Investing comes with risk. This article is a general discussion of the merits and risks associated with these ETFs, not a specific recommendation. Speak to an investment professional and make sure your portfolio is diversified. Tim does not own shares of any funds mentioned in this article.

Divesting from fossil fuels just got a lot easier. In March 2019, Desjardins launched the Desjardins RI Global Multifactor Fossil Fuel Reserves Free ETF (DRFG).

This portfolio is the absolute simplest I could make it. It is 100% RRSP and TFSA eligible, and the annual management fee is 0.48% and a weighted-average carbon intensity of 52.5 tons of CO2 per million dollars in revenue.

Global Equity

The Desjardins RI Global Multifactor Fossil Fuel Reserves Free ETF (DRFG) is a welcome addition to the Canadian responsible investment market. It completely excludes the oil & gas, pipelines, coal miners, and utilities with more than 10% generation from coal. It also excludes companies with a low sustainability score for environment or social or governance. I highlight the or, since most funds use a combined ESG score across all three categories that allows some deviant firms to sneak through if the other scores are high enough (looking at you facebook). DRFG also excludes tobacco, controversial weapons, and companies with major controversies.

Going through the list of holdings, I still see some problematic companies like Nestle, Walmart, and Goldman Sachs. These will be deal-breakers for some people and not for others. As the most diversified socially responsible and fossil fuel free ETF on the market right now, DRFG is a great option for people to get rid of the worst companies while divesting specifically from tobacco, controversial weapons, and / or fossil fuels.

DRFG does a good job of tracking the traditional global equity diversification across geography and business sector. Breakdowns are similar to the standard benchmarks like the All Country World Index. What's different is that DRFG uses a "multifactor approach" to determine portfolio weightings (the % for each company). Multi-factor models use financial data like volatility and profitability ratios to optimize for risk-adjusted returns. It's basically an algorithm that tries to outsmart the market, rather than simply investing more heavily in bigger companies. I don't see it as a good or bad thing necessarily, but it does mean that investors will have more exposure to medium and small companies and less exposure to big companies.

DRFG has an MER of 0.69% and a weighted-average carbon intensity of 84.5 tons of CO2 per million dollars in revenue.

Government Bonds

Since every Canadian corporate bond index includes fossil fuels, we are left with government bonds. Lots of my clients have been flocking towards the iShares 1-10 Year Laddered Government Bond Index ETF (CLG). It’s a solid government bond portfolio, and the ladder will capture the higher rates more quickly be nice if interest rates start to rise. I like it because of the low MER of 0.15% and a weighted-average carbon intensity of 4.4 tons of CO2 per million dollars in revenue.

Conclusion

This portfolio is the easiest way for Canadian investors to divest from fossil fuels, while getting exposure to the broad global stock market. Since all of the funds are in Canadian dollars, it's perfect for a TFSA or RESP. As always, it is fully customizable so investors can choose a different impact fund or add green sector ETFs. 

Like this portfolio and want help buying it? Check out my coaching services at https://www.goodinvesting.com/