The Top ESG Stocks in Canada to Buy in February 2025

Key takeaways

ESG investing is a growing trend: With increasing awareness of environmental and social issues, companies like Royal Bank of Canada, Enbridge, and Shopify are aligning their strategies with sustainability goals, making ESG-focused stocks an attractive choice for long-term investors.

Diverse opportunities across sectors: From renewable energy projects by Enbridge to Dream Impact Trust’s affordable housing initiatives, ESG-focused stocks span multiple industries, offering investors options tailored to their priorities and risk profiles.

Performance with purpose: These companies demonstrate that strong ESG initiatives can complement financial performance, proving that sustainability and profitability can go hand in hand.

3 stocks I like better than the ones on this list.

Numerous investors wish to convey a distinct message to financial advisors, large mutual funds, and the management groups of several leading firms. Merely boosting investments isn’t sufficient. These individuals are also eager to invest in Canadian shares that are making a positive impact.

Enter ESG investing. ESG- environmental, social, and (corporate) governance- is an internationally recognized set of criteria to evaluate whether a company’s conduct is up to specific standards. Potential investments are then judged based on how they stack up against these standards using ESG ratings. 

Canada’s largest financial institution

Royal Bank of Canada (TSE:RY)

Royal Bank of Canada (RBC) is a financial giant offering banking, wealth management, insurance, and capital markets services in Canada and internationally. With a history stretching back over 150 years, RBC serves over 17 million clients and plays a pivotal role in the Canadian economy. It’s been ramping up sustainability efforts in its operations, investments, and partnerships to align with its long-term ESG goals.

P/E: 14.6

5 Yr Revenue Growth: 4.2%

5 Yr Earnings Growth: 4.7%

5 Yr Dividend Growth: 6.1%

Yield: 3.4%

  • Strong focus on financing renewable energy projects, committing over $500 billion to sustainable finance by 2025.Consistently ranks as one of the most sustainable banks globally.
  • Diverse revenue streams reduce risk, supporting steady returns for ESG-conscious investors.
  • Impressive dividend track record with annual increases for over a decade.
  • Recent investments in fintech and technology to enhance customer experience and digital accessibility.
  • Prioritizes inclusion and diversity with comprehensive programs to promote underrepresented groups.
  • Green Lending: RBC’s ongoing push toward financing green projects could enhance its ESG profile and revenue growth.
  • Net-Zero Goals: Look for progress on its goal of net-zero emissions in lending by 2050.
  • Digital Banking Expansion: Increased adoption of RBC’s digital platforms offers long-term cost and customer retention benefits.
  • ESG Reporting: RBC continues to refine and expand its sustainability reporting, giving investors greater transparency.
  • Regulatory Scrutiny: Stricter regulations on banking could pressure margins or lending activities.
  • Economic Sensitivity: As a major lender, RBC’s growth is tied to the health of the broader economy.
  • ESG Greenwashing Concerns: Any perceived failure to deliver on its ESG commitments could impact investor sentiment.
  • Competition: Rising competition from fintech companies could affect its market share.

North America’s leading energy infrastructure company

Enbridge (TSE:ENB)

Enbridge owns and operates one of the largest networks of pipelines for transporting crude oil, natural gas, and renewable energy. The company is committed to diversifying its portfolio by investing heavily in renewable energy, including offshore wind and solar, while continuing to modernize its core pipeline operations.

P/E: 20.6

5 Yr Revenue Growth: -2.0%

5 Yr Earnings Growth: 13.3%

5 Yr Dividend Growth: 4.9%

Yield: 6.0%

  • Strong ESG focus with $4 billion invested in renewable energy projects to date.
  • Transitioning towards a greener future with significant wind and solar energy investments.
  • Consistent dividend growth, boasting 28 years of consecutive increases.
  • Strategic natural gas expansion projects ensure near-term stability while enabling energy transition.
  • Positive environmental track record in lowering emissions from core operations.
  • Long-term contracts provide cash flow stability, even during energy market volatility.
  • Renewable Energy Expansion: Watch for further investments in offshore wind projects across North America and Europe.
  • Energy Transition Goals: Progress toward achieving net-zero emissions by 2050 is key.
  • Pipeline Modernization: Technologies to reduce emissions and improve pipeline safety will remain a focus.
  • Energy Demand: Long-term demand for natural gas and its role as a transition fuel could be critical to growth.
  • Regulatory Approvals: Delays or opposition to pipeline projects could hurt growth prospects.
  • Commodity Price Volatility: Revenue depends on underlying oil and gas markets.
  • Environmental Concerns: Accidents or spills could tarnish its ESG reputation.
  • Rising Debt Levels: High leverage may limit future growth investments.

Leading global e-commerce platform

Shopify (TSE:SHOP)

Shopify provides a comprehensive e-commerce platform enabling businesses of all sizes to build and scale their online presence. The company has committed to sustainable growth by offsetting all carbon emissions from shipments and championing small businesses worldwide. Shopify is at the forefront of creating tools to help merchants reduce their environmental footprint.

P/E: 102.3

5 Yr Revenue Growth: 46.9%

5 Yr Earnings Growth: -%

5 Yr Dividend Growth: -%

Yield: -%

  • Leading player in e-commerce with a global presence, making it highly scalable.
  • Strong ESG credentials with a Sustainability Fund supporting carbon removal technologies.
  • Fast-growing subscription and merchant solutions business drives recurring revenue.
  • Focus on empowering small businesses with digital tools, enhancing social impact.
  • Resilient balance sheet and long-term growth runway as e-commerce expands globally.
  • Open-source initiatives like Hydrogen promote innovation and developer inclusivity.
  • Sustainability Initiatives: Growth in Shopify’s Sustainability Fund and carbon offsetting programs.
  • E-commerce Trends: Global adoption of online shopping continues to accelerate.
  • Merchant Innovation: New tools to support merchants in managing inventory and logistics more sustainably.
  • International Expansion: Expanding operations in Europe, Asia, and Latin America could unlock new markets.
  • Macroeconomic Pressure: Rising interest rates could impact consumer spending and Shopify’s growth.
  • Profitability Concerns: High R&D and expansion costs may weigh on margins.
  • Competitive Landscape: Increased competition from Amazon, Squarespace, and others could limit growth.
  • Regulatory Challenges: Privacy laws and international compliance issues could slow innovation.

Canada’s fastest-growing telecom provider

Telus Corporation (TSE:T)

Telus provides telecommunications services, including wireless, internet, and TV, to millions of Canadians. It stands out for its significant investment in technology and innovation, particularly in digital health and agriculture, while maintaining strong commitments to sustainability and community impact.

P/E: 32.0

5 Yr Revenue Growth: 7.3%

5 Yr Earnings Growth: -15.4%

5 Yr Dividend Growth: 6.7%

Yield: 7.7%

  • Leader in 5G deployment, offering long-term growth in connectivity solutions.
  • Diversified business segments, including Telus Health and Telus Agriculture, support ESG goals.
  • Strong track record of reducing emissions and advancing renewable energy adoption in operations.
  • Generous dividend yield and consistent annual dividend hikes attract income-focused ESG investors.
  • High-quality customer service and strong retention rates bolster competitive position.
  • Increasing investments in digital health enhance its social impact and potential growth.
  • 5G Expansion: Telus’s leadership in 5G technology provides a competitive edge.
  • Telus Health Growth: Growing adoption of telehealth and digital health solutions.
  • Sustainability Goals: Look for continued progress toward its ambitious carbon neutrality goals.
  • Fiber Optic Investments: Expanding fiber optic networks to enhance broadband service and reduce emissions.
  • Regulatory Risks: Government intervention in telecom pricing could limit profitability.
  • Competition: Aggressive pricing by competitors could erode market share.
  • Economic Pressure: Consumer spending cutbacks may hurt growth in non-essential services.
  • Capital Expenditures: High upfront costs for 5G and fiber investments could weigh on cash flow.

Real estate firm with an ESG focus

Dream Impact Trust (TSE:MPCT.UN)

Dream Impact Trust is a Canadian real estate investment trust (REIT) dedicated to impact investing. It develops and manages properties with a focus on sustainable, community-oriented urban development. Its projects emphasize energy efficiency, affordability, and positive social outcomes, setting it apart from traditional REITs.

P/E:

5 Yr Revenue Growth: -%

5 Yr Earnings Growth: -%

5 Yr Dividend Growth: -%

Yield: -%

  • Portfolio prioritizes sustainability and social impact in urban communities.
  • Focus on affordable housing addresses a critical societal need while offering growth potential.
  • Strong alignment with ESG investors seeking tangible community benefits.
  • Dividend-paying REIT with predictable income for income-focused investors.
  • Promising pipeline of green development projects, including LEED-certified buildings.
  • Benefits from government incentives for sustainable real estate development.
  • Affordable Housing Projects: Ongoing development of mixed-use, community-focused housing projects.
  • Sustainability Certifications: Expansion of LEED and other green-certified building projects.
  • Urban Growth: Rising demand for sustainable urban spaces could drive long-term value.
  • Government Incentives: Support for ESG-focused housing initiatives could boost profitability.
  • Market Conditions: Real estate downturns could impact valuations and rental income.
  • Interest Rates: Rising rates could pressure development costs and reduce cash flow.
  • Execution Risks: Delays or cost overruns in green development projects.
  • Limited Scale: As a niche REIT, its smaller scale could limit growth compared to larger players.
  • Pricing Drawdowns: The fund has struggled mightily in a post-pandemic environment.

Let’s take a more detailed look at each of the pillars of ESG investing

Environmental

This criteria looks at how sustainable a company’s operations are. Energy companies and mining producers would fare poorly, while a renewable power producer or tech company would score much higher. 

Essentially, it looks at how much pollution a company generates, although this can be offset by taking steps to reduce carbon emissions — like when an oil company cleans up an area and plants a bunch of trees there.

Social

This looks at how a company works with its suppliers, customers, employees, and other stakeholders. The most important aspect of this part of ESG is equality. Companies get a high mark if they treat employees equally, value diversity and inclusion, and try to put disadvantaged groups in key positions.

It also values community, philanthropic work, and making sure an organization pays their fair share of taxes.

Corporate Governance

This has to do more with the attitude of upper management and how serious they are about using the company as a platform to do good in the world.

Is the company making a serious effort to value diversity, inclusion, and helping the environment? Or is it dumping toxic waste straight into local water supplies?

Combine these, and we get a form of 21st-century capitalism, one that worries more about the human and environmental side of the business. Proponents argue it’s a better model, and they’re winning.

Almost every significant publicly traded stock recognizes the benefits of joining a select group of ESG leaders, eagerly showing their ESG performance to the broader investment community. Plus, returns haven’t suffered a bit. It’s a legitimate investment strategy.

Many ESG stocks have been excellent performers

The exciting thing about ESG investing is it’s about more than just our collective conscience urging us to do good. The pillars were chosen partly because they lead to better economic performance. That tends to translate into better shareholder returns over time, although I’ll be the first to admit this isn’t a perfect relationship. 

One criticism many oppose ESG investing have is that investors shouldn’t mix social factors with investing. They should focus on making the highest return on their money and, if they choose, should use some excess returns to fund various initiatives to deal with sustainability, climate change, or gender equality. 

But that’s not the case. If you look at a few real-life examples, responsible investing has performed well. When we compare the performance of the largest ESG ETF in North America, the iShares ESG Aware USA ETF (NASDAQ:ESGU) to the S&P 500, the returns are practically identical.

It has delivered a 14.8% annual total return over the last five years, compared to a 15.1% annual return for an S&P 500 ETF. It turns out investors can have their cake and eat it too. 

There are fewer ESG ETFs on the Toronto Stock Exchange, however

The most prominent one is the iShares ESG Aware Canada ETF (TSX:XESG), which has been around since 2019. The fund aims to deliver comparable returns to the TSX Composite Index while achieving a more sustainable outcome. 

It has slightly underperformed Canada’s benchmark index but has still delivered solid returns for investors.

Another ESG index ETF that might interest investors looking for ESG exposure is the BMO Balanced ESG ETF (TSX:ZESG). This ETF differs slightly from its peers because it offers a combination of stocks and bonds of high-scoring ESG companies.

It has a 60% weighting towards equities and 40% in fixed-income assets, which makes it a solid steward of capital for investors looking to take a little less risk. It doesn’t just focus on North American companies, either. It invests in Europe and around the world as well. Plus, it has a very reasonable MER of 0.20%. 

With the shakeup in bonds over the course of the pandemic, it has resulted in large underperformance. This fund used to keep up until rapid rate declines in 2020/2021. However, the forward environment could certainly be bullish for bonds, so who knows if it will continue to underperform in the future.

Fund size may be an issue for larger investors. The ETF only has a market cap in the neighborhood of $50M. 

These ETFs have significantly lower fees than other specialized ESG investments. Expenses on those products are pretty high.

Also, note investors don’t need to buy ESG exchange-traded funds. They can take moves like avoiding any tobacco, prison, or weapon manufacturing stocks. Or they can go further and eschew oil producers, mining stocks, and other energy-intensive industries. It’s a personal decision, one that is unique for each individual. 

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