What is ESG?

According to the Responsible Investment Association, 77% of Canadians believe that companies with good ESG practices are better long-term investments. In response to increased demand for ESG information, companies are including disclosures about ESG factors in their annual reports.

How to assess ESG investments

To help you evaluate its ESG value, asset data may include:

• Environmental: Information related to climate change, energy efficiency, pollution, recycling, biodiversity and similar factors

• Social: Information related to customer satisfaction, worker health and safety, labor relations, DEI (diversity, equity and inclusion) and so forth

• Governance: Information related to corporate governance, or how the company is managed (typically, this includes data on board diversity, executive compensation, political contributions, etc.)

Many mutual funds and exchange-traded funds (ETFs) are available that follow ESG strategies. Some are called ESG funds, while others may use words like responsible, ethical or sustainable in their names.

Some funds use negative screens, eliminating investments with unattractive ESG profiles. Others use positive screens, selecting companies with superior ESG characteristics. Others may be thematic—for instance, focusing on water, clean power or women in leadership.

Example: “In May 2023, the Canadian Parliament passed Bill S-211, An Act to enact the Fighting Against Forced Labour and Child Labour in Supply Chains Act. When the law goes into effect Jan. 1, 2024, certain Canadian businesses will have to publish detailed information about what they’re doing to identify and prevent forced labour, prison labour and child labour, providing valuable information for ESG investors.”

Read more about ESG investing:

• An investor’s guide to ESG reporting in Canada
  Companies and investment firms that report ESG performance use a patchwork of standards—if they report at all. Here’s how to navigate sustainable investing.

• The cost of socially responsible investing
  Are there enough options available for Canadians who want to invest according to their values—and do you have to compromise on performance or fees to be a socially responsible investor?

• Why sustainable investing is important
  Responsible investing considers environmental, social and governance factors alongside financial returns. If you want to get started, you have more options than ever.

• 5 ways to invest sustainably for Canadian investors
  If you want to make a positive impact with your investing choices, here’s how to make environmental, social and governance (ESG) factors part of your approach.

About MoneySense Editors

MoneySense editors and journalists work closely with leading personal finance experts in Canada. Since 1999, our award-winning magazine has helped Canadians navigate money matters.

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