ESG, ru OK?

It’s been a rough year, depending on your viewpoint, for the world.

That’s especially true for folks who believe in climate change science, as they watch the largest economic power in the world make statements like: “We are driving a dagger straight into the heart of the climate change religion.”

That’s a March 2025 statement by Lee Zeldin, head of the Environmental Protection Agency in the United States.

Since then, the Trump administration hasn’t just embraced climate scepticism, it’s seemingly tried to accelerate climate change, repealing protections while rapidly expanding oil and gas, and even coal development.

For responsible investors, this is a potential disaster.

With annual Earth Day (April 22) at hand, celebrating our blue oasis in the desert of space, maybe responsible investing could use a wellness check?

Often referred to as RI, responsible investing is an umbrella for many types of sustainable investing endeavours, from avoiding investing in high-polluting companies and arms manufacturers to thematic investing in market sub-sectors like clean technology, renewable energy and impact investing.

Among all its permutations, environmental, social and governance, known as ESG, has really taken it on the chin.

“A reality check is going on within ESG-related funds,” says Toby Heaps, chief executive officer of Corporate Knights, which publishes the Global 100 Index, an annual ranking of the world’s most sustainable companies.

A year-end 2025 report from National Bank Financial Markets on U.S. exchange-traded funds (ETFs) supports this assessment, finding U.S. equity ESG ETFs saw $1.1 billion in outflows, the third consecutive year where redemptions outpaced investment in these funds.

Canadian ESG funds haven’t been immune either, Heaps adds. “TD wrapped up their whole suite of ESG funds recently.”

Invesco Canada also terminated some sustainability funds and recently BMO announced it will wind up MSCI ACWI Paris Aligned Climate Equity Index ETF, named after the global agreement, which the U.S. recently pulled out of for the second time.

Even the Net-Zero Banking Alliance — a global initiative spearheaded by former Bank of Canada and Bank of England governor Mark Carney, funding climate mitigation — ended in late fall. What’s more, Carney, now Canada’s prime minister, has repealled several climate policies, including putting a price on carbon.

But if you look through the smog of bad news, RI is doing better than you might think. Arguably, it’s never been better, ironically because of anti- climate policy.

In many instances, ESG is still important, but many companies are just quieter about their efforts.

Notably, the term has become toxic in the U.S. — much like DEI (diversity, equity and inclusion), which happen to be foundational elements of ESG’s “S” and “G.”

In Canada, new legislation against greenwashing — overstating sustainability initiatives for marketing purposes — has dimmed ambitious corporate statements on sustainability.

“It’s not that there is a lot of greenwashing, but companies fear being accused of greenwashing,” says Milla Craig, CEO of Millani Inc., a Montreal-based provider of responsible investing and sustainability advisory services.

All of this does not mean there is an absence of action among investors. Craig points to Millani’s December survey of Canada’s 36 leading institutional investors (i.e. pension funds), whereby 97 per cent stated they remain committed to ESG integration.

After all, from a securities analysis perspective, ESG is now a key risk evaluation tool.

Still, these tools are changing with the times. Craig points to the “E” in ESG.

“The E today is more for energy: reliance, affordability and security,” she says, a key concern amid the rise in artificial intelligence.

Despite the recent challenges, many retail investors committed to responsible investing remain steadfast, says Karen Routledge, senior wealth adviser with Wellington-Altus Private Wealth Inc. in Calgary.

“More people actually want to use their wealth to support their values than before,” says the portfolio manager, who provides RI solutions for clients. Events going on in the world only reaffirm their commitment, she says.

The CEO of a new impact investment services firm in Vancouver also sees similar renewed vigour among wealthy investors.

“Responsible investing has ultimately shown it’s durable in tough times,” says Mike Thiessen, chief executive officer of ThreeCap in Vancouver, which operates a fund of Canadian business driving sustainability.

“Investors on the fence before may not be involved anymore, but there are so many institutions, organizations and families that were passionate before that are doubling down.”

What’s more, RI strategies, including ESG mandates, have performed well compared with non-ESG counterparts.

The iShares ESG Aware MSCI USA ETF (ESGU) — the world’s largest ESG fund — has a five-year annualized return of nearly 11 per cent compared with iShares Core S&P 500 ETF (IVV), a non-ESG fund, with a five-year annualized return of a little more than 12 per cent.

The difference is likely that IVV has slightly more exposure to oil companies, now having their market moment.

Ironically, high oil prices today — resulting from war in Iran — are a tailwind for the green industries.

“Inadvertently, (U.S. President Donald) Trump has just kickstarted the eureka moment for nations to rapidly accelerate their transition from fossil fuel dependence,” Heaps says, pointing out that Indonesia, India, Pakistan and the Philippines have made recent announcements to invest in renewable energy.

Even in the U.S., two thematic RI ETFs — First Trust Global Wind Energy ETF (FAN) and Invesco’s Solar ETF (TAN) — are up about 20 per cent and seven per cent, respectively, this year. In contrast, the NASDAQ and S&P 500 are struggling to remain positive.

Heaps notes RI investing is ultimately about sustainability, including from a financial viewpoint.

Portfolios adjusted to navigate climate, social and governance risk while seizing on sustainable opportunities will be better positioned to profit over the long-term, he says.

To Thiessen, those recent challenges have been a “stress test” for RI. “And it is coming out of that stress test in a surprisingly strong place.”

Joel Schlesinger is a Winnipeg-based freelance journalist

joelschles@gmail.com