On June 9, 2022, the Canadian Association of Pension Supervisory Authorities (“CAPSA”) released a consultation for comment: Environmental, Social and Governance (“ESG”) Consideration in Pension Plan Management. CAPSA is seeking comments by September 15, 2022.
In the context of the growing commentary on the relevance of ESG factors to pension investment, the consultation is not surprising. The draft includes three principles which could add much more clarity to the thinking of pension plan fiduciaries on ESG issues:
- Pension plan administrators (either directly or through their delegates) should consider ESG characteristics that may have material relevance to the financial risk-return profile of the pension fund’s investments.
- Plan administrators, as part of their standard of care, need to assess whether their plan governance, risk management and investment decision-making practices are sufficient to identify and respond to material ESG information in a manner proportionate to their plans and appropriate for their investment beliefs.
- Pension plan administrators should disclose in their SIPP, information about the pension fund’s investment policies in relation to ESG considerations. Where appropriate, pension plan administrators should also provide reports on their stewardship activities as well as request companies in which they invest to disclose their ESG-related policies.
The draft guideline clearly sets out the potential for fiduciaries to be required to consider some factors that would have a material financial impact while they may consider other factors if consistent with their fiduciary duty.
While this guideline is not final yet, it is a document that should be considered by plan administrators, in particular those which have not engaged in substantial discussion of ESG and the potential impact of such factors on their fund investments.
Also of interest, CAPSA is considering issuing the content of this guideline in a merged guideline on risk management, covering leverage and cyber risks. Such an approach would be a sign of how mainstream ESG factors have now become.
This blog provides some of the highlights of CAPSA draft guideline, not a full review. If you wish to discuss the draft guideline in more detail in relation to a particular pension plan, please contact one of Cavalluzzo’s experienced pension lawyers, listed below.