While compliance with requirements to file statements of investment policies and procedures has reached 94 per cent in Ontario, only 36 per cent of the filers incorporate environmental, social and governance factors into them.
The numbers are from a new report by the Financial Services Commission of Ontario. But Hugh O’Reilly, president and chief executive officer of OPSEU Pension Trust, says the relatively low number of reported filers that incorporate environmental, social and governance factors could be misleading.
“I think it’s easier for a plan administrator to say that the plan is not incorporating ESG factors than to say they are, because the next question is how, and that may take considerable resources to explain,” he says. “It’s a lot of extra work for a smaller plan, and that creates unwanted uncertainty.”
Indeed, O’Reilly believes most plans incorporate the factors, “even if they don’t do it explicitly.”
By contrast, OPTrust, a relatively large plan, does have the resources to meet the challenge and has long been an advocate of responsible investing. Its website sets out the pension fund’s policies in three detailed documents: a statement of investment policies and procedures, a statement of responsible investing principles and proxy voting guidelines.
The FSCO report follows on the requirement that administrators of Ontario-registered pension plans file a document setting out their key investment policies and procedures by Jan. 1, 2016. Each filing must contain an information summary that enunciates the key policies from each plan’s statement and serves as a checklist to ensure it’s compliant.
Pension administrators in the province filed 6,300 investment policy statements by July 31, 2016, according to the report, bringing compliance up to 94 per cent.
Filing compliance was highest among jointly sponsored (100 per cent) and multi-employer pensions plans (96 per cent). Single-employer (83 per cent) and individuals pension plans (77 per cent) lagged behind.
O’Reilly maintains the numbers demonstrate the government’s requirement to file an investment policy statement is a good one. “It forced administrators to focus on these important issues,” he says.
Indeed, FSCO estimates that a significant number of pension plans may not have had a statement before 2016. The regulator believes, however, that the mandatory filing requirement “may have led more plans to do so.”
When it comes to rates of return, the median expected was 3.5 per cent adjusted for inflation and 7.5 per cent on a nominal basis. “The smallest plans (those under $10 million in assets) reported on average a higher expected nominal [rate of return] than the largest pension plans (those with assets greater than $1 billion),” the report noted. “The difference was as high as 137 basis points.”
Turning to governance, FSCO found 25 per cent of defined benefit plans and 10 per cent of defined contribution plans required plan administrators to monitor investment manager performance quarterly or more frequently. “Most SIPPs indicated that investment performance must be monitored ‘on at least an annual basis,’” the report noted.
Finally, the median number of investment funds offered in member-directed defined contribution plans was between 20 and 25, with the most common default options being life-cycle or target-date funds.