On Jan. 1, 2016, an amendment to Ontario’s Pension Benefits Act came into effect requiring pension plans to disclose whether they incorporate environmental, social and governance factors in their statement of investment policies and procedures.
Although such requirements are new in Canada, they’ve long existed in Europe: in 2000 for British and Swedish pension funds; in 2004 for pension funds in Austria, Belgium and Norway; and in 2005 for Italian funds. France recently required all institutional investors not only to report on their integration of ESG criteria but also to account for all means they employ to help the transition of the country towards green energy. Following the debt crisis, Europe’s pressing challenge is to channel savings to long-term and sustainable needs. ESG criteria has lead the way.
Read: ESG factors boost performance of emerging market stocks: report
Is Canada following the same trend? Probably.
The Responsible Investment Association’s 2015 report showed assets in Canada being managed with ESG criteria increased from $600 billion to more than $1 trillion in just two years. While signing the Paris agreement on climate change last April, Prime Minister Justin Trudeau explained: “That’s a trend that will continue to grow, and it’s one that represents a tremendous opportunity for Canada. One that we cannot — and will not — ignore.”
In the top business schools of the world, sustainable finance, impact investing or social and environmental performance are now taught together with portfolio management, derivatives and private equity courses.
Read: Impact investing shows solid growth in Canada
The goal is clear: giving today’s students the tools they will need to become the leaders of tomorrow.
But the question is less about whether Canadian pension funds will have to factor ESG into their management; rather, it’s about how they could convert these additional requests into opportunities. Similar to their European counterparts, Canadian pension funds are likely to face new challenges, whether at the level of the portfolio, the profession or society.
Read the full article on Benefits Canada’s companion site, Canadian Investment Review, to find out what changes Canadian pension funds can expect.