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Canada raises the bar on ESG fund disclosure

Securities regulators around the world are moving quickly to address the regulatory needs around ESG investment products. In Canada, regulators have provided robust guidance for ESG-related investment fund disclosure.

In a recently released Staff Notice, the Canadian Securities Administrators (CSA), the collection of provincial and territorial securities authorities, stated that existing securities regulation already provides a sound framework for ESG-related disclosure. However, after reviewing existing disclosure practices from a sample of funds, the CSA determined that funds are not providing enough detail in disclosure documents.

The CSA has made clear that it’s raising its expectation across all aspects of disclosure, from prospectuses, to Fund Facts and ETF facts, to Management Report of Fund Performance documents, to proxy voting policies and records, and sales communication.

At the heart of the guidance is the expectation that fund managers clearly articulate funds’ ESG objectives and the role of ESG in the investment strategies themselves. Quite sensibly, in our view, is the requirement that if a fund does not have an ESG objective articulated in its investment objective, it should not call itself and should not be considered an ESG fund.

The guidance also states that if there are measurable ESG objectives, these should be disclosed, and as a best practice, the manager should report on the extent to which these objectives are achieved. If there are ESG proxy voting or engagement policies, then fund managers are asked to share these and articulate how they are followed and executed against.

There is also a detailed set of requirements for fund managers to follow if they wish to include ESG fund ratings in sales communications material. Given the growing recognition that these ratings are misunderstood by investors, this also makes sense. See Honeytree’s last newsletter on ESG ratings.

It should also be noted that fund managers should soon be able to better execute on climate-related ESG objectives as the CSA moves towards mandatory climate-related disclosure for companies. See Honeytree’s letter in support of the CSA initiative here.

It is hard to argue with the CSA approach to ESG disclosure, especially when combined with mandatory climate-related disclosure for issuers. Expectations have been significantly raised without the associated massive complexity in disclosure requirements that we see in Europe. We will address this in a future newsletter, but this article touches on how even Morningstar has become more confused about what constitutes an ESG fund with the introduction of the European Sustainable Finance Disclosure Regulation (SFDR).

We look forward to a time when all asset managers are capable of truly integrating ESG data into portfolio construction – until then we welcome any regulation that limits the ability of those who make unsubstantiated claims about their integration of ESG.


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