Squeaky Clean 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 in ETHI, SDG, ZGB, and owns a Sketch community bond.

The Squeaky Clean Portfolio is simple, with no fossil fuels, mining, tobacco, or weapons. 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 0.36% and the weighted-average carbon intensity is 42.1 tons of CO2 per million dollars in revenue.

Squeaky Clean Portfolio Pie Chart

Asset Class Weight Name and Website
Global Equity 40% Horizons Global Sustainability Leaders ETF (ETHI)
Impact Equity 20% iShares MSCI Global Impact ETF (SDG)
Government Bonds 30% BMO Government Bond Index ETF (ZGB)
Impact Bonds 10% Sketch Community Bond


Global Equity

The Horizons Global Sustainability Leaders ETF (ETHI) is likely the ‘squeakiest clean’ global equity ETF on the market right now. According to this backgrounder document, the ETF follows a rigorous screening process that omits fossil fuels, gambling, alcohol, junk food, uranium and nuclear energy, armaments and militarism, destruction of valuable environments, animal cruelty, chemicals of concern, mandatory detention of asylum seekers, pornography and/or human rights violations (whew). As if that’s not enough, the fund only includes companies with a carbon footprint at 60% below the industry average (!) and at least one woman on the board of directors. The fund applies all of these screens, and includes the top 200 remaining companies weighted by company size.

As ‘squeaky clean’ as this portfolio is from a sustainability perspective, it has a glaring weakness in its lack of diversification. The fund contains only large companies, meaning no exposure to small or medium-sized companies. It is also heavily weighted towards US companies, and has no exposure to emerging markets like China, Brazil, and India. Finally, the sector breakdown is heavily tilted towards technology and healthcare. It has very little exposure to consumer staples and no exposure to utilities.

ETHI has a management expense ratio (MER) of 0.52% and a weighted-average carbon intensity of 16.9 tons of CO2 per million dollars in revenue.


Impact Equity

In order to fill the gaps left by ETHI, investors should consider buying the iShares MSCI Global Impact ETF (SDG). This fund screens out companies with low environment, social, and governance (ESG) scores, while including companies that sell products and services that are in line with one or more of the United Nations Sustainable Development Goals, like affordable and clean energy, quality education, and good health and well-being.

With only 35% exposure to the US market, the fund has broad global diversification and includes emerging markets like China, Brazil, and India. The fund includes lots of different sectors, but the weightings deviate from what I would typically expect from a global equity fund. Technology and financials are usually the two largest sectors, but SDG only has about 3.5% technology and basically zero financials. Instead, it includes lots of exposure to industrials (green infrastructure like water, wind turbines, and green buildings), health care (pharmaceutical companies working on diseases covered by the Sustainable Development Goals), and consumer staples (food, soaps, and toothpaste).

SDG dovetails nicely ETHI since it covers smaller companies, emerging markets, and more defensive sectors like consumer staples. It trades in US dollars and has a management expense ratio (MER) of 0.49% and a weighted-average carbon intensity of 167.8 tons of CO2 per million dollars in revenue.

Government Bonds

Since every Canadian corporate bond index includes fossil fuels, we are left with government bonds. A cheap, diversified option is the BMO Government Bond Index ETF (ZGB). The fund contains a mix of short-, medium-, and long-term government bonds, including provincial, federal, and a tiny little bit of municipal government bonds.  

ZGB has a management expense ratio (MER) of 0.17% and a weighted-average carbon intensity of 5.9 tons of CO2 per million dollars in revenue.

Impact Bonds

Sketch is a Toronto-based non-profit that offers programming to young people living in homeless or on the margins, navigating poverty, to make all kinds of art! They are in the process of buying their space to protect the organization from having to move due to rising rent.

The most affordable version of the Sketch community bond is $1,000 minimum and offers a 3% interest rate locked-in for 3 years. Unfortunately, it is not eligible for tax sheltered accounts, so investors should expect to pay tax on the interest earned. It’s a privately held investment, so it doesn’t have a management expense ratio and there is no calculation of carbon footprint. 

Like this portfolio and want help buying it? Check out my coaching services at https://www.goodinvesting.com/

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Showing 2 reactions

commented 2020-03-20 13:51:31 -0400
Hmmm, I can’t speak to wealthsimple not having CESG. I’m surprised, make sure it’s Canadian market and contact their support if it persists. There would be foreign withholding tax (15% of dividends – adds like ) if you hold SDG in a TFSA or unregistered account. But RRSP is covered by our tax treaty, so prioritize in RRSP if possible. Otherwise, it’s like paying an extra 0.22% in fees, so not ideal but not a dealbreaker.
commented 2020-03-12 12:26:45 -0400
The closest CAD equivalent is the CI First Asset MSCI World ESG Impact ETF (CESG), although it doesn’t have emerging market exposure which is why I prefer SDG.

Since ETHI is expected to be more volatile, the portfolio is likely a little more aggressive. However, this can be managed by allocating more to bonds.

Yes, all of the ETFs are eligible for registered accounts. Community bonds not so much.

Hope this helps!
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