This portfolio is simple, with a positive environmental impact. It is very diversified, yet places a strong bet on the emergence of a low-carbon economy. The total annual cost of this portfolio is 0.65%.
Canadian Equity 15% iShares Jantzi Social Index (XEN)
US Equity 15% iShares MSCI USA ESG Select Social Index (KLD)
International Equity 15% Meritas International Equity Fund F-Class (SRI305)
Green Equity 15% PowerShares Cleantech Portfolio (PZD)
Canadian Bonds 30% iShares DEX All Government Bond Index Fund (XGB)
Solar Bonds 10% SolarShare Community Bonds
The S&P/TSX 60 is mostly made up of Energy (25.1%), Mining (22.4%), and Banks who are the primary investors in energy & mining (31.4%). That makes it tough ground to tread for sustainable investors. The iShares Jantzi Social Index (XEN) is currently the only socially responsible ETF that tracks the TSX 60. It is overweight banks (41.7%) and underweight Energy (18.6%) and Mining (13.9%). Basically, they’ve removed the worst of the worst companies. It doesn’t include companies like Barrick Gold, Enbridge, TransCanada, Canadian Natural Resources, and Goldcorp. Sadly, this ETF does not participate in shareholder engagement. The MER for this fund is 0.55%.
The iShares MSCI USA ESG Select Social Index (KLD) tracks the MSCI USA ESG Select Index, and includes about 250 companies from the MSCI USA index that have been screened for positive environmental, social, and governance (ESG) characteristics. Companies that have a higher ESG score have a higher weighting in the ESG index. It still includes companies in sectors like energy and mining that are inherently unsustainable, but iShares has created a special set of proxy voting guidelines for this fund. This policy states that it will “support social, workforce and environmental proposals that promote ‘good corporate citizenship’ while enhancing long term shareholder and stakeholder value and proposals that call for more detailed and comparable reporting of a company’s social, workforce and environmental performance”. The MER for this fund is 0.50%.
Sadly, there isn't a socially responsible international equity ETF on the market. To fill this gap, we must resort to mutual funds. I've chosen the Meritas International Equity Fund. It outsources its work to great organizations, like Sustainalytics (for ESG analysis), SHARE (for shareholder engagement), and it even invests a small portion of its portfolio in microfinance through MicroVest. Unfortunately, the downside is that it has an exorbitant MER of 1.96%. The fee would be even higher (2.96%) if you bought the A-Series, but most online brokerages will let you purchase the F-Series version that omits the 1% trailer normally paid to the mutual fund salesperson.
For investors who want to bet on the emergence of the green economy, the PowerShares Cleantech Portfolio (PZD) is a great option. It tracks the Cleantech Index™, which includes the world’s leading cleantech companies. It is heavily overweight in the Industrials (56.65%) and Information Technology (21.48%) sectors, which makes sense because so much of the action in the green economy comes from construction, engineering, smart grids, and technology. This fund hasn’t performed well in recent history (the solar sector in particular got decimated over the past 5 years), but it remains a good play if you believe that the transition to a green economy is inevitable. The MER for this fund is 0.74%.
Unfortunately, there is no socially responsible bond ETF on the market. Since it’s impossible to screen out unsustainable companies from a corporate bond ETF, the portfolio includes an all-Government bond fund like the iShares DEX All Government Bond Index Fund (XGB). This is the least ‘organic’ part of this portfolio, but we make up for it by including the solar bonds described below. The MER of this fund is 0.33%.
Available only to Ontario residents, SolarShare community bonds are being sold for $1,000 each and offer 5% annually over a 5-year term. These bonds support community-owned solar projects in Ontario that operate under the provincial government’s Feed-In Tariff program. They are a great way to have a direct positive impact on the environment, while earning a competitive financial return. However, investors should be cautious. There is currently no secondary market for these bonds, so they are highly illiquid. Investors who might need the money back within five years (to buy a house for example) should stay away. That said, they are a great impact investment opportunity available to the general public! There is no MER associated with these bonds, but investors must pay a one-time $40 fee to become a member of the co-op. There are several more renewable energy co-ops in Ontario who are in various stage of bond development including the Ottawa Renewable Energy Co-op, ZooShare, and GreenLife Co-operative.
ESGD: https://www.ishares.com/us/products/283778/ (MER 0.40%)
ESGE: https://www.ishares.com/us/products/283777/ (MER 0.45%)
Each of these ETFs has the same proxy voting policy as the iShares US Equity ETFs (KLD and DSI).
(Additional link in case one above stops working: https://www.ishares.com/us/library?keyword=proxy+voting+policy)
Maybe I’m grumpy, but I find the very high MERs (almost 3% per year!) and the other fees involved with Meritas products just outrageous. Why are their fees so high? Some other firms do the same screening for less money. Does the Meritas business model expect buyers to pay a premium for being sin-free? If someone knows why their fees are so high, please let me know.
If you do want to buy mutual funds, the Inhance products (recommended elsewhere on this site) from Clarington Investments offer much cheaper MERs – if you can afford to buy $10K to start (and even lower when you buy $100K to start). No matter how much you buy to start, you still have to pay a trailing commission up front. And watch out for switching fees and redemption fees. They can be sizable. Once you buy Inhance products, plan to leave your money there for a long time (5-10 years or more) or you’ll eat up your returns with fees.
I admired the online marketing for the SolarShare project. Then I found the 5% return they offered for Community Bonds. I think that’s far too modest.
Are these Bonds just intended as symbolic gifts for kids? Ontario is paying a high rate per Kwh for solar electricity under the feed-in-tariff through the MicroFIT and FIT programs. These are 20 year contracts! So who in the SolarShare project is making the real money? Community Bond holders will feel good, but as a little investor, it seems to me they are being penalized with an excessively low return. I suppose 5% is decent compared with Canada Savings Bonds and interest on most savings accounts but the project could have been a lot fairer. If anyone knows why the return to SolarShare Community Bonds is so low, please share your insights.
Even ZooShare Community Bondholders do better at 7%. This is about the long-term average return on the stock market. That seems a fairer return to me. It’s still not optimal. People making decent money are the ZooShare Founders Club members at 11 or 12% since they put up $10K or more at the start, when there was more risk to them of the project not getting off the ground.
SRI302 (MERITAS CDN BD FD CL F -NA)
SRI303 (MERITAS JANTZI SOC IDX CL F-NA)
SRI304 (MERITAS US EQTY FD CL F -NA)
SRI305 (MERITAS INTL EQTY FD CL F-NA)