With environmental, social and governance issues becoming more prominent among investors, it’s important to consider what sustainability means for DC plans.

Plan sponsors are facing somewhat conflicting objectives, said Christine Girvan, senior managing director and head of Canadian distribution at MFS Investment Management, during a session at Benefits Canada‘s 2020 DC Plan Summit in Montreal in February.

“On one hand, you’re a fiduciary for the pension plans, and investment returns are really representing the majority of the participants’ accumulated assets over time, so care must be taken as you think about the investment lineup.”

On the other hand, a growing group wants their employers to be considering how to encourage companies to behave responsibly and sustainably, she added.

Read: Is ESG in DC plans all talk and no action?

Generally, the industry is discussing two approaches to sustainability: creating products that are labelled as ESG and ensuring ESG factors are integrated into existing investment management processes.

The former approach involves adding new products to investment lineups and screening out particular sectors or companies, said Girvan, but this can be complex as members have diverse values. However, the latter approach enables plan sponsors to be aligned with plan members’ different beliefs.

There’s a simple framework for how ESG is being integrated into an investment manager’s approach. Typically, the two components of sustainable investing are the investment research piece and proxy voting, she noted.“Many active managers will say these are factors they would have considered all along their approach. I would say that, generally, this is true. I think what has changed a lot — and is why we’re having these conversations today — is that the availability of information on the [ESG factors] has increased.”

Girvan suggested employers educate their committees on different approaches to sustainable investing, including a conversation about product versus process. “Choose a path towards the implementation that aligns with your organization and with your employee goals.”

Read more stories from the 2020 DC Plan Summit.

Copyright © 2020 Transcontinental Media G.P. Originally published on benefitscanada.com

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Dave Nanderam:

The majority of ESG reporting tends to focus on employee-centric (human rights, labour code) policy compliance. Few, however, detail compliance trends with “social good” legislation, such as pay equity, which seeks to redress systemic gender-based pay discrimination. Against the pandemic backdrop, the disconnect between job worth and job value is obvious for some typically female-dominated health-care roles.

Viewed though HR risk/compliance lens and consideration of programs dependent on some level of wage contributions, it might make sense to broaden the “S” in ESG to reflect compliance trends with social good legislation like pay equity. The first step might be to encourage mandatory pay equity reporting. Scheduled audit report can inform both board governance and investor decision-making.

Monday, April 20 at 7:50 pm | Reply

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