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BlackRock has been one of the leaders in urging both investors and business leaders to take on more responsibility in the climate change battle.Shannon Stapleton/Reuters

We’ll be hearing a lot of speeches from the COP26 conference in Glasgow over the next two weeks warning us of the grim days that lie ahead if we don’t take immediate action on global warming.

A lot of carbon-reduction pledges will be made, including by Canada. How effective they will be is another matter. China’s Xi Jinping and Russia’s Vladimir Putin are not attending. Russia is a leading exporter of oil and natural gas, China is the world leader in greenhouse gas emissions. Without the active participation of both countries, it will be very difficult to achieve any targets the summit may set.

That doesn’t mean we shouldn’t try. Every year, we see more evidence of climate change: melting glaciers, rising water levels, raging wildfires, more and stronger hurricanes. Clearly, action is needed. The problem will be to get countries such as China and Russia fully onside.

While all this is happening at a macro level, individual investors are increasingly trying to do their part by putting money into environmental, social and governance (ESG) funds.

“ESG considerations are baked into the way we do business,” Invesco Canada said in a recent magazine article. The company offers ESG options in both mutual funds and exchange-traded funds.

Invesco is just one of many fund managers that see ESG investing as a key to attracting more business in the future, as clients become more committed to personal action.

BlackRock, which manages the iShares ETFs among other products, has been one of the leaders in urging both investors and business leaders to take on more responsibility in the climate change battle.

BlackRock president Larry Fink, long an outspoken advocate of sustainable investing, wrote in his 2021 letter to CEOs that the pandemic appeared to heighten public awareness of the dangers posed by climate change.

“From January through November 2020, investors in mutual funds and ETFs invested $288-billion globally in sustainable assets, a 96 per cent increase over the whole of 2019,” he wrote. “I believe that this is the beginning of a long but rapidly accelerating transition – one that will unfold over many years and reshape asset prices of every type.”

BlackRock Canada now offers 19 ESG ETFs, with more likely to come. Most are too new to have established a meaningful track record, but I like the look of the iShares ESG Advanced MSCI USA Index ETF (XUSR-T). It’s heavily weighted to technology (36 per cent of the portfolio), with significant positions in health care (12.9 per cent), financials (12.7 per cent), and consumer discretionary (11.4 per cent). Top holdings include Nvidia Corp., Home Depot Inc., Visa Inc., Mastercard Inc., and Adobe Inc.. The management expense ratio (MER) is a reasonable 0.22 per cent. The fund has $110-million in assets under management. The one-year return to Sept. 30 was 23.4 per cent.

The BlackRock ESG fund with the longest track record is the iShares Jantzi Social Index ETF (XEN-T), which dates back to 2007. Its long-term track record is unimpressive – an average annual return of a little more than 5 per cent since inception. It’s been much stronger recently, with a one-year gain of 30.5 per cent to the end of September. But some investors may be uncomfortable with the fact its top 10 holdings include two of Canada’s major oil producers, Suncor Energy Inc. and Canadian Natural Resources Ltd.

Invesco offers a similar product to XUSR, Invesco S&P 500 ESG Index ETF (ESG-T), which is available in both hedged and unhedged versions. Like XUSR, it has a heavy technology weighting (about 30.5 per cent), with top holdings such as Apple Inc., Microsoft Corp., Amazon Inc., Alphabet Inc., and Tesla Inc. It has a management fee of 0.15 per cent and a one-year return of 24.15 per cent (unhedged version).

For fixed-income investors, the company also offers the Invesco ESG Canadian Core Plus Bond ETF (BESG-T). It invests in investment grade bonds from issuers “that exhibit favourable environmental, social and governance practices.” However, some investors may question why the portfolio includes Ontario bonds (where Premier Doug Ford is planning to pave over acres of green space with a new highway) and Alberta bonds (home of the oil sands). The MER is another negative, at 0.49 per cent. That’s a lot for a bond fund.

CI Global Asset Management recently launched CI Global Climate Leaders Fund ETF (CLML-T), which focuses specifically on decarbonization and climate change. Its largest holding is U.S.-based NextEra Energy Inc., which claims to be the world’s largest producer of wind and solar power. This ETF (which has a U.S. dollar version and is also available in mutual fund units), has only been around since July so it’s much too soon to get a reading on it. The management fee is high at 0.7 per cent.

Finally, check out the BMO MSCI USA ESG Leaders Index ETF (ESGY-T). It invests in large- and mid-cap companies that have higher ESG ratings than their peers. Here again the tech leaders top the list – Microsoft is the No. 1 holding with more than 10 per cent of the portfolio. But the overall technology weighting is lighter than in the other ETFs we’ve looked at, coming in at just under 29 per cent. The MER is a reasonable 0.22 per cent. The fund posted a one-year return of 24.7 per cent for the year to Sept. 30, which was slightly better than its benchmark index. The main problem is that it’s still a very small fund with limited liquidity.

As you can see, there are many ESG choices available in the Canadian ETF universe, with more to come. But picking future outperformers is difficult with so little history to work with.

Gordon Pape is editor and publisher of the Internet Wealth Builder and Income Investor newsletters.

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