ESG ETFs in Canada: Build Your Own Portfolio with BMO ETFs

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This post is sponsored by BMO ETFs. All views and opinions expressed represent my own and are based on my own research of the subject matter. 

One thing I’ve been happy to see is that the idea of sustainable investing is becoming more common-place in the past few years. And I think a big reason for that, besides climate change and social change (obviously), is that sustainable investing is so much more accessible now due to more ESG ETFs in Canada becoming available from providers like BMO ETFs.

What Is ESG Investing?

If you’re not familiar with ESG investing, that’s ok! It’s still somewhat of a niche, though it’s steadily gaining popularity. The acronym ESG stands for environmental, social, and governance, and it’s an investing philosophy that focuses on building wealth while staying in alignment with your personal values.

This doesn’t mean only investing in companies related to electric cars or windmills. That’s the great thing about so many new ESG ETFs popping up. There are way more opportunities now to gain broad market exposure and have a diversified investment portfolio, without having to invest in companies or industries that don’t fit within your value system. For instance, they may exclude sectors such as gambling, tobacco, weapons, and alcohol, and include companies who have a high ESG score (meaning they have proven their resilience to risks associated with the environment, society and their governance.).

How Do You Build a DIY ESG Portfolio?

This all sounds great, but the one question I get asked all the time is “How do I do this if I’m a DIY index investor?”

And my answer is, the same way you’d build a standard index portfolio. First, you’d determine your investment goal, time horizon, personal risk tolerance. Then, you’d choose your target asset allocation for your portfolio. Lastly, you would choose ETFs that fit into your asset allocation. But obviously, as an ESG investor, you would need to choose ESG ETFs.

Fortunately, BMO has recently expanded their menu of ESG ETFs, which makes sense since they’ve been one of the leaders in developing ESG products for the past 30 years. Moreover, BMO ETFs has become one of the largest ETF providers in Canada with 29% of the Canadian ETF market share since launching in 2009.

All in, they offer 10 different ESG ETFs for Canadians. Let me go through them one by one so you’ll have an easier time figuring out which ones to integrate into your own ESG ETF portfolio.

ESG All-In-One Fund

BMO Balanced ESG ETF (ZESG)

If you’re looking for the easiest way to invest in a portfolio of ESG ETFs, then you’ll really like ZESG. It’s a balanced fund, meaning that it’s an ETF composed of both equity and fixed income ETFs. The best part of this type of ETF is that it rebalances itself to its target weightings so you don’t have to.

BMO Balanced ESG ETF (ZESG)

As you can see, inside it’s made up of 6 different ETFs that provide you with an overall asset mix of 60% equities and 40% fixed income. Not only that, it gives you exposure to stocks in the U.S., Canada, and international markets, as well as Canadian corporate and government bonds and U.S. corporate bonds.

However, if you feel that asset allocation is too conservative for your portfolio, then it may make more sense to simply build and manage your own ESG ETF portfolio using the following BMO ETFs.

ESG Equity Index ETFs

Ok, so let’s pretend you want your portfolio’s target asset mix to be 80% equities and 20% fixed income. Obviously, with the equity portion of your portfolio, you’ll want to gain exposure to the Canadian, U.S. and global equity markets. Using BMO ETFs, you can either divide that 80% into the following three ETFs, or you could simply buy ESGG which is composed of all three ETFs in one fund.

Canadian Stocks – BMO MSCI Canada ESG Leaders Index ETF (ESGA)

ESGA gives you exposure to the large and mid-cap Canadian stocks in which the companies have a high ESG rating relative to their peers in each sector, while excluding companies that earn significant revenues from tobacco, alcohol, gambling, weapons, nuclear power, or have issues in terms of their governance. Its MER is 0.17%.*

*Just a note about the MERs listed in the blog post. They are estimates only taken from the website. The audited MERs are unavailable right now since the ETFs listed have not yet completed a full financial year.

BMO MSCI Canada ESG Leaders Index ETF (ESGA)

US Stocks – BMO MSCI USA ESG Leaders Index ETF (ESGY)

Similarly, ESGY gives you exposure to the large and mid-cap U.S. stocks in which the companies have a high ESG rating relative to their peers in each sector, while excluding companies that earn significant revenues from tobacco, alcohol, gambling, weapons, nuclear power, or have issues in terms of their governance. Its MER is 0.22%.

BMO MSCI USA ESG Leaders Index ETF (ESGY)

International Stocks – BMO MSCI EAFE ESG Leaders Index ETF (ESGE)

And last but not least, ESGE gives you exposure to the large and mid-cap international stocks in which the companies have a high ESG rating relative to their peers in each sector, while excluding companies that earn significant revenues from tobacco, alcohol, gambling, weapons, nuclear power, or have issues in terms of their governance. Its MER is 0.28%.

Now, you can very well invest in all three of these ESG ETFs in whatever weighting you like, but that will mean you have to rebalance them regularly to stay on target.

If you want to save yourself the hassle, you may want to invest in ESGG.

BMO MSCI EAFE ESG Leaders Index ETF (ESGE)

Canadian, US & International Stocks – BMO MSCI Global ESG Leaders Index ETF (ESGG)

ESGG is a fund of funds, which means it’s an ETF that’s comprised of all three of the above ETFs. Specifically, it’s 65.32% U.S., 30.73% international, and 3.95% Canadian.

The benefit of investing in this ETF is that you don’t have to rebalance it yourself. It does that for you. And considering its MER is only 0.28%, that’s not bad at all.

But if you prefer having more flexibility with your portfolio, then you may prefer just buying each individual equity ETF and rebalancing on your own schedule.

BMO MSCI Global ESG Leaders Index ETF (ESGG)

ESG Fixed Income Index ETFs

So that takes care of the 80% equity portion of your portfolio, but we still need to fill in the remaining 20% with fixed income. BMO ETFs has three different ESG fixed income ETFs to provide you with exposure to Canadian corporate bonds, U.S. corporate bonds hedged to the Canadian dollar, and high-yield U.S. corporate bonds.

Canadian Bonds – BMO ESG Corporate Bond Index ETF (ESGB)

ESGB gives you exposure to a variety of investment-grade corporate bonds issued domestically in Canada in Canadian dollars, which have a term to maturity greater than one year. The bonds in this fund are issued by companies that have a high ESG rating relative to their peers, and companies that earn significant revenues from tobacco, adult entertainment, alcohol, gambling, weapons, nuclear power, or have issues in terms of their governance are excluded. Its MER is 0.17%.

BMO ESG Corporate Bond Index ETF (ESGB)

US Bonds – BMO ESG High Yield U.S. Corporate Bond Index ETF (ESGH)

ESGH gives you exposure to a variety of high yield corporate bonds issued in the U.S., which have a term to maturity greater than one year. The bonds in this fund are issued by companies that have a high ESG rating relative to their peers, and companies that earn significant revenues from tobacco, adult entertainment, alcohol, gambling, weapons, nuclear power, or have issues in terms of their governance are excluded. Its MER is 0.51%.

BMO ESG High Yield U.S. Corporate Bond Index ETF (ESGH)

US Bonds – BMO ESG US Corporate Bond Hedged to CAD Index ETF (ESGF)

Lastly, ESGF gives you exposure to a variety of investment-grade corporate bonds issued by the U.S., which have a term to maturity greater than one year. The bonds in this fund are issued in U.S. dollars, but the U.S. dollar currency exposure is hedged back to Canadian dollars. The bonds in this fund are issued by companies that have a high ESG rating relative to their peers, and companies that earn significant revenues from tobacco, adult entertainment, alcohol, gambling, weapons, nuclear power, or have issues in terms of their governance are excluded. Its MER is 0.23%.

BMO ESG US Corporate Bond Hedged to CAD Index ETF (ESGF)

Impact ETFs

There are two other ESG ETFs that BMO ETFs offers: BMO Clean Energy Index ETF (ZCLN) and BMO Women in Leadership Fund (WOMN). Personally, I would consider these as niche ETFs because they both have very specific focuses.

ZCLN seeks to replicate a broad market international and emerging markets index composed primarily of companies who are clean energy producers, or clean energy technology and equipment companies. With WOMN, it invests in North American companies that have both or either 25% representation of women on the board of directors or a female CEO, and it doesn’t seek to replicate any particular broad market index.

With that said, as a broad market index investor, I probably wouldn’t use either as my exposure to international markets or U.S. and Canadian markets. If I were to integrate them into a portfolio, they would either be a satellite portfolio to my core portfolio, or I’d allocate a specific percentage of the equity portion of my portfolio to them such as 5-10%.

Putting It All Together

Ok, I know that was a lot of info so let’s put it all together in a mock portfolio.

Using my previous example of an 80/20 asset mix, here’s what that could look like.

ESG 80/20 Portfolio

And if you’re wondering where this spreadsheet came from, this is a little peak into one of the many helpful spreadsheets I’ve got in my investing course.

So, there you have it! Building your own DIY ESG ETF portfolio isn’t that hard at all. And it’s gotten a lot easier now that more ESG ETFs are available, like the ones through BMO ETFs.

To learn more about BMO’s selection of ESG ETFs, click here.

Have some more questions? Great! Drop them in the comments below.

Disclosure: Nothing on my website or affiliated channels should be considered advice or an endorsement, and some content may include affiliate links in which I may earn a commission at no extra cost to you. Please read my disclaimer to learn more.

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