Growing skepticism about environmental, social and governance labels has investors asking more questions about what they actually own, what has been excluded and why.iStockPhoto / Getty Images
Ethical investing used to sound relatively simple: avoid sectors such as fossil fuels, weapons or tobacco and favour renewable energy and companies with strong environmental and social practices instead.
Now, as geopolitical instability and economic sovereignty reshape how investors define a “responsible” investment, that distinction is becoming much harder to make, says Andrew Feindel, portfolio manager, senior wealth advisor and senior investment advisor with Richie Feindel Wealth Management at Richardson Wealth Ltd. in Toronto.
“The ethical ambiguity is real,” says Mr. Feindel, who has seen the debate shift toward questions about “what strengthens Canadian resilience and democratic societies in an unstable world.”
Some clients prefer not to invest in companies connected to oil, weapons, drones or a particular country. Others see cybersecurity and defence technology as essential, while climate-conscious investors may still want exposure to Canadian energy and critical minerals.
At the same time, growing skepticism about environmental, social and governance (ESG) labels has investors asking more questions about what they actually own, what has been excluded and why.
Mr. Feindel says high-profile greenwashing controversies have contributed to that skepticism.
“There has been a realization that many ESG ratings measure financial risk to the company more than the company’s impact on society or the environment,” he says.
Fate Saghir, senior vice-president, head of sustainability, marketing and client experience at Mackenzie Investments in Toronto, describes the skepticism less as a rejection of responsible investing (RI) than “a demand for clearer evidence.”
She points to the Responsible Investment Association’s (RIA) 2026 investor survey, which found 73 per cent of investors would like RI considerations incorporated into the know-your-client process. Yet, only 28 per cent reported having been asked about them.
Greenwashing and lack of knowledge about RI funds were each cited by 66 per cent of investors as barriers, while 64 per cent pointed to unclear fund labels.
“Today, investors are more likely to ask what a strategy actually owns, what it excludes, how the manager uses proxy voting and engagement and what those choices mean for risk, return and diversification,” Ms. Saghir says.
Karolina Iaydjieva, portfolio manager at Rally Assets in Toronto, says clients are increasingly interested in investing toward specific social or environmental outcomes rather than simply relying on an ESG label.
That can include investments aimed at affordable housing, community development, Indigenous economic reconciliation or gender equity.
“They want to know what the portfolio is intentionally trying to change, who benefits, what trade-offs are involved and how they will know whether the intended impact is actually happening,” Ms. Iaydjieva says.
Rally evaluates investments through its proprietary Rally inclusive impact methodology, which examines the problem an investment aims to address, the potential negative effects and how results will be measured. The firm continues tracking financial and impact performance after investing.
“If the impact story only shows up in the marketing materials and not in the due diligence, the monitoring and the reporting, that’s the warning sign,” she says.
The challenge becomes greater when investors’ values collide.
Mr. Feindel says those conversations have become particularly pronounced amid trade tensions with the U.S. and concerns about Canadian sovereignty.
Energy and mining, for example, can present environmental concerns while also being viewed as important to Canada’s economic independence and the transition to cleaner energy.
Government policy has also reinforced the shift by extending the Mineral Exploration Tax Credit until March 2027 and expanding the 30 per cent Critical Mineral Exploration Tax Credit to include more minerals used in technology and defence.
Rather than forcing clients into an all-or-nothing choice, Mr. Feindel says, “I help clients articulate a hierarchy of values and then build a portfolio that reflects that ranking.”
One family he advised had significant wealth historically tied to Canadian energy, but was uncomfortable profiting from oil and gas while wanting to address climate change.
After several discussions, the family reduced – but did not eliminate – exposure to traditional energy sources and increased allocations to Canadian critical minerals and clean-air technology.
“The process itself allowed them to feel ownership of their decisions,” Mr. Feindel says.
Those decisions can sometimes carry financial consequences. Excluding certain sectors can affect performance under some market conditions, although Mr. Feindel says values-based investing doesn’t necessarily mean lower long-term returns.
For example, direct indexing can provide broad market exposure while screening out particular sectors. Other choices are harder to access: community investing and Indigenous economic partnerships are often private investments available only to accredited investors and can carry higher risks and require long holding periods, he says.
Ms. Saghir cautions that increasingly personalized portfolios inevitably involve trade-offs.
“Customization is not frictionless,” she says. “The narrower the mandate or the larger the number of exclusions, the greater the potential effect on diversification, sector exposure and benchmark-relative performance.”
Those consequences, she adds, should be understood before investing, “not after a period of underperformance.”
But greater choice doesn’t eliminate the central dilemma around values-based investing. Although technology can make it easier to analyze holdings, track impact metrics and help investors understand the consequences of their choices, the hardest decisions remain deeply personal.
“Technology can show clients the trade-offs,” Ms. Iaydjieva says, “but it can’t decide which trade-offs matter most to them. That still requires a careful conversation, disciplined due diligence and human judgment.”