3 Canadian ESG Stocks for Ethical Investors

Ethical investors can take positions in three Canadian ESG stocks and earn in two ways, from price appreciation and dividends.

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Environmental, social and governance (ESG) investing is an evolving trend as more companies, regardless of sectors or industries, set ESG goals and commit to reducing their carbon footprints within a specified period. Three Canadian ESG stocks are the top picks for ethical investors.

Trade enabler

A trade enabler like the Canadian National Railway (TSX:CNR) is a buy-and-hold stock and ideal for long-term investors, retirees, and beginners. The $109 billion company transports around 300 million tonnes of natural resources, manufactured products, and finished goods annually.

CNR’s 18,600-mile railway network connects three coasts in North America and is the only transportation firm that services the three petrochemical hubs in the region. Based on data from Sustainalytics, the ESG risk rating of CNR is low. Management said the company’s Climate Action Plan aligns with rigorous international ESG standards.

Last year’s financial results were pretty solid. In the 12 months that ended December 31, 2022, revenue and net income increased by 18.2% and 4.5% to $17.1 billion and $5.1 billion versus 2021, respectively. Free cash flow (FCF) rose 29.2% year over year to $4.2 billion.  

This large-cap industrial stock trades at $162.17 per share (+1.3% year to date) and pays a decent 2% dividend. The recent 8% dividend hike marks 27 consecutive years of dividend increases. Also, the board is confident about CNR’s long-term financial health.

Tracy Robinson, CNR’s President and CEO, said, “As we look to 2023, we believe our back-to-basics strategy and disciplined operating model will continue to deliver despite the softening economy.”

Pure-play industrial REIT

Dream Industrial (TSX:DIR.UN) in the real estate sector carries a low-risk ESG rating like CNR. The portfolio of this $4 billion real estate investment trust (REIT) across Canada, Europe, and the U.S. consists of industrial properties, particularly distribution and urban logistics.

The Dream Group of Companies has developed an ESG framework. It has a Net Zero by 2035 Action Plan, which aims to continuously reduce the environmental impact of its operations and developments and positively contribute to the low carbon economy.

By building net zero communities, Dream hopes to reach zero greenhouse gas (GHG) emissions 15 years ahead of science-based targets. If you invest today, the pure-play industrial REIT trades at $14.53 per share. Current investors enjoy a 25.8% year-to-date gain and an attractive 4.8% dividend yield.

Sustainable business model

Innergex Renewable Energy (TSX:INE) trades at a slight discount (-7.53% year to date) but remains a good prospect for responsible, risk-averse investors. At $14.98 per share, the green stock pays a 5% dividend. Besides Canada, it operates in the U.S., Chile and France.

The $3 billion independent power producer owns 84 operating facilities including wind and solar, although hydroelectric is its top energy producer. In 2022, the net loss improved to $91.1 million compared to the $185.4 million net loss in 2021. Furthermore, FCF stock rose 59.5% year over year to $147.2 million.

Its President and CEO, Michel Letellier, believes the low-risk rated utility firm will play an important role in the long overdue energy transition. He said Innergex has a long-term vision and is well-equipped to seize opportunities and deliver strong results because of a sustainable business model.

Sustainable investing

Ethical investors are growing in number as sustainable investing gains ground. They use various metrics to choose investments. For certain, their buy lists are primarily companies with low-risk ESG ratings.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Christopher Liew has no position in any of the stocks mentioned. The Motley Fool recommends Canadian National Railway and Dream Industrial Real Estate Investment Trust. The Motley Fool has a disclosure policy.

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