Broad support for regulating environmental, social and governance-themed investments in Canada has left the U.S. Securities and Exchange Commission playing catch-up with its northern neighbour, says Katie Pries (pictured), president and chief executive officer of Northern Trust Canada.
“While the U.S. Securities and Exchange Commission is working through its regulatory plans for ESG investing, Canada has seen continued focus from certain industry groups, not to mention the recent push to formalize ESG regulations coming directly from key Canadian asset owners.”
However, while Canada may be ahead of the U.S. in terms of ESG regulations, it still has much to learn from the approach taken in continental Europe, she adds. “We know there is a robust regulatory framework from the European Union and I would expect more build out in Canada, given the active approach taken by institutional investors.”
This build out is already underway at the provincial level, she notes, pointing to a 2017 update to the Ontario Pensions Benefits Act of 1990. “Already there has been government action at the provincial level, as the Ontario Pension Benefits Act requires pension funds in Ontario to disclose whether ESG factors are incorporated into their statement of investment policies and procedures.”
While Pries believes that requiring consistent disclosures on ESG practices by Canadian investors and corporations is a step in the right direction, she believes more steps are likely to follow. “Consistent disclosure on ESG practices by Canadian investors and corporations will be a positive, but will come with further requirements for investors which will need to be embedded.”
Pries isn’t alone in her belief that Canada still has more work to do on ESG disclosures. Last November, a joint statement from the Alberta Investment Management Corp., the British Columbia Investment Management Corp., the Caisse de dépôt et placement du Québec, the Canada Pension Plan Investment Board, the Healthcare of Ontario Pension Plan, the Ontario Municipal Employees Retirement System and the Public Sector Pension Investment Board called for ESG information provided to investors to be broader and more consistent.
“To deliver on our mandates, we require increased transparency from companies,” they wrote. “How companies identify and address issues such as diversity and inclusion, human capital, board effectiveness and climate change can significantly contribute to value creation or erosion. Companies have an obligation to disclose their material business risks and opportunities to financial markets and should provide financially relevant, comparable and decision-useful information. . . . While we recognize companies face a myriad of disclosure frameworks and requests, it is vital that they report relevant ESG data in a standardized way.”
Northern Trust Canada shares the same position — it believes helping to provide more transparent information on ESG-related issues to investors is a business opportunity. Last year, the investment manager expanded its analytical capabilities for ESG investment strategies by combining its global custody asset information with data provided in partnership with IdealRatings.
“Institutions can use the resulting data to support their governance and oversight objectives, for example, providing evidence of their ESG scores and exposures and supporting adherence to regulatory requirements and global standards. It can be used to facilitate discussions with their investment managers and manage potential stakeholder concerns and reputational risk.”