A new report from the C.D. Howe Institute says pension plan fiduciaries shouldn’t ignore climate change and other environmental, social, and governance factors that are relevant to financial purposes.
However, when plan fiduciaries use ESG factors to prioritize social or environmental concerns, such as those expressed by plan members, they put themselves on shaky legal ground, said the report, noting plan fiduciaries are legally required to adhere to their legislated primary purpose of providing lifetime retirement income by prudently managing plan assets.
Read: Pension plan sponsors uncertain about balancing ESG factors, fiduciary responsibilities: ACPM
“Fiduciaries can be held personally accountable if investment policy is not consistent with the primary financial purpose dictated by the Income Tax Act, pension standards legislation or the common law,” said Randy Bauslaugh, the report’s author and leader of the national pensions, benefits and executive compensation practice at McCarthy Tétrault LLP, in a press release.
The report recommended regulators resist any framework that imposes specific ESG metrics, considerations or financial approaches at the risk of discouraging the growth of Canada’s employer-sponsored pension system, given just 39 per cent of Canadian employees are members of a registered pension plan.
It also advised regulators to continue to prioritize financial performance and metrics and resist any calls to give equivalent status to non-financial social or environmental goals of the fiduciary or the plan members.
And while plan fiduciaries have no legal duty to make the world a better place, either socially or environmentally, such outcomes may be a result of prudent pension plan management, noted the report.
Read: U.S. proposing ESG investing rules for plan sponsor fiduciaries