In response to the International Organization of Pension Supervisors’ request for comments on developing guidance for pension funds around environmental, social and governance issues, the Pension Investment Association of Canada is suggesting some changes and calling for the removal of one of the draft guidelines.
The PIAC noted the potential financial impact caused by ESG factors makes it appropriate for plan sponsors to consider them as part of their fiduciary duty. It agreed with the IOPS that ESG factors should be considered when making investment decisions and that the methods used by plan sponsors to track and measure the impact of those factors should ideally be specific and transparent.
However, it’s important to avoid being excessively prescriptive in creating standards and guidance for pensions around these issues, the PIAC noted. Specifically, while the organization understands the use of language like “should” in guidance is meant as encouragement, the use of “may” would be more appropriate given the context. As well, the PIAC suggested, where plan sponsors are encouraged to consider ESG factors, they should be clearly delineated as “relevant and material” in an investment context.
“Our reasons for these suggestions is that we believe the existing wording implies all ESG factors are ‘substantial financial factors,’ which is not the case,” said the PIAC’s letter.
Further, the organization called for the removal of one part of the guidance altogether, namely segment 1.4, which read: “Supervisory authorities should require that when offering investment arrangements, the pension fund’s investment policy should consider ESG factors with no prejudice for the objective of obtaining an appropriate risk-return profile on purely financial grounds.”
If this guideline remains, it should be modified, wrote the PIAC, noting it believes “risk and return must be relevant to any consideration of relevant and material ESG factors.”