ESG (Environmental, Social, Governance) ETFs let you invest according to your values without sacrificing much in fees or returns. The cost gap has narrowed significantly — XESG charges just 0.17% MER versus 0.18% for the non-ESG XIU, so you’re paying virtually nothing extra for the ESG screen. The all-in-one options like GEQT (global equity) and GBAL (balanced) make it easy to build a complete ESG portfolio with a single fund. The main trade-off is sector exclusion: most ESG funds underweight or eliminate fossil fuels, which can hurt in energy-driven markets like Canada’s. For the broader ETF framework, start with our ETFs and index funds hub.
Best ESG ETFs Canada 2026
| ETF | Ticker | MER | Focus | Holdings |
|---|---|---|---|---|
| iShares ESG Aware MSCI Canada | XESG | 0.17% | Canadian ESG | 90+ |
| iShares ESG Equity ETF Portfolio | GEQT | 0.24% | Global all-equity ESG | 1,500+ |
| BMO MSCI USA ESG Leaders | ESGA | 0.25% | US ESG leaders | 300+ |
| iShares ESG Balanced ETF Portfolio | GBAL | 0.24% | Global balanced ESG (60/40) | 2,000+ |
| BMO Balanced ESG ETF | ZESG | 0.20% | Balanced ESG | Multi-asset |
| Mackenzie Global ESG & Climate Leaders | MCLM | 0.55% | Global climate leaders | 100+ |
| NBI Sustainable Canadian Equity ETF | NSCE | 0.55% | Canadian sustainable | 50+ |
ESG vs Non-ESG Equivalents
If you want the non-ESG benchmarks for comparison, see best all-in-one ETFs in Canada and best ETFs in Canada.
| ESG ETF | Non-ESG Equivalent | MER Difference |
|---|---|---|
| XESG (Canadian ESG) | XIU (S&P/TSX 60) | 0.17% vs 0.18% |
| GEQT (Global ESG equity) | XEQT (Global equity) | 0.24% vs 0.20% |
| GBAL (Global ESG balanced) | XBAL (Global balanced) | 0.24% vs 0.20% |
| ESGA (US ESG) | VFV (S&P 500) | 0.25% vs 0.09% |
What ESG ETFs Typically Exclude
| Sector/Activity | Usually Excluded |
|---|---|
| Tobacco | ✅ |
| Controversial weapons | ✅ |
| Thermal coal | ✅ |
| Oil sands (some funds) | Varies |
| Gambling | Some funds |
| Nuclear | Some funds |
| Adult entertainment | ✅ |
That is why ESG funds often look very different from sector pages like best energy ETFs in Canada.
Who Should Buy ESG ETFs
| Profile | Recommendation |
|---|---|
| Values-aligned investing | ✅ Matches your principles |
| Want similar returns to market | ✅ Performance is comparable |
| Want lowest MER possible | ⚠️ Non-ESG versions are marginally cheaper |
| Heavy energy/oil sector believer | ❌ ESG excludes most fossil fuels |
If you still want growth-focused exposure within an ESG framework, compare these funds with best growth ETFs in Canada.
The Bottom Line
If values-aligned investing matters to you, the cost penalty is nearly zero. XESG for Canadian exposure and GEQT for a global all-equity portfolio are the standout options. Performance has tracked closely to non-ESG equivalents over the long term, though you’ll underperform during commodity booms when energy stocks lead.
ESG investing performance: what the data shows
A long-standing concern about ESG ETFs was whether excluding fossil fuels and other sectors would cost returns. The evidence over the past decade is nuanced:
| Period | XESG vs XIU performance | Key driver |
|---|---|---|
| 2020–2021 | ESG outperformed | Tech heavy; energy underweighted during oil crash |
| 2022 | ESG underperformed | Energy surged; ESG excluded fossil fuels |
| 2023–2024 | Near-parity | Sector effects largely offset |
Long-run expectation: Most academic research finds ESG screening has a small cost (~0–0.3%/year annualized) in diversification versus broad-market funds. The cost is much smaller than the fee savings from switching from high-MER active funds to low-MER ESG ETFs.
What ESG ratings actually measure
ESG ratings are not standardized — different providers (MSCI, Sustainalytics, S&P Global) score the same companies differently. A company can be in an ESG ETF from one provider and excluded by another. Before investing in an ESG ETF, check:
- Which rating provider the ETF uses (e.g., MSCI ESG Leaders vs. S&P ESG)
- What is excluded — some ESG ETFs still hold oil sands companies if their ESG score is high enough
- Controversy screening — better ESG ETFs exclude companies with recent ESG-related legal issues
For the most value-aligned outcome, funds like GEQT (global ESG all-equity) that use a combination of screening and exclusions are more thorough than funds that only apply a “best-in-class” filter.
Frequently asked questions
Are ESG ETFs good for long-term investing? Yes. The evidence shows ESG ETFs track closely to their non-ESG equivalents over the long term. The main trade-off is reduced fossil fuel exposure — which may lag in energy-heavy markets but holds its own over full market cycles.
Do ESG ETFs pay dividends? Yes. XESG, GEQT, and GBAL all distribute dividends. XESG pays quarterly; GEQT and GBAL pay semi-annually. Yields are typically 1–2% given the growth tilt of many ESG funds.
Can I hold ESG ETFs in a TFSA or RRSP? Yes. XESG (Canadian equity) is very efficient in a TFSA — no withholding tax issues, no currency risk, and all distributions grow tax-free. GEQT or GBAL in a TFSA is slightly less efficient due to embedded international withholding, but the drag is small (~0.15%).
Is GEQT better than XEQT for ESG investors? If ESG alignment is important, yes. GEQT holds ~1,500 global ESG-screened companies at 0.24% MER versus XEQT at 0.20%. The 0.04% extra cost is minimal and acceptable for an investor who wants a fully ESG-screened portfolio.