How Sustainable is Wealthsimple’s Socially Responsible Portfolio?

Investing comes with risk. This article is a general discussion of the merits and risks associated with these ETFs, not a specific recommendation. Speak to an investment professional and make sure your portfolio is diversified. Tim Nash owns shares of PZD. Tim does not own shares of the other ETFs mentioned in this article.

I was really excited to read that WealthSimple, one of Canada’s better-known robo-advisor services, has introduced a socially responsible investment portfolio. It’s a wonderful option for new investors, and people who simply can’t be bothered to learn how to do it themselves. Of course, me being me, I immediately opened it up to see what they mean by ‘socially responsible’.

Here’s what’s inside:

iShares MSCI ACWI Low Carbon Target ETF (CRBN) - ACWI stands for ‘All Country World Index’, so this is very much a global fund. This ETF is great for fossil-fuel free investors, as it is a broadly-diversified fund that omits the worst carbon extractors and emitters. That means there is no Exxon, Suncor, etc. Unfortunately though, it only omits carbon-intensive companies. That means it still includes unsavoury companies like Philip Morris (tobacco), General Dynamics (weapons), Monsanto, Walmart, Nestle, and even Enbridge. Keep in mind that this fund is SO diversified (1000+ companies) that you won’t get much exposure to each of these companies. That said, most of my clients give it a thumbs down after seeing what’s inside.

I asked WealthSimple why they went with CRBN instead of a more socially responsible US ETF like the iShares MSCI USA ESG Select ETF (KLD). Here’s their reply:

“We have multiple objectives with our SRI portfolios: diversification, fees, performance and addressing our clients needs. Since our clients care strongly about the environment, we chose an ETF that is transparent about its carbon footprint and places more weight on the environment. If we replaced KLD with CRBN, the portfolio would not be sufficiently diversified, would have a higher MER, and would likely have a larger carbon footprint. If we included both, we would be significantly overweight USA and have a higher MER.”

**Remember that MER stands for Management Expense Ratio and is codeword for annual fee**

iShares Jantzi Social Index (XEN) - I wrote an extensive blog about this fund in the past, so I won’t go into much detail here. But I will point out that it includes a hefty weighting for tar sands and pipeline companies. Sadly, I feel that it kind of defeats the purpose of holding the low carbon ETF described above.

Vident International Equity ETF (VIDI) - I hadn’t heard of this ETF before, so thanks Wealthsimple! However, I do have some concerns with it. First of all, it’s a stretch to refer to it as ‘socially responsible’. The fund assesses countries (not companies) based on a wide variety of characteristics like worker productivity, sound fiscal / monetary policies, and favourable business and legal environment. Wealthsimple isn’t lying when they say that human rights and corruption are considered, but it’s definitely not a driving factor in the fund’s decision making. A quick scan of the companies in the fund reveal some question marks such as Gazprom, Russia’s largest natural gas company that is majority-owned by the Russian government. Gazprom has been linked to all kinds of corruption charges and has been used as a political tool in Russia’s war against Ukraine. Not the kind of company I like to own.

Again, I shared these concerns with WealthSimple and got this reply:

“In North America, there are no pure SRI ETFs with appreciable EM [emerging markets] exposure. VIDI represents a compromise: an EM-oriented fund that has SRI criteria but is not pure SRI. The alternative would have been to include a non-SRI EM ETF, similar to other robo[advisor]s in the space, which is a less palatable option.

VIDI's SRI criteria are applied at the country level, rather than to individual stocks. The SRI weight in the country selection model is around 30% (subsumed under Legal & Business Environment and Human Productivity in their methodology document). Among the 33 countries in which VIDI invests, Russia ranks in the bottom 10. Since Gazprom is among Russia's largest companies, it will tend to be included as part of the country allocation, however we acknowledge it could be included due to non-SRI aspects of their methodology.”

I’m not thrilled with this reply, but it is what it is, and fingers crossed that a more sustainable international equity ETF becomes available soon.

PowerShares Cleantech Portfolio (PZD) - I love this ETF! The core ‘green’ holding in my Organic Couch Potato portfolio, this fund includes companies who derive the majority of their revenues from clean technologies. Simply adding this ETF to the portfolio gives it nice exposure to the green economy that is growing quickly and doing lots of good in the world.

BMO Mid Federal Bond Index ETF (ZFM) - I have no issues with this ETF. Personally, I prefer to have some provincial bonds in the mix, but that’s just me.

Finally, I was a little disappointed that there are no impact investment funds like CoPower and Oikocredit inside the portfolio. I’d love to see a portion of this portfolio invested directly in local projects that are doing more good. It would be a great differentiator, and might help clients swallow having some of the more objectionable companies included.

“We seriously considered impact investments, such as those mentioned, however we ultimately decided not to include them in the portfolio because none of them are exchange-traded and most have a limited track record. We will continue to keep impact investments on our radar and re-assess periodically.”

As you can see, there is likely something in this portfolio to make any socially responsible investor feel uncomfortable. That said, it’s a great option for people who are not ardent about the concept, and are more looking for a slight shift in the right direction. I applaud Wealthsimple for creating this portfolio, and will be interested in tracking its popularity / evolution.

What do you think? Now that you know what’s inside, will you consider it for your retirement plan? Leave your comments below or send me a tweet @timenash



Do you like this post?

Showing 8 reactions

commented 2020-01-14 13:06:49 -0500
Good day Tim… thanks for reaching out again. I agree with your take on WealthSimple’s robo investing platform… too vanilla where it comes to actually investing with your values. It might make the investor who is dipping his toes in the SRI idea feel better about his decisions. However, I much preferred your much more in-depth evaluations… which I try to maintain with our portfolio. Incidentally, Interactive Brokers ‘Trader Workstation’ software allows you to add columns in the user interface that reveal numerous ESG score variables. All companies don’t appear to participate, and oddly, PZD doesn’t show a score. For the most part, it is satisfying to be able to take those parameters into consideration when applying my values to our portfolio. Hope all is well in TO. Cheers from Mexico (read – no snow ;-)
commented 2020-01-14 12:15:52 -0500
Hey, just came across this post. Would love an update post to see if Wealthsimple has improved over the last couple of years.
commented 2019-08-29 12:07:06 -0400
Hi Tim, I’d love to get your take on Questrade’s SRI portfolio.
commented 2019-08-28 22:04:59 -0400
There are SRI options that are much more active in their involvement with corporate behaviour, and which look at much more than just GHG’s. CRBN has close to 1300 holdings, and while that’s hard to scrutinize, it’s pretty easy to detect companies like McDonald’s, United Technologies (military), and a variety of cigarette and alcohol companies.

Naheed @consciouswealth
commented 2018-01-31 17:41:25 -0500
Timothy, my friend and ex Cassandra Carswell directed me to this post of yours after I specifically asked about Wealth Simple’s SRI on my FB wall. This was the perfect answer and I am grateful for it. I have in fact just moved my RRSP to Wealth Simple’s SRI from Tangerine. From a social responsibility standpoint, it’s far less than ideal, but it’s at least better than what I was on. What I really love about Wealth Simple is the ease of use for my non-investor knowledge to manage my RRSP, TFSA, and RESP. But the socially responsible part of their offering clearly isn’t socially responsible enough for my liking, and I expect to try to diversify into genuine such offerings over time. Expect to hear from me in a year or so. For now I just want things to settle down, as it’s only recently that I achieved enough financial stability for these questions to have even arisen.
commented 2017-12-06 12:11:14 -0500
To David Robbins & Green Geek; Modern Advisors SRI portfolio includes iShares Jantzi Social Index (XEN), which he states above is weighted heavily towards tar sands production and pipelines… hardly a fit for my money.
commented 2017-07-09 11:33:13 -0400
Thanks for this analysis, it’s really helpful. I’d like to echo Green Geek and ask if you’ve had a chance to look at Modern Advisor’s SRI?
commented 2016-09-27 22:58:51 -0400
Great breakdown. Have you had a look at ModernAdvisor’s SRI portfolio?
Don't let your money do things you wouldn't