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 Nash owns shares of CGR, XHC, CWW, XCD, XLK, EVX, PZD, QCLN, and IXP in his personal portfolio. Tim does not own shares of the other ETFs mentioned in this article.

The equity portion of this portfolio consists of global sector funds, and excludes the following sectors: Energy, Materials, Utilities, and Infrastructure.  It is as diversified as possible, yet contains no extractive companies, major carbon emitters, or pipelines.  The total annual cost of this portfolio is about 0.43%.

Real Estate                         2.5%    iShares Global Real Estate Index ETF (CGR)

Healthcare                          5%      S&P Global Healthcare Index Fund (XHC)

Industrials                           5.5%      S&P Global Industrials Index Fund (XGI) 

Water                                   5%      S&P Global Water Index Fund (CWW)

Consumer Discretionary      5%      S&P Global Consumer Discretionary Index Fund (XCD)

Consumer Staples               4.5%      iShares Global Consumer Staples Fund (KXI)

Technology                          7.5%      Technology Select Sector SPDR Fund (XLK)

Cleantech                            4%      PowerShares Cleantech Portfolio (PZD)

Green Energy                      4%     NASDAQ CleanEdge Green Energy Index Fund (QCLN)

Environmental Services       4.5%     Market Vectors Environmental Services ETF (EVX)

Financials                           10%      iShares Global Financials Fund (IXG)

Telecommunications          2.5%      iShares Global Telecom Fund (IXP)

Canadian Gov’t bonds      30%     iShares DEX All Government Bond Index Fund (XGB)

Community Bonds            10%     CoPower Green Bonds

Sector-by-Sector Equity

Since all funds based on geography (Canadian equity, US equity, etc.) include companies that are major extractors, transmitters, and emitters of fossil fuels, a different approach is needed. By choosing global sector ETFs, we can exclude carbon-intensive sectors. Energy includes many oil & gas companies, so it is an obvious one. As well, Materials includes the world’s largest of coal-mining companies so it’s out too. Utilities are the companies who burn coal and distribute that electricity to customers, and are responsible for about 1/3 of US carbon emissions. Finally, there are global infrastructure funds, but they are riddled with pipeline companies and thus not suitable.

Weighting

I've weighted sectors proportionally based on the MSCI All-Country World Index. The green sectors (cleantech, environmental services, water infrastructure, and green energy) are equally weighted to fill in the gaps, with water a little overweight since it is the least volatile.

Not a Perfect Portfolio

Sadly, there are not any sector specific socially responsible ETFs on the market. As a result, there are some companies in each sector that responsible investors may not be 100% comfortable with. I’m not putting a judgement on these companies - good or bad - but simply pointing out that many of my clients take issue with them. For example, the Global Industrials ETF includes military companies like General Dynamics and Lockheed Martin. The Global Consumer Staples  ETF contains companies who produce tobacco, alcohol, and soft drinks. Most global banks are still making large investments in energy and mining, so the Global Financials ETF could be considered an indirect investment in fossil fuels. Finally, the Government Bond ETF contains Alberta Provincial Bonds. Now this might be nit-picking, but a client pointed out that the province receives substantial royalties from tar sands development. If these sector ETFs contain companies that you are not comfortable owning, I suggest instead investing in 2 or 3 individual companies from that sector with the highest sustainability ranking to still get sector exposure.

Community Bonds

Highlighting the shift from fossil fuels to renewable forms of fuel, I’ve included ZooShare Biogas Co-operative’s community bond as part of this portfolio. The bonds will finance a biogas plant that takes manure and food waste, and turns it into heat, electricity, and fertilizer. They have a contract under the Ontario government’s Feed-In-Tariff (FIT) program that guarantees a subsidized rate for their electricity over the next 20 years. Available only to Ontario residents, this bond has a fixed rate of 7% annually.  There is no secondary market, so investors are locked in for the full seven year term.  

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