Socially responsible investing (SRI) and ESG in Canada

Updated November 2026

Socially responsible investing means choosing investments with your values as well as your returns in mind. In Canada you can do it inside an RRSP, TFSA or any other account – but the labels "ESG", "sustainable" and "ethical" can mean very different things, so you need to look under the hood.

SRI, ESG and impact: what the words mean

Socially responsible investing (SRI): The older, broad term: investing in a way that reflects ethical or social beliefs, often by avoiding certain industries. "Ethical funds" and "responsible investment" are used in much the same sense.
ESG: Short for environmental, social and governance factors – for example a company's carbon emissions, labour standards, or board independence. Some funds use ESG factors to manage risk and improve returns; others use them to pick or exclude companies on principle. The same three letters cover both.
Impact investing: Investing with the intention of producing a positive, measurable social or environmental result alongside a financial return – for example, funding affordable housing or renewable energy projects.

How funds put values into practice

Screening

Negative (exclusionary) screening leaves out certain industries or companies – commonly tobacco, weapons, gambling or fossil fuels.
Positive or best-in-class screening picks companies that meet certain standards, or that score better than their peers in the same industry. A best-in-class fund may still own an oil company – the one it rates best.
Norms-based screening excludes companies that breach widely recognized standards, such as international conventions on human rights or labour.

ESG integration and themes

ESG integration means the manager considers ESG factors alongside financial ones when analysing investments, with the aim of improving risk-adjusted returns. It may not exclude anything. Thematic funds focus on a trend such as clean energy or water.

Shareholder engagement and proxy voting

Shareholders own the company and can use that position. Funds that practise engagement meet with company management to press for change, file or support shareholder resolutions, and vote their shares (proxy voting) on ESG issues. Some investors argue that engaging with a polluter does more good than selling its shares to someone who doesn't care. Check whether a fund publishes its voting record and engagement reports.

How to read an ESG fund's holdings

A fund's name tells you its intentions; its holdings tell you what it actually does. Before you buy:

Open the Fund Facts or ETF Facts and read the top 10 holdings. Would you be comfortable owning each one?
Read the investment objective and strategy in the prospectus. Does the fund exclude things, prefer better-rated companies, or just consider ESG factors?
Find the full holdings list on the fund company's website and search for the industries you care most about.
Compare the holdings with a plain index fund of the same market. If they are almost the same, you may be paying a higher fee for a label.
Look for the proxy voting record and any stewardship or impact report.

Greenwashing and the rules

Greenwashing means making a product look more environmentally or socially responsible than it is. Two sets of rules apply in Canada.

Securities regulators: CSA Staff Notice 81-334

The Canadian Securities Administrators first issued Staff Notice 81-334, ESG-Related Investment Fund Disclosure, on January 19, 2022, and replaced it with a revised version on March 7, 2024. It explains how existing disclosure rules apply to funds that use ESG. Key points for investors:

A fund that refers to ESG in its name should mainly invest in assets that meet its own ESG criteria. If it doesn't, staff say it should not use ESG in its name or objectives.
A fund's ESG strategies should be described plainly in its offering documents, and its marketing should not be misleading or inconsistent with those documents.
The notice describes common strategies (screening, ESG integration, thematic and impact investing, stewardship) so terms are used consistently.

The notice does not create new legal requirements; it explains how the current ones apply and adds best practices.

Competition Act: environmental claims

Amendments to the Competition Act in Bill C-59 became law on June 20, 2024. They require claims about the environmental benefits of a product to be based on adequate and proper testing, and claims about the environmental benefits of a business or business activity to be backed by adequate and proper substantiation. On March 26, 2026, the Budget 2025 Implementation Act, No. 1 removed an added requirement that business-level claims follow an "internationally recognized methodology". Claims must still not be false or misleading, and the Competition Bureau looks at the general impression a claim creates, not just its literal wording.

Greenwashing warning signs. Vague words ("green", "planet-friendly") with no measurable targets; a big claim based on one small product line; net-zero promises with no interim plan; an ESG fund whose top holdings look just like the market index; and impact claims with no reporting to back them up.

What about fees and returns?

ESG funds charge MERs like any other fund, and some cost more than a similar plain index fund. Compare the MER with a non-ESG fund covering the same market, and decide whether the difference is worth it to you. Returns can also differ from the broad market, for better or worse, simply because the fund owns fewer sectors. No investment approach guarantees better returns; evaluate an ESG fund with the same steps as any other (see how to evaluate a fund).

The Responsible Investment Association

The Responsible Investment Association (RIA) describes itself as Canada's industry association for responsible investment. Its members include fund companies, banks and advisors, and it publishes research and runs training for investment professionals. It is an industry group, not a regulator: membership does not mean a fund meets any particular standard, so still read the documents yourself.

Are you a socially responsible investor?

Answer these honestly. There are no right answers – the point is to know what you want before a salesperson tells you.

Are there industries you would not want to profit from, even if they made money?
Would you accept a portfolio that differs from the market, and may sometimes do worse, to reflect your values?
Do you prefer to avoid companies, or to own them and push for change?
Is climate the main issue for you, or also human rights, labour, governance or community investment?
Would you pay a higher fee for a fund that matches your values closely?
Will you take 20 minutes to check the holdings, rather than trusting the label?

If you answered yes to the first three or four, look for funds with clear exclusions or active engagement and published reports. If you mostly answered no, a low-cost broad index fund may suit you better, and you can act on your values in other ways – through your spending, giving or voting.