Ontario regulator launches guidance on new ESG investment/disclosure rules

Financial Services Commission expects all pension funds to comply from next year

The Financial Services Commission of Ontario (FSCO) has released guidance on how pension funds in Ontario should approach new legislation requiring disclosure on whether, and how ESG is incorporated into investment decision-making.

Last year, Ontario became the first Canadian Province to require its local pension funds to disclose the extent to which they are investing sustainably after amending the Pension Benefits Act.

The new requirement states that pension fund administrators must prepare a statement of investment policies and procedures (SIPPs) which contains “information about whether environmental, social and governance factors are incorporated into the plan’s investment policies and procedures and, if so, how those factors are incorporated”.

The FSCO says it expects all pension funds to comply from January 2016.

The guidance says it expects ESG disclosure in the SIPP to include a brief explanation of the approach taken bythe plan to incorporate ESG factors indicating whether its across the entire pension fund, or only certain portions of the pension fund. It advises that funds engage with external managers on presenting the information.

If the pension fund does not incorporate ESG factors, it must state this in the SIPP. The FSCO also advises, but does not compel, funds to explain their decision in the interest of transparency.

The guidance also notes that the term “ESG factors” is not defined in the legislation, and advises that pension funds must ensure that approaches to ESG investing do not conflict with its fiduciary duty; the FSCO says this “may be the case with ethical screens”.

Peter Chapman, Executive Director of Canada’s Shareholder Association for Research and Education (SHARE), which has been a leading advocate on the move for the past 14 years, told RI last year that the largest pension funds in Ontario backed the move. Link