The market for Canadian ETFs with a focus on environmental, social and governance (ESG) metrics has ballooned in recent years — and a new competitor has emerged.
The Invesco S&P 500 ESG Index ETF, now trading on the Toronto Stock Exchange, is touted by New York–based Invesco Ltd. as the first Canadian-listed ETF offering exposure to U.S. large caps that meet the S&P Dow Jones Indices’ ESG criteria. It’s also Invesco’s first ESG ETF in Canada.
“We have noted increased interest from Canadian investors in ESG,” said Jasmit Bhandal, Invesco Canada’s vice-president and head of ETF product strategy and development, in an email.
The new fund, which has a management fee of 0.15%, targets 75% of the S&P 500’s float market capitalization, filtering out companies that are meaningfully involved in tobacco production and controversial weapons, as well as companies with low UN Global Compact scores. Remaining companies are sorted according to their ESG scores.
“This particular ETF provides a more sustainable U.S. equity index but still offers a risk-return profile similar to the S&P 500,” Bhandal said.
Flows into Canadian ESG ETFs were “near zero” until 2017, according to data from National Bank of Canada, but the funds have seen a “large burst of activity” in recent years, driven by institutional investors. Flows into ESG funds totalled almost $350 million in 2018, while last year saw almost $200 million.
It remains to be seen whether ESG ETFs will catch on to the same extent with retail investors, but Bhandal said she believes there will “always be a demand for ETFs that offer investors unique investment outcomes and value.”