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Responsible Investment (RI) funds comprise a growing segment in the Canadian fund universe. That’s not surprising, as RI funds continue to deliver higher returns with lower risk. For investors seeking exposure in this area, the number of funds using RI criteria has also increased substantially over the past decade, expanding RI assets under management considerably.
In its 2024 report, the Responsible Investment Association reported that RI assets under management increased to $4.5 trillion, a 50% rise over the previous year. That brings RI market share up to an impressive figure of over 70%, meaning nearly three-quarters of Canadian professionally managed assets now incorporate RI in their investment process.
Along with the growth in RI investments, the RIA further notes that investor confidence is also growing in the quality and standards of environmental, social, and governance (ESG) reporting. This comes on the heels of an increase in the number of investment firms with comprehensive and formal disclosures for RI policies, ESG integration, shareholder engagement, and proxy voting guidelines – a figure that now stands at 52%.
When it comes to investment performance, research continues to emerge that supports ESG-specific factors as driving an increase in returns across a variety of outcomes, including investing with a long-term focus and protecting capital in a crisis.
For example, researchers at the NYU Stern Center for Sustainable Business found in a meta-study that studies with Alpha or Sharpe Ratio as an outcome showed evidence of superior returns 59% of the time, with only 14% experiencing a negative outcome. The researchers also established that outperformance was more apparent the longer the duration of time studied.
In addition, the paper by Whelan et al. (2021) found a strong correlation between lower sustainability risk and better performance, especially when it comes to asymmetric events. This means that sustainable investments may provide downside protection during a social or economic crisis.
The FundGrade A+® 2024 RI Award winners are prime examples of investment funds with these characteristics – delivering superior returns from responsible investments while minimizing downside risk and volatility.
Now in their 12th year, the FundGrade A+ RI Awards recognize outstanding risk-adjusted performance from funds with an RI mandate. The award is given to the top RI fund in each of three categories: Fixed Income; Balanced; and Equity.
The 2024 RI A+ Award winners include three first-time recipients.
The iShares ESG Advanced 1-5 Year Canadian Corporate Bond Index ETF (TSX: XSHG) in the RI Fixed Income category. The ETF invests in short-term, investment-grade Canadian corporate bonds, while seeking to reduce exposure to fossil fuels and other sectors with elevated sustainability risks. Through its underlying index, the fund also screens issuers to include those with above-average ESG ratings. These combined strategies result in RI flags for both ESG Best In Class and ESG Exclusions. iShares XSHG has delivered a 3-year average annual compounded rate of return of 4.6%, the third highest among all RI Fixed Income funds.
In the RI Balanced category, iShares ESG Growth ETF Portfolio (TSX: GGRO) applies ESG Best In Class and ESG Exclusions strategies through its underlying fund holdings. With a target allocation of 80% equities and 20% fixed income, GGRO achieves a high overall ESG score, placing it in the top 15% of Fundata OWL ESG portfolio scores for balanced funds. Its category-leading 4-year average annual compounded rate of return of nearly 9% is complemented by the top Sharpe Ratio among all RI balanced funds over both 3 and 4 years.
Finally, Invesco ESG NASDAQ 100 Index ETF (TSX: QQCE) claimed top honours in the RI Equity category. The fund employs both exclusionary and positive screening to identify companies within the Nasdaq 100 Index that meet specific ESG criteria related to business activities, controversies, and ESG risk ratings. While its 2-year average annual compounded rate of return of 25% ranks second among RI equity funds, QQCE leads the category with a standout Sharpe Ratio of 2.5. Given that it tracks an ESG-refined version of one of the top-performing broad market indexes of the past decade, its strong performance is not surprising.
John Krisko, CFA, BBA, is Vice President, Investment Analytics at Fundata Canada Inc. and is Vice Chair of the Canadian Investment Funds Standards Committee (CIFSC).
Notes and Disclaimers
© 2025 by Fundata Canada Inc. All rights reserved. Reproduction in whole or in part by any means without prior written permission is prohibited.
Commissions, management fees, and expenses all may be associated with exchange-traded fund (ETF) investments. Please read the simplified prospectus before investing. ETFs are not guaranteed and are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer. There can be no assurances that the fund will be able to maintain its net asset value per security at a constant amount or that the full amount of your investment in the fund will be returned to you. Fund values change frequently and past performance may not be repeated. The foregoing is for general information purposes only and is the opinion of the writer. No guarantee of performance is made or implied. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice.
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