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What are we looking for?

Looking under the hood of Canada’s largest ETFs to see which have the most socially responsible investments.

The Screen

Against the backdrop of things such as climate change, gender pay gaps and mass shootings across the United States and the world, investors are starting to think more acutely about the companies and activities they are supporting through their investments.

According to an investor survey by the Responsible Investment Association of Canada, 86 per cent of investors agree that financial advisers and institutions should be knowledgeable about how environmental, social and governance risk could affect their investments. Interest in responsible investment decreased with age (meaning younger people are more interested), increased with education level and was significantly higher among respondents with children compared to those without children.

The 2018 survey had a particular focus on climate change and found that 80 per cent of investors are concerned about climate change, with respondents in Ontario and B.C. showing the most concern and the least coming from the Prairies. However, many investors don’t actually pick the companies they invest in, but rather rely on institutions managing funds, and increasingly exchange-traded funds (ETFs), to determine which companies they will ultimately own.

Here, we will screen for the 10 largest equity ETFs in Canada and see how exposed they are to some of these issues.

· We will look at the weighted (by per cent exposure) absolute carbon footprint for the fund as well as carbon emissions scaled per million dollars of revenue. Carbon emission disclosures aren’t mandated by regulators so when a company doesn’t disclose emissions Refinitiv uses a patented methodology to estimate the company’s carbon footprint;

· Next, we look at gender diversity statistics at the board, executive, management and work force level;

· Finally, we look at the average amount of revenue coming from both tobacco and armaments for companies held by the fund.

More about Refinitiv

Refinitiv, formerly the Financial & Risk business of Thomson Reuters, is one of the world’s largest providers of financial markets data and infrastructure, serving over 40,000 institutions in over 190 countries. With a dynamic combination of data, insights, technology and news from Reuters, our customers can access solutions for every challenge, including a breadth of applications, tools and content – all supported by human expertise.

What we found

In terms of carbon, the EAFE – Europe, Australasia and Far East – funds, which many Canadian investors would use for their ex-North America or “international” exposure, have the highest absolute emissions, but it is the Canadian funds that emit the most relative to revenues – especially the preferred share and dividend funds that income-oriented investors would gravitate to.

However, the Canadian preferred shared and dividend funds have the highest gender diversity stats, although every fund shows a decreasing proportion of women as you move from the work force to management to executive levels.

When we look at both tobacco and armaments, it is again the EAFE funds that provide the most exposure with an average of roughly US$4-billion and US$1-billion coming from tobacco and armaments respectively.

Hugh Smith, CFA, MBA is the manager of Refinitiv’s Investment Management business for the Americas, and is a Director on the Board of the Responsible Investment Association of Canada.

Canada's largest ETFs and their ESG ratings

FundTickerMarket Cap (C$Mil)CO2E Emissions (Tonnes)CO2E Emissions/US$Mil Rev. Women, BoardWomen, ExecutivesWomen, ManagersWomen, EmployeesTobacco (US$Mil) Armaments (US$Mil)
iShares S&P/TSX 60XIU-T 8,370 4,011,984 33129%17%34%39%00
BMO S&P 500ZSP-T 6,486 6,070,422 27625%20%31%38%243497
iShares Core S&P/TSX Capped CompositeXIC-T 4,819 3,431,379 38928%17%34%39%04
iShares S&P 500XSP-T 4,548 6,069,685 27625%20%31%38%243497
BMO S&P/TSX Capped CompositeZCN-T 4,065 3,422,491 38928%17%34%39%04
BMO MSCI EAFEZEA-T 2,458 6,505,787 21525%14%30%39%3,841764
iShares S&P/TSX Capped REITXRE-T 1,366 61,402 15721%16%37%50%00
iShares Canadian DividendXDV-T 1,282 2,994,753 40332%22%39%49%00
iShares S&P/TSX Canadian Pref ShareCPD-T 1,266 3,819,988 45331%20%38%50%00
iShares MSCI EAFEXIN-T 1,181 6,508,679 21825%14%30%39%3,752811

Source: Refinitiv

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