Many Investors want to send a clear message to financial advisors, big mutual funds, and the management teams of many top companies. Investment gains aren't enough. These folks also want to put capital to work in Canadian stocks that are doing good.

Enter ESG Investing. ESG- environmental, social, and (corporate) governance- is an internationally recognized set of criteria to evaluate whether a company's conduct is up to specific standards. Potential investments are then judged based on how they stack up against these standards using ESG ratings. 

Let's take a more detailed look at each of the pillars of ESG investing

Environmental

This criteria looks at how sustainable a company's operations are. Energy companies and mining producers would fare poorly, while a renewable power producer or tech company would score much higher. 

Essentially, it looks at how much pollution a company generates, although this can be offset by taking steps to reduce carbon emissions -- like when an oil company cleans up an area and plants a bunch of trees there.

Social

This looks at how a company works with its suppliers, customers, employees, and other stakeholders. The most important aspect of this part of ESG is equality. Companies get a high mark if they treat employees equally, value diversity and inclusion, and try to put disadvantaged groups in key positions.

It also values community, philanthropic work, and making sure an organization pays their fair share of taxes.

Corporate Governance

This has to do more with the attitude of upper management and how serious they are about using the company as a platform to do good in the world.

Is the company making a serious effort to value diversity, inclusion, and helping the environment? Or is it dumping toxic waste straight into local water supplies?

Combine these, and we get a form of 21st-century capitalism, one that worries more about the human and environmental side of the business. Proponents argue it's a better model, and they're winning.

Almost every significant publicly traded stock recognizes the benefits of joining a select group of ESG leaders, eagerly showing their ESG performance to the broader investment community. Plus, returns haven't suffered a bit. It's a legitimate investment strategy.

Many ESG stocks have been excellent performers

The exciting thing about ESG investing is it's about more than just our collective conscience urging us to do good. The pillars were chosen partly because they lead to better economic performance. That tends to translate into better shareholder returns over time, although I'll be the first to admit this isn't a perfect relationship. 

One criticism many oppose ESG investing have is that investors shouldn't mix social factors with investing. They should focus on making the highest return on their money and, if they choose, should use some excess returns to fund various initiatives to deal with sustainability, climate change, or gender equality. 

But that's not the case. If you look at a few real-life examples, responsible investing has performed well. When we compare the performance of the largest ESG ETF in North America, the iShares ESG Aware USA ETF (NASDAQ:ESGU) to the S&P 500, returns favour ESGU.

It has delivered a 9.44% annual total return over the last five years, compared to a 9.39% annual return for an S&P 500 ETF. It turns out investors can have their cake and eat it too. 

There are fewer ESG ETFs on the Toronto Stock Exchange, however

The most prominent one is the iShares ESG Aware Canada ETF (TSX:XESG), which has been around since 2019. The fund aims to deliver comparable returns to the TSX Composite Index while achieving a more sustainable outcome. It has slightly underperformed Canada's benchmark index but has still delivered solid returns for investors.

Another ESG index ETF that might interest investors looking for ESG exposure is the BMO Balanced ESG ETF (TSX:ZESG). This ETF differs slightly from its peers because it offers a combination of stocks and bonds of high-scoring ESG companies.

It has a 60% weighting towards equities and 40% in fixed-income assets, which makes it a solid steward of capital for investors looking to take a little less risk. It doesn't just focus on North American companies, either. It invests in Europe and around the world as well. Plus, it has a very reasonable MER of 0.20%. 

Liquidity may be an issue for larger investors. The ETF only has a market cap in the neighborhood of $50M. 

These ETFs have significantly lower fees than other specialized ESG investments. Expenses on those products are pretty high.

Also, note investors don't need to buy ESG exchange-traded funds. They can take moves like avoiding any tobacco, prison, or weapon manufacturing stocks.

Or they can go further and eschew oil producers, mining stocks, and other energy-intensive industries. It's a personal decision, one that is unique for each individual. 

So what are the top ESG stocks in Canada to buy right now?

• Royal Bank of Canada (TSE:RY)
• Enbridge (TSE:ENB)
• Shopify (TSE:SHOP)
• Telus Corporation (TSE:T)
• Dream Impact Trust (TSE:MPCT.UN)

Royal Bank of Canada (TSE:RY)

These efforts are paying off; 91% of employees say they're proud to be part of Royal Bank and its mission. 

As a large bank and wealth manager, RBC can make a difference by being careful where it lends and invests. It has invested nearly $84B into sustainable finance. Approximately $600B in assets under management are also invested in stocks with high ESG scores. It has also invested $100M into Black entrepreneurs.

Finally, Royal Bank is investing in its communities as well. It donated $142M to local charities in 2021, with employees giving a further $23M. It also created RBC Future Launch, a 10-year, $500M commitment to support young people, increasing reach and impact where it matters most. 84% of Future Launch participants are diverse. 

Enbridge (TSE:ENB)

In the meantime, pipelines are the most environmentally friendly way to transport these natural resources. Pipelines last for decades, are generally safe, and have a much lower carbon footprint than alternatives. Additionally, many of the company's assets transport natural gas, which is much more environmentally friendly than crude oil.

Enbridge has a goal to become carbon neutral by 2050. The company invests in solar energy and wind farms, which produce enough renewable energy to power 900,000 homes. The company also invests in hydrogen power and technology to capture and store carbon dioxide effectively. 

Enbridge has also recognized it could stand to improve its record with Indigenous Canadians. It has made working with these Nations a priority, including entering into a pipeline partnership transaction with 23 different Indigenous communities. Enbridge agreed to sell an 11.57% interest in seven of its pipelines to the group for $1.12B. Allowing these groups to invest alongside the company is the perfect win-win scenario.

Shopify (TSE:SHOP)

Anyone can turn an idea into reality by using a few of the company's tools. And Shopify's costs are incredibly reasonable. It averages $1 in revenue for every $38 its merchants generate. 

Shopify is also taking steps to be more ESG-friendly on the corporate side. The company is now a remote-first organization, a move that could cost it dearly as it chose not to occupy a lease in a newly built office building in Downtown Toronto.

It'll have to find someone to sublease this property. This simple step cuts emissions from staff who no longer have to commute and increases their time with their families. The happiness gained from not commuting is beneficial to overall employee retention as well. Remember, happy workers, tend to be productive workers.

Telus Corporation (TSE:T)

That's a well over 50% increase compared to 2019's total of $54M. Team members also donated more than 1M hours of their time volunteering for these same organizations.

Telus has also helped prove a focus on ESG can pay off for shareholders. In 2021 it became the first Canadian company to issue a Sustainably-Linked Bond when it issued $750M worth of debt. This 10-year bond came with an interest rate of 2.85%. One of the reasons why it was such a competitive interest rate is that many mutual funds and other ESG-related funds were anxious to buy the debt. 

The company has invested heavily in acquiring additional wireless spectrum as it expands its network to 5G capability. This capital goes directly to the government as these networks are made available. Telus has spent billions in the last few years alone, cash that has at least been indirectly spent on programs like health care, education, and Indigenous affairs. 

Finally, Telus has taken various steps to streamline its supply chain, saving money on fuel and decreasing carbon emissions simultaneously. 

Dream Impact Trust (TSE:MPCT.UN)

Let's look at one of the company's projects to see a real-life example of what I mean. Aalto Suites is a 15-story, 162-unit apartment block in the larger Zibi development in Ottawa. It's currently 100% rented with many affordable and accessible suites.

Tenants are collectively saving $1.4M annually compared to market rents. The company, meanwhile, is eligible to access special financing for projects like this, lowering interest costs over the life of the building.

Aalto Suites is just the beginning. Today, the company owns approximately 1,400 affordable units spread out between Toronto and Ottawa, and a total of 4,400 units. After its ambitious development program is complete in 2026, Impact will own more than 7,600 units, with some 2,500 affordable units. The company owns office and retail space with low environmental footprints as well.