7 Best ESG Stocks In Canada to Invest in June 2024

If you’re an investor looking to make a positive impact with your portfolio, you may want to consider investing in ESG stocks.

Not many people realize how much power they hold as consumers. With enough people spending their money on businesses that share their social and environmental values, it can trigger massive changes.

With the best ESG stocks in Canada, you can engage in more socially and environmentally conscious investing that’s good for your conscience and for your nest egg.

Understanding ESG Investing

ESG stands for Environmental, Social, and Governance, and these three elements form a criterion for measuring the sustainability and ethical impact of an investment in a company or business. They are used to evaluate the long-term effect of a company’s operations on society and the world as a whole.

It’s important to understand the difference between green stocks and ESG stocks. While green stocks focus solely on environmental impact, ESG stocks consider a company’s overall commitment to these three elements:

  1. Environmental (E):
    • Climate Change Impact: Measures a company’s contribution to climate change, including its greenhouse gas emissions and resource use.
    • Waste Management: Looks at how the company handles waste, including recycling and hazardous waste disposal.
    • Water Use and Pollution: Considers water conservation, water pollution, and the general treatment of environmental resources.
    • Energy Efficiency: Addresses how the company uses energy, including its use of renewable energy sources.
    • Biodiversity Impact: Examines how a company’s activities might impact the natural habitats and biodiversity in its operational areas.
  2. Social (S):
    • Employee Relations and Welfare: Includes factors like wages, benefits, diversity, inclusion, and working conditions.
    • Community Relations: Assesses the company’s relationship with the communities in which it operates, including philanthropy and community engagement.
    • Product Responsibility: Looks at the social implications of a company’s products and services, including their safety, quality, and accessibility.
    • Supply Chain Management: Examines how the company manages relationships with suppliers, particularly in areas like human rights and labor practices.
    • Customer Treatment: Considers how the company treats its customers, focusing on areas like privacy, security, and overall satisfaction.
  3. Governance (G):
    • Corporate Governance: Focuses on how a company is governed, including board structure, executive compensation, and shareholder rights.
    • Ethical Compliance: Looks at the company’s adherence to laws and regulations, as well as its commitment to ethical business practices.
    • Transparency and Reporting: Examines the transparency of the company’s operations, including its financial reporting and disclosure of relevant information.
    • Risk Management: Assesses how the company manages financial and non-financial risks, including those related to environmental and social issues.

Best ESG Stocks In Canada

For this list, I have chosen the stocks with the best ESG scores (according to Sustainalytics and Refinitiv) that also offer a decent return potential.

To ensure a relatively diverse representation, I’ve tried to keep the number of stocks per industry to a minimum. But keep in mind that some industries have a much higher concentration of good ESG stocks than others.

  • Franco-Nevada (FNV.TO)
  • WSP Global (WSP.TO)
  • TELUS (T.TO)
  • Canadian National Railway (CNR.TO)
  • National Bank of Canada (NA.TO)
  • Enbridge (ENB.TO)
  • Sun Life Financials (SLF.TO)

1. Franco-Nevada

franco nevada logo
  • Ticker: FNV.TO
  • Forward Dividend Yield: 1.24%
  • Dividend Payout Ratio: 37.85%
  • Dividend Yield (12-Month Trailing): 0.91%
  • Upcoming Dividend Date: Mar 28, 2024
  • Market Cap: $27.79 Billion

Franco-Nevada is among the largest gold companies in the world (by market cap) and perhaps the largest gold royalty company in the world. It has over 400 assets around the globe, and only about 40% of its portfolio is in Canada and the US.

The bulk of its portfolio is currently in the exploration phase, which may not be a strength for its current financials but points towards a strong future.

The company scores quite high when it comes to the ratings from three major ESG firms. It ranks 2nd out of 117 in Sustainalytics’ ESG risk rating; the Refinitiv score falls in the “Good” category and has an AA MSCI ESG risk rating.

It’s quite transparent about its environmental impact, which is quite a feat considering the massive scale of its portfolio. It’s engaged in three social projects and multiple industry initiatives.

It also made significant achievements towards diversity and inclusion, with visible minorities making up over 40% of senior management and 45% of the global workforce. Women represent 14% of the senior management and over 42% of the global workforce.

In addition to its strong ESG position, you should also consider its return potential. Luckily, Franco-Nevada excels there as well, with its returns in the ten years between 2014 and 2023 reaching well over 250%.

Unlike gold mining stocks that experience price fluctuation when gold demand fluctuates, Franco-Nevada’s growth is quite consistent.

2. WSP Global

WSP Global Stock
  • Ticker: WSP.TO
  • Forward Dividend Yield: 0.82%
  • Dividend Payout Ratio: 34.64%
  • Dividend Yield (12-Month Trailing): 0.75%
  • Upcoming Dividend Date: Jan 15, 2024
  • Market Cap: $24.54 Billion

WSP Global is one of the largest professional and engineering services firms in the world. It provides a wide range of solutions to multiple industries and has a massive workforce – 67,000 strong and spread out in several countries.

More than half the workforce has engineering and design expertise, and the clientele is evenly split between the private and public sectors.

Sustainalytics has identified it as the safest out of the 356 Construction and engineering companies it monitored, with the lowest ESG risk score. It also has an “Excellent” Refinitiv score and an average MSCI ESG rating.

The company has achieved a lot from an environmental perspective, with a 40% reduction in its scope 1 and 2 emissions, and it’s going for a 60% reduction by 2030.

Roughly half of the company’s revenues come from projects that are aligned with the UN’s Strategic Development Goals (SDGs). The company made charitable contributions of about $3.9 million worldwide.

It also scores well in governance, inclusion, and diversity; its ESG profile leans quite heavily towards its environmental impact.

You should also consider WSP Global for its growth potential. The company has increased its market value by over 200% in the last five years alone, and the growth pace is quite consistent.

Its financials are healthy, it has a manageable amount of debt (considering its revenue), and over 55% of the company is owned by institutions. It’s a bit overvalued, but considering its growth pace, the valuation is quite justified.

3. TELUS

Telus Stock
  • Ticker: T.TO
  • Forward Dividend Yield: 6.21%
  • Dividend Payout Ratio: 264.70%
  • Dividend Yield (12-Month Trailing): 6.13%
  • Upcoming Dividend Date: Jan 02, 2024
  • Market Cap: $34.23 Billion

Telus stands out from the trio of telecom giants in Canada for a number of reasons, including ESG. It has a low Sustainalytics score, an “Excellent” Refinitiv, and a “Leader” MSCI ESG score.

The company has a massive, power-hungry infrastructure footprint, but it has made great strides towards cleansing that infrastructure from emissions. It has reduced its emissions per terabyte of data transmitted from 15 kg of carbon dioxide to 10 kg.

It’s also on track for most of its 2030 environmental commitments, including becoming carbon neutral by 2030. Its grants and other financial support numbers are incredible, too.

The employees and retirees of the company have given about $1.5 billion between 2000 and 2022 to various causes. Employees also spent about 192,000 community work days in 2022. Over 43% of the board is made up of women and visible minorities.

Apart from direct ESG initiatives, the company’s telehealth/virtual health business segment will also have a tangible environmental and social impact, i.e., by connecting far-away communities with the best healthcare professionals and reducing emissions associated with appointments that can be taken virtually.

Telus stands out, even among the best ESG stocks in Canada, and it also offers the best return potential out of the three telecom giants (based on the total ten-year returns).

Currently, it’s offering a very generous yield thanks to a hefty price discount. It’s overvalued and has an enormous amount of debt, but it’s nowhere near the dangerous territory.

4. Canadian National Railway

Canadian National Railway Stock
  • Ticker: CNR.TO
  • Forward Dividend Yield: 1.89%
  • Dividend Payout Ratio: 42.10%
  • Dividend Yield (12-Month Trailing): 1.83%
  • Upcoming Dividend Date: Mar 28, 2024
  • Market Cap: $109.26 Billion

It may be a surprise to see a railway/transportation stock on the ESG list since transportation is perhaps the largest source of emissions, but it’s important to differentiate between modes of transport.

It’s somewhere between four to five times more fuel-efficient to transport something (both people and cargo) using trains compared to trucks and cars.

The massive, 20,000-mile railway network under the Canadian National Railway’s purview connects three North American ports to various economic and manufacturing hubs and considering its efficiency, it’s positively contributing to the supply chain emissions of thousands of businesses.

The company has a great Sustainalytics ESG risk score and an “Excellent” Refinitiv score. It has undertaken multiple sustainability initiatives, including planting 3 million trees across its railway network by 2030, which is 77% done.

It’s close to achieving the 30% female representation goal in the executive members of the company.

Apart from a solid ESG profile, you might consider the stock for its growth potential. It’s also a dividend aristocrat with a solid payout history, but the capital appreciation potential far outshines this dimension of return potential.

It’s financially sound as well, with a healthy Adjusted debt-to-adjusted EBITDA ratio of 1.86 (2022). Insiders own a sizable segment (1.6%) of this large-cap company.

5. National Bank of Canada

  • Ticker: NA.TO
  • Forward Dividend Yield: 4.17%
  • Dividend Payout Ratio: 42.43%
  • Dividend Yield (12-Month Trailing): 3.88%
  • Upcoming Dividend Date: Feb 01, 2024
  • Market Cap: $34.25 Billion

The national presence of the National Bank of Canada is highly localized, with over 50% of the revenues coming from Quebec alone. It also has a decent international presence, generating about 19% of the revenues.

The bank has a sizable national footprint, with 368 branches and over 87 branches in Cambodia, the main source of its emissions.

However, as a financial institution, its ESG impact is also related to financing, i.e., the kind of projects it funds. About $4.1 billion of its assets under management are in sustainable investments, and it circulated sustainable bonds of over $3.2 billion.

The bank is also working towards ensuring that a quarter of the workforce is made up of visible minorities and has tangible goals to reduce its exposure to the oil and gas industry.

The bank scores quite well across ESG calculations – It’s among the top 15% of the least risky (From an ESG perspective) banks as per Sustainalytics, has a “Good” Refinitiv ESG rating, and AAA “Leader” MSCI ESG rating.

Apart from sustainable and responsible banking practices, you may also find the bank ranking higher than its peers in stock performance. The 116% growth in the last ten years is substantially higher than the next best growth (Royal Bank of Canada – 86%).

6. Enbridge

Enbridge Stock
  • Ticker: ENB.TO
  • Forward Dividend Yield: 7.37%
  • Dividend Payout Ratio: 234.83%
  • Dividend Yield (12-Month Trailing): 7.56%
  • Upcoming Dividend Date: Mar 01, 2024
  • Market Cap: $98.56 Billion

An oil and gas company with a high ESG rating is not rare per se, but it’s definitely not the norm. However, Enbridge’s inclusion in the best ESG stocks in Canada is grounded in several good practices and initiatives. The business model helps as well.

Enbridge has four major businesses – oil transportation, which is the least environmentally friendly segment of the business, gas transportation, gas utility, and renewables.

Natural gas is far more environmentally friendly than oil, and since a substantial section of Enbridge’s total business is built around natural gas, it has a better environmental profile than many other energy, even midstream businesses.

The company is committed to becoming net zero by 2050 and reducing emissions intensity by 2030, and it’s well on its way to achieving both those goals, maybe before the target date.

31% of its workforce is women, 25% are underrepresented in ethnic and racial groups, 3% are people with disabilities, and 5% are US veterans. In 2022, it spent about $22 million on community-strengthening activities.

Its scores/ratings from three major ESG firms are solid as well. Sustainalytics ranked it 11 among 207 refineries and pipeline companies across the globe for ESG risk rating, Refinitiv has given it an “Excellent” ESG score, and it has an AA “Leader” ESG rating from MSCI.

If you evaluate Enbridge from a Return on Investment perspective, the most attractive feature is its dividends. It has a solid history of dividend growth and usually offers a relatively generous yield.

It’s far safer than typical energy stocks that pay dividends, partly because of its pipeline-oriented operations and partly because a substantial portion of its income comes from natural gas utilities.

7. Sun Life Financials

SunLife Logo
  • Ticker: SLF.TO
  • Forward Dividend Yield: 4.54%
  • Dividend Payout Ratio: 46.89%
  • Dividend Yield (12-Month Trailing): 4.22%
  • Upcoming Dividend Date: Mar 28, 2024
  • Market Cap: $41.12 Billion

Closing the list is an insurance giant, though its current business model is a bit more diversified. About 56% of the business is from traditional and group insurance and benefits, while the rest is wealth and asset management.

Sun Life has stellar ESG scores across the board. Sustainalytics has ranked it 13th out of 303 insurance companies across the globe for ESG risk rating. Refinitiv scores put it right between “Good” and “Excellent,” and it has a AAA MSCI ESG rating (leader).

Its social impact is enormous (2022 numbers):1.6 million individuals covered through affordable insurance policies in Asia, contributed to affordable dental care for 3 million Americans, spent $5.7 million on diabetes awareness, prevention, and care, and $6.5 billion of the assets under management were invested in sustainable businesses.

About 55% of the board is made up of women, and it has carbon-neutral operations globally.

You should also consider Sun Life Financials for its healthy combination of dividends and capital appreciation potential. About half of the company is owned by institutions, which gives it a lot of stability.

Related Reading: 10 Best ESG ETFs In Canada

Honourable Mentions

A few companies with decent ESG scores that couldn’t make the cut either due to the industry repetition or growth potential are at least worth knowing.

  • Celestica: Stellar ESG scores, but minimal growth prospects and no dividends.
  • Metalla Royalty & Streaming: A smaller gold royalty and streaming company with powerful but unpredictable growth.
  • IGM Financial Inc.: Good ESG scores and yield, almost non-existent capital growth potential.
  • Allied Properties: Good ESG scores, especially compared to most other REITs.

Impact of ESG on Financial Performance

The impact of ESG factors on financial performance is an area of growing interest for investors, businesses, and regulators. There are several ways in which ESG factors can influence a company’s financial outcomes:

  1. Risk Management:
    • Regulatory Risks: Companies that fail to comply with environmental or social regulations may face fines and legal liabilities.
    • Reputational Risks: Poor ESG practices can damage a company’s reputation, leading to a loss of customer trust and potential declines in sales.
    • Operational Risks: Environmental disasters, social unrest, or governance scandals can disrupt operations and create financial losses.
  2. Cost Savings and Efficiency:
    • Resource Efficiency: Implementing environmentally friendly practices can lead to cost savings through energy efficiency, waste reduction, and optimized resource usage.
    • Employee Satisfaction: Positive social practices may lead to increased employee satisfaction and retention, reducing recruitment and training costs.
  3. Revenue Growth Opportunities:
    • New Markets: ESG-oriented products and services can open new market opportunities, especially among consumers who prioritize sustainability.
    • Customer Loyalty: Positive ESG practices can increase brand loyalty and create a competitive edge, potentially leading to higher sales and market share.
  4. Access to Capital:
    • Investor Attraction: There is a growing pool of investors specifically interested in companies with strong ESG performance. Access to this capital can lower financing costs.
    • Credit Ratings: Better ESG practices may lead to more favourable credit ratings, reducing borrowing costs.
  5. Long-term Value Creation:
    • Sustainable Growth: By considering long-term environmental and social trends, companies may position themselves for sustainable growth and reduce exposure to future risks.
    • Innovation: ESG-driven innovation can lead to the development of new products, services, or business models that create long-term value.
  6. Possible Negative Impact:
    • Short-term Costs: Implementing ESG initiatives might lead to short-term costs, which could impact financial performance in the near term.

The relationship between ESG factors and financial performance is not always straightforward. Studies have shown mixed results, with some finding a positive correlation between ESG and financial performance, while others show no significant relationship or even negative correlations in certain contexts.

Challenges in ESG Investing

ESG investing does present certain challenges and complexities:

Lack of Standardization

One of the major challenges in ESG investing is the lack of consistent metrics and definitions. There’s no universally accepted standard for measuring ESG performance, leading to inconsistent evaluations. For Canadian stocks, there are four major names when it comes to an ESG rating: Sustainalytics (by Morningstar), Refinitivspglobal, and MSCI. The ESG ratings from the four companies can be quite different across industries.

Data Availability and Quality

ESG investing is often hindered by issues related to data availability and quality. Incomplete data and the varying quality and accuracy of reported ESG information can significantly affect the assessment of true performance.

Integration with Traditional Analysis

The integration of ESG factors with traditional financial analysis can be complex and time-consuming. This complexity often stems from the need for new skills and methodologies and the tension between focusing on long-term value through ESG factors versus short-term gains in traditional analysis.

Regulatory and Policy Uncertainty

The evolving regulatory landscape for ESG creates uncertainties that can affect investment strategies. Aligning investments with governmental policies on topics like climate change and social issues can be challenging due to political uncertainties.

Investor Expectations and Pressure

Balancing ethical alignment with financial performance expectations can create tension in ESG investing. Investors may also face pressures from various stakeholders to adopt specific ESG strategies, leading to potential conflicts of interest.

Greenwashing

Misleading claims about ESG credentials, known as greenwashing, pose a significant challenge. Some companies may exaggerate or misrepresent their ESG performance, requiring in-depth analysis and expertise to detect and avoid misallocation of investments.

Fiduciary Duties and Ethical Considerations

Investors must carefully balance ESG considerations with their legal obligations to maximize financial returns. The subjectivity of ethical choices also adds complexity, as different investors may have varying ethical priorities and perspectives.

Scale and Resource Constraints

Smaller investors may struggle with the resources required for comprehensive ESG analysis. ESG investing often demands significant resources for research, data collection, and ongoing monitoring, which can be especially challenging on a smaller scale.

What Is The Best Performing ESG ETF?

Desjardins RI USA – Low CO2 Index Units ETF (Ticker:DRMU) is one of the oldest and best-performing ESG ETFs currently trading on the TSX. However, it leans heavily towards an environmental aspect of ESG. A more holistic, best-performing ESG ETF would be iShares ESG Aware MSCI USA Index ETF (Ticker:XSUS).

How To Buy ESG Stocks In Canada

The cheapest way to buy stocks is from discount brokers. My top choices in Canada are:

Qtrade
Readers Choice
  • 105 commission-free ETFs to buy and sell
  • Excellent customer service
  • Top-notch market research tools
  • Easy-to-use and stable platform 
Wealthsimple Trade
Low Fees
  • Stock and ETF buys and sells have $0 trading fees
  • Desktop and mobile trading
  • Reputable fintech company
  • Fractional shares available
Questrade
Well-Rounded
  • ETF buys have $0 trading fees
  • Excellent market research tools
  • Most types of registered accounts available

To learn more, check out my full breakdown of the best trading platforms in Canada here.

Conclusion

As a pragmatic investor, responsible investing should be a part of your investment strategy, not the entirety of your investment approach.

You can also take a broad-spectrum approach to ESG investing and balance the overall ESG profile of your portfolio by balancing a powerful but low ESG rating asset with a modestly profitable high ESG rating one.

This holistic approach will ensure your portfolio meets your financial goals as well, not just responsible investing ones.

And if you are more focused on the environment than ESG as a whole, TSX’s renewable energy companies might be worth a look.

Photo of author
Author Bio - Christopher Liew is a CFA Charterholder with 11 years of finance experience and the creator of Wealthawesome.com. Read about how he quit his 6-figure salary career to travel the world here.

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