ESG ratings. This of course excludes companies that earn significant revenue from anti-ESG practices.

That being said, ESGY invests 100% of its funds in the US market with 99.99% allocation on stocks and 0.01% on cash and cash equivalents.

As of November 8, 2022, ESGY has the following top 10 holdings: 

HoldingAllocation
MICROSOFT CORP9.72%
ALPHABET INC3.20%
TESLA INC3.02%
ALPHABET INC3.00%
JOHNSON & JOHNSON2.73%
NVIDIA CORP2.18%
VISA INC1.98%
PROCTER & GAMBLE CO/THE1.96%
HOME DEPOT INC/THE1.79%
ELI LILLY & CO1.77%

The 278 companies the ETF invests in are distributed into the following sectors as of November 8, 2022:

SectorAllocation
Information Technology27.05%
Health Care15.62%
Consumer Discretionary11.87%
Financials11.18%
Communication Services9.97%
Industrials8.21%
Consumer Staples7.05%
Materials2.79%
Real Estate2.78%
Energy2.33%
Utilities1.14%

Despite having high fees and low dividend yields, ESGY had the following low returns as of October 31, 2022:

  • 1-year: -9.80%
  • 2-year: 6.05%
  • Since inception: 6.66%

8. Vanguard ESG US Stock ETF (ESGV)

  • Date of inception: September 18, 2018
  • Management fee:
  • MER: 0.09%
  • Number of holdings: 1492
  • Price to Earning ratio: 17.9x
  • Average return since inception: 8.71%
  • Dividend yield: –
  • Distribution frequency: Quarterly
  • Risk level: Medium-high

This is one of the oldest ESG ETFs on this compilation. The EFT was launched in 2018 to track the returns of the FTSE US All Cap Choice Index.

Consequently, the ETF provides exposure to small-large-cap companies that adhere to environmental, social, and corporate governance standards. Companies in the following sectors are excluded from the ETF: 

  • Oli, gas or coal
  • Alcohol
  • Tobacco
  • Cannabis
  • Gambling
  • Adult entertainment
  • Anti-personnel landmines
  • Cluster munitions
  • Nuclear power
  • Nuclear weapons
  • Civilian firearms
  • Conventional military weapons
  • Chemical and biological weapons

In addition, the ETF doesn’t invest in companies that:

  • Fail to meet certain diversity principles
  • Fail to meet certain human rights, anti-corruption and environmental principles outlined by the UN Global Compact Principles
  • Use full-replication or passively managed approach

As of November 7, 2022, the ETF had the following top 10 holdings: 

HoldingAllocation
APPLE INC7.10%
MICROSOFT CORP5.70%
AMAZON.COM INC2.69%
ALPHABET INC-CL C1.74%
UNITEDHEALTH GROUP INC1.70%
TESLA INC1.68%
ALPHABET INC-CL A1.64%
JPMORGAN CHASE & CO1.28%
NVIDIA CORP1.15%
VISA INC-CLASS A SHARES1.10%

Below are the benchmark sector allocations of the ETF as of September 30, 2022:

SectorAllocation
Technology29.70%
Consumer Discretionary17.00%
Health Care15.70%
Financials11.40%
Industrials10.60%
Consumer Staples6.00%
Real Estate4.00%
Telecommunications2.80%
Basic Materials1.80%
Utilities0.70%
Energy0.30%

With low fees, and a high Price to Earning ratio, the ETF still provided the following competitive returns as of  October 31, 2022:

  • 1-year: -20.74%
  • 3-year: 9.39%
  • Since inception: 8.71%

9. Desjardins RI Canada – Low CO2 Index ETF (DRMC)

  • Date of inception: September 27, 2018
  • Management fee: 0.15%
  • MER: 0.17
  • Number of holdings: 62
  • Price to Earning ratio: 11.67
  • Average return since inception: 5.62%
  • Dividend yield: 2.52%
  • Distribution frequency: Quarterly
  • Risk level: Medium

DRMC is also another old ESG ETF in Canada that has been around since 2018. The ETF provides wide exposure to Canadian equity companies that adhere to ESG principles.

However, DRMC has low holdings of 62 with the following being the top 10 as of November 7, 2022:

HoldingAllocation
Toronto-Dominion Bank11.92%
Canadian National Railway Co8.25%
Bank of Montreal6.39%
Bank of Nova Scotia5.89%
Canadian Imperial Bank of Commerce4.21%
Nutrien Ltd3.93%
Shopify Inc Cl A3.68%
Manulife Financial Corp3.16%
Cenovus Energy Inc2.70%
Sun Life Financial Inc2.59%

The companies the ETF invest in are categorized in the following sectors as of November 7, 2022:

SectorAllocation
Financial Services42.23%
Basic Materials13.25%
Industrial Services10.66%
Energy7.11%
Technology6.84%
Consumer Services6.24%
Telecommunications5.07%
Consumer Goods2.75%
Real Estate2.41%
Utilities1.54%
Industrial Goods0.97%
Cash and Cash Equivalent0.72%
Healthcare0.21%

Although DRMC has a competitive dividend yield and Price to Earning ratio, it provided the following low annual returns as of September 30, 2022:

  • 1-year: -10.96%
  • 3-year: 5.78%
  • Since inception: 5.62%

10. Invesco S&P 500 ESG Index ETF (ESG)

  • Date of inception: February 14, 2020
  • Management fee: 0.15%
  • MER: 0.17%
  • Number of holdings: 304
  • Price to Earning ratio:
  • Average return since inception: 13.10%
  • Dividend yield: 2.00%
  • Distribution frequency: Quarterly
  • Risk level: –

The Invesco S&P 50p ESG Index ETF which goes with the ticker symbol “ESG” is one of the best ESG ETFs in Canada.

The ETF seeks to track the returns of the S&P 500 ESG Index by investing heavily in US-listed companies. The ETF invests 96.78% in the US and 3.22 in other countries.

With this ETF, you will gain exposure to top companies in the US and in the world that comply with ESG principles. 

The following are the top 10 companies the ETF invests in as of November 7, 2022:

HoldingAllocation
Apple Inc9.12%
Microsoft Corp7.39%
Amazon.com Inc3.49%
Alphabet Inc2.31%
UnitedHealth Group Inc2.22%
Alphabet Inc2.07%
Exxon Mobil Corp2.06%
JPMorgan Chase & Co1.67%
NVIDIA Corp1.56%
Visa Inc1.42%

Below are the sector allocations of the ETF as of November 7, 2022:

SectorAllocation
Health care16.81%
Financials11.69%
Consumer discretionary8.58%
Telecommunication services7.63%
Consumer staples7.14%
Industrials6.63%
Energy6.02%
Materials2.73%
Real estate2.60%
Utilities1.69%

In addition to wider diversification and competitive dividend yield, the ETF also offered a -5.14% 1-year return and 13.10% return since inception as of October 31, 2022.

RELATED: Best S&P 500 ETFs in Canada

What is an ESG ETF?

ESG ETF stands for environmental, social, and governance exchange-traded funds. ESG ETFs provide exposure to companies that adhere to ESG standards. This excludes companies that invest in: 

  • Fossil fuels
  • Alcohol
  • Tobacco
  • Cannabis
  • Gambling
  • Adult entertainment
  • Anti-personnel landmines
  • Cluster munitions
  • Nuclear power
  • Nuclear weapons
  • Civilian firearms
  • Conventional military weapons
  • Chemical and biological weapons
  • And so on

This type of ETF is tailored to value-oriented investors that are looking to invest while maintaining their personal values and contributing positively to society.

Pros and Cons of ESG ETFs

Like regular ETFs, ESG ETFs have their pros and cons. The following are the major ones: 

Pros

  • Value-centric investment: ESG ETFs provide the opportunity to invest in your favourite securities without sacrificing your personal values.
  • Contribution to society: Investing in ESG ETFs provides you with an indirect opportunity to contribute to the growth of society by supporting companies that reduce their carbon footprint and other societal ills.

Cons

  • Low returns: Several non-ESG ETFs have outperformed ESG ETFs in the past. This means that focusing on the ESG rating of an ETF alone can limit your investment growth. To be on the safe side, you should consider the performance of the underlying companies of an ESG ETF before investing in it.
  • Mix allocations: Some ESG ETFs invest in companies whose ESG rating is questionable or neutral. This could undermine the purpose of ESG investing.

Which ESG ETF to Choose?

For obvious reasons, choosing one of the above best ESG ETFs in Canada could be challenging. 

The ETFs differ considerably in terms of their number of holdings, allocations, returns, yields, fees and Price to Earning ratios. This requires an in-depth comparison of these factors when narrowing your selection.

Based on the above factors, we can identify the following overall best ESG ETFs in Canada per category:

ESG ETFBest For
iShares ESG Advanced MSCI USA Index ETF (XUSR)Returns
iShares ESG Aware MSCI Canada Index ETF (XESG)Yields
iShares ESG Advanced MSCI USA Index ETF (XUSR)Price to Earning Ratio
Vanguard ESG US Stock ETF (ESGV)Low fees

From the above table, it’s safe to say that XUSR is the overall best ESG ETF in Canada on this compilation as it ranks in two categories.

How to Buy ESG ETFs in Canada

The process of buying ESG ETFs is the same as those of regular ETFs. 

Depending on your investment skills, you can buy the ETF through your financial advisor or an online discount brokerage.

Your financial advisor is in the right position to handle the investment for you if you don’t have the required investment skills to do so yourself.

But if you can handle everything yourself, you should sign up with one of the best online discount brokers out there such as Wealthsimple Trade.

In the case of Wealthsimple Trade, you can sign-up and invest in your chosen ESG ETF with any amount without worrying about commissions.

RELATED:

Verdict on the Best ESG ETFs in Canada

Investing according to your values will give you the optimal peace you deserve. But doing so blindly can ruin your peace.

If you’re looking to invest in ESG ETFs, choosing from the best ones will likely yield you the desired peace of mind. 

To choose the best ESG, all you need is to look at different fund facts to choose the one that suits your needs. You should also consider the underlying holdings of your favourite ESG ETF to confirm their ESG orientation.

With these considerations, you will likely eliminate some of the common drawbacks of ESG ETFs discussed above.

Which ESG ETF are you going with? Let me know in the comment.

If you need more clarification, drop a comment below or email our experts at [email protected].

Visit our Investing Archive for more related information.

Photo of author

About John Adebisi

John Adebisi is a CPA, FCCA and MBA holder with a Bachelor's degree in Accounting & Finance. He has over a decade of experience in writing personal and business finance content for audiences across North America, Europe, the UK and Africa. In addition to his writing experience, he also has a strong background in financial research and analysis, giving him a unique perspective of the financial markets. John derives pleasure in helping people make smart financial decisions, and he believes that knowledge and experience can be valuable resources for anyone who wants to learn how to manage their money.

Leave a comment