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What are we looking for?

As the COP26 UN climate conference continues, expect new governmental pledges to improve environmental sustainability. New actions or regulations could hurt industries such as oil and gas, while boosting incentives for others such as electric vehicle manufacturers and clean energy producers. Companies behind the curve on environmental sustainability could be affected by policy mandates that might increase costs and reduce profits. As a result, we decided to screen for Canadian companies with positive environmental news momentum in the past 12 months.

The screen

To begin our analysis, we used FactSet’s Universal Screening tool to pull all publicly traded securities on the Toronto Stock Exchange with a market capitalization greater than $100-million.

Next, we analyzed sustainability scores calculated by FactSet Truvalue Labs, an artificial intelligence-driven leader in providing environmental, social and governance data. Truvalue Labs uses a proprietary algorithm to calculate ESG scores using data sourced from news articles, non-governmental organizations, trade blogs, social media and more. To ensure data quality, we only included companies that have at least 50 data points available in the past 12 months for each company analyzed.

Each of the 88 companies that passed our screen were then ranked from best to worst on six different environmental scores, as defined by the Sustainability Accounting Standards Board, shown in the accompanying table. Finally, an average of each individual ranking was taken to create a composite rank.

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What we found

TSX-listed companies that score well on ESG metrics relative to peers

CompanyTickerFactSet SectorMkt. Cap. ($ Mil.)GHG Emissions RankWaste & Hazardous Materials Mgt. RankWater & Wastewater Mgt. RankAir Quality RankEcological Impacts RankEnergy Mgt. RankEnviron. Comp. RankDiv. Yld. (%)Recent Close ($)
Fortis Inc.FTS-TUtilities26,572.32616251413713.856.19
Boralex Inc. BLX-TUtilities3,899.5171n/an/a48921.738.00
Northland PowerNPI-TUtilities8,772.55n/a31138n/a23.138.84
Iamgold Corp.IMG-TNon-Energy Mat.1,817.0391117n/a72240.03.81
Kinaxis Inc.KXS-TTechnology5,728.52513n/an/a301050.0210.12
National BankNA-TFinance35,126.7240410364362.7104.30
NFI Group Inc.NFI-TIndustrials1,816.421n/a1930103473.325.59
Telus Corp.T-TTelecom39,653.128201n/a204574.329.14
Extendicare Inc.EXE-THealth Care652.924n/an/a23n/a2396.67.29
Sun Life Fin'lSLF-TFinance41,880.93828774418103.171.51

Source: FactSet

Note: "n/a" appears when there were no data in the past 12 months for a particular category. The composite rank is an average of all available rankings; n/a's were excluded from the composite rank calculation.

The accompanying table shows the top 10 companies, organized by our environmental composite rank. Energy is the second-largest sector in Canada, according to FactSet, but none of our top 10 was classified as energy. This makes sense because the Canadian energy space tends to be dominated by oil and gas companies, which contribute to greenhouse gas emissions and hence were ranked lower. Three utility companies, however, Fortis Inc., Boralex Inc. and Northland Power Inc., made the list. All three are involved, to varying degrees, in generating renewable energy, which may explain their high rank.

Interestingly, Iamgold Corp. was the only non-energy materials company to pass our screen. Despite being a precious metals producer, Iamgold committed to achieving net negative GHG emissions by 2050 recently, which was received positively by the broader public. Additionally, it scored exceptionally well on ecological impacts, ranking at No. 7. Truvalue Lab’s rankings factor in how a company fared relative to its industry, and Iamgold seems to be moving faster than its peers in the mining space.

Telus Inc., the second-largest telecommunications company in Canada by market capitalization, tied for seventh on our screen, with a particularly high rank on water and wastewater management. A telecom provider may not come to mind when thinking of wastewater, however, Telus recently launched a new social impact fund that included a key partnership with a wastewater treatment company. Moreover, income seekers may be interested in Telus’s dividend yield of 4.3 per cent. The payout will continue to grow, at an annualized rate of 7 per cent over the next three years, according to analyst consensus estimates.

The information in this article is not investment advice. FactSet assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained above.

Full disclosure: The author personally owns shares in Fortis, BCE, Kinaxis, National Bank and Telus.

Arjun Deiva, CFA, is a vice-president at FactSet Canada’s consulting division.

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