May 15, 2020
A recent article in Benefits Canada looks at the legal considerations and risks for pension plan sponsors regarding responsible investing, as environmental, social and governance considerations “hover” on the agendas of legislators, shareholders and consumers. According to author Julius Melnitzer, plan sponsors can mitigate much of that risk with a proper understanding of the distinction between ESG factor integration and socially responsible investing.
“ESG factor integration is part and parcel of evaluating an investment, but that’s something different from socially responsible investing, where investments are selected for the specific goal of effecting change or attaining certain outcomes,” says Jana Steele, Chair of Osler’s Pensions and Benefits Group.
Considerations discussed in the article include the legislation and regulatory guidance that frequently blur the distinction between ESG factors and socially responsible investing, and the importance for ESG factors to be addressed if they are relative to value.
The article notes that “[g]enerally speaking, plan trustees have a fiduciary duty to put aside their personal views and act in the best interests — generally, the best financial interests — of the plan’s beneficiaries by providing a lifetime retirement income.” The author also points out that there are certain circumstances in which the pursuit of non-economic goals as part of a pension fund investment strategy may be allowable, and that Ontario law requires the disclosure of any ESG factors considered by fiduciaries.
According to the article, in a 2019 survey, RBC Global Asset Management Inc. “found two-thirds of institutional investors in Canada, the U.S. and Europe were considering ESG factors…. Higher percentages of those in Europe (85%) and Canada (73%) reported using ESG factors than in the U.S. (49%).”
For more information, read Julius Melnitzer’s full article, “What are the legal risks of ESG?” in Benefits Canada.