During my research for our socially responsible investing podcast, it became clear to me that making a switch from a traditional, FIRE endorsed, index ETFs to a more sustainable portfolio was something that I wanted to do.
When I discussed this idea with The Lawyer, it was definitely something she could get behind
We decided that we wanted whatever ETFs we invested in to be guided by the ESG principles and that we also wanted our portfolio to exclude as much fossil fuel as possible.
I had some US Dollars to deploy as I had just received some pay from my side-hustle so my decision was pretty easy – I bought some ESGV (0.12 expense ratio) and some EVGX (0.17 expense ratio), Vanguard’s USA and international ESG ETFs. Now, these funds are not fossil fuel free, but I am a sucker for Vanguard and the fees are incredibly low I couldn’t resist when I found them. The other issue – they are only available in US dollars which causes some headaches, unless you’re already familiar with Norbert’s Gambit. I probably would not incur exchange fees to purchase these funds.
So then we really started to dig in, but we didn’t like what we found. It seemed that each ETF we looked at was just a tweaked version of the traditional index ETF. For example, iShares ESG MSCI Canada Index ETF, XESG, is designed to provide investors with exposure to the performance of an environmental, social and governance (ESG)-oriented index selected at the discretion of BlackRock, but has Suncore and Enbridge in their top 10 holdings. Not really the sustainable ETF we were looking for.
Luckily, I had already discovered the Responsible Investing Association whose web site lets you search ETFs by certain exclusions. I excluded fossil fuels and found 4 ETFs, but I was only interested in the Horizons Global Sustainability Leaders Index ETF, ETHI, and the Desjardins RI Global Multifactor – Fossil Fuel Reserves Free ETF, DRFG. The Horizon Fund only has 101 holdings compared to 838 from the Desjardins Fund, however, the Desjardins Fund is more expensive at a 0.69 percent MER compared to 0.45 percent or more* and is actually just plain expensive! Are we really going to pay fees of almost 0.7 percent? It’s hard to swallow.
*This fund has not yet reported a MER (Management Expenses Ratio).
Desjardins also has some “Low CO2” ETFs, but they only reduce the CO2 imprint by a little over 50 percent and building a portfolio that includes Canada, the US, the developed markets, and the emerging markets out of these ETFs still leaves us with an average MER of about 0.45 percent.
We also looked at the Sustainable Economist’s Fossil Fuel Free Portfolio, but it consists of 14 ETFs and an MER of 0.43, still expensive.
The Lawyer is willing to pay the premium and invest in DRFG from Desjardins, but I am not sold. I think our options are underwhelming. Should we bite the bullet and pay the 0.69 percent MER for the single ETF solution offered by Desjardins? Should we bend on how much Fossil Fuel we allow in our portfolio? Should we look at more ETFs that are traded on the US exchanges? Maybe this ends with us hiring the Sustainable Economist to help us find a solution unique to us.