ESG Investing in 2026: Returns, Risks and Greenwashing

Updated September 2026. ESG investing considers environmental, social and governance information alongside financial analysis. The label does not describe one strategy, guarantee better returns or prove that a fund has a positive impact.

Why ESG funds can look completely different

One fund may exclude fossil fuels. Another may own energy companies but favour those with better scores. A third may focus on shareholder engagement. Rating providers also use different data and weights, so the same company can receive different ESG assessments.

Five checks for an ESG fund

1. Objective: Does it seek risk management, exclusions, impact or engagement?
2. Methodology: Which data and scoring system determine inclusion?
3. Holdings: Read the actual top holdings and sector weights.
4. Stewardship: Review proxy-voting and engagement reports.
5. Cost and performance: Compare fees, benchmark, risk and after-fee results with a conventional alternative.

Greenwashing warning signs

• Broad sustainability claims without measurable criteria
• A fund name that implies more than the prospectus promises
• Heavy reliance on purchased scores without explaining limitations
• Impact claims that report activities rather than outcomes
• No explanation of controversial holdings

Canadian securities regulators have issued guidance specifically because ESG marketing can mislead investors. Use the fund’s regulatory documents, not advertisements alone.

Returns and risk

ESG screens can help identify regulatory, governance and transition risks, but they can also create sector concentration and tracking differences. Performance depends on holdings, valuation, fees and market conditions. ESG is a research lens, not a return guarantee.

Bottom line

Choose an ESG investment only after you can explain what it includes, excludes and measures. If the methodology does not match your objective, the label has little value.

Related EverydayNext guides

For a wider portfolio view, use our stock-evaluation checklist, review the risks in crypto investing, and understand how tariffs affect companies.

Sources

• Canadian Securities Administrators: ESG fund disclosure guidance
• Investor.gov: Diversification