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 0.45%.
Canadian Equity 15% iShares Jantzi Social Index (XEN)
US Equity 15% iShares MSCI USA ESG Select Social Index (KLD)
Global Equity 15% Pax World MSCI EAFE ESG Index (EAPS)
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%.
The Pax World MSCI EAFE ESG Index (EAPS) is a relatively new fund that was created in 2011. As the only socially responsible EAFE fund, it tracks the MSCI EAFE ESG Index. MSCI gives each company an ESG rating from AAA (highest) to C (lowest), and only companies with a rating of B or higher are eligible for inclusion in the index. Again, this ETF is a great way to invest in mid- to large-cap companies who are leading their sectors in sustainability. Pax World has a long history as a socially responsible investor, and all proxies are voted in accordance with ESG principles. The MER of this fund is 0.55%.
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.