Investing in a socially responsible manner is becoming increasingly important to pension plan sponsors, but it seems that in Canada, the legislative environment hasn’t kept pace with the demand. “The Nordic countries, the Netherlands, England and then Australia and New Zealand—that’s where [socially responsible investing] is hottest,” says Jordan Berger, Mercer’s head of responsible investing in Canada. “North America is somewhat behind the curve but catching up,” he says. “We have strong leadership in some of the largest funds, but the greatest growth potential is among smaller funds that are beginning to consider responsible investment.”
One reason for the lag is culture. “The ideas just germinated there first,” says Berger. But there’s also a regulatory component. “In the United Kingdom, pension plans are required by law to explain how they look at environmental, social and governance (ESG) issues.” Berger says the government doesn’t require plans to take a position on ESG issues, but does require them to formally consider these factors. Australia has similar legislation for its pension funds. “So they could think about responsible investment and then dismiss it,” says Berger. “But the mere fact that they’re required to turn their minds to the subject has helped to move responsible investment into the mainstream discourse.”
Unfortunately, in the Great White North, there’s no legal or regulatory requirement for plans to disclose how they consider ESG factors. “But the issue has been examined in considerable detail,” says Berger. During Paul Martin’s Liberal government, a task force on capital markets and sustainability was set up as a subgroup of the National Round Table on the Environment and the Economy. This subgroup published a report called Capital Markets and Sustainability: Investing in a Sustainable Future. “One of [the subgroup’s] main recommendations was to adopt the U.K. language around requiring people to disclose, in their Statement of Investment Policies and Procedures, their position on ESG issues,” says Berger.
However, we haven’t seen any action from the government as a result of the report. “As far as we know, the federal government has yet to respond to the recommendation,” says Berger. On the other hand, other regulatory bodies are making progress. Berger points to the recent guidance issued by the Ontario Securities Commission, which has asked companies to develop quantitative measures to disclose environmental liabilities in their annual filings. “It is encouraging that Canada’s key security regulator recognizes the importance of transparency and potential materiality of environmental concerns.”
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But until Canada creates regulatory guidelines around ESG issues, pension plans may still struggle with the right thing to do.
To comment on this story email brooke.smith@rci.rogers.com.