Canada’s pension plan sponsors have a fiduciary responsibility to consider climate change in their financial decisions, according to Randy Bauslaugh, counsel for pensions and benefits and executive compensation at McCarthy Tétrault LLP, during a webinar hosted by the Canada Climate Law Initiative and the Canadian Pension & Benefits Institute.
“The failure of plan administrators and their investment agents and advisors to take climate-related financial risks and opportunities into account is a breach of fiduciary duty and it threatens the ability of their plan to deliver on what the Income Tax Act says must be their primary purpose — to deliver lifetime retirement income.”
Bauslaugh — who recently published an opinion on pension plan sponsors’ climate change-related responsibilities — said they can produce greater returns for plan members by factoring climate change into investment decisions. He cited the example of the impact of rising sea levels on coastal real estate developments.
“If I’m a fiduciary and I’m considering investing in a residential development in Manhattan, [the consideration of climate change] provides me with a little bit of insight. On the other hand, if I’m presented with an opportunity to invest in an infrastructure project to build dikes and other barriers, that knowledge helps to inform me on that investment.”
While banks and other financial services in Canada have already acknowledged the impact of climate change, the pension industry is still catching up. He noted the U.K. recently drafted legislation with specific rules for pension plan sponsors to consider climate change goals and metrics. That legislation is expected to first take effect in 2022 among the U.K.’s larger pension plans.
“In Canada, our regulators need to at least put this on the radar screen. Otherwise, you’re jeopardizing how our tax-deferred pension system can deliver retirement savings that are adequate to help people maintain their standard of living through retirement,” he said. “It’s not just signaling that there may be a fiduciary duty, it’s about helping the entire system deliver what it’s set up to deliver.”
Bauslaugh also suggested that pension plan sponsors focus solely on the financial aspect of climate change and avoid the political and moral debates inherent to the issue. As well, while they should consider the opinions of plan members to an extent, he noted personal beliefs shouldn’t be the guiding principle in a climate change policy.
“[Climate change] isn’t something pensions can ignore because of the financial impact, but they should avoid getting pulled into a debate on the science, because that’s where the politics surface. . . . There’s going to be some plan members who think there should be no investments in fossil fuel. But as a fiduciary, you can’t just delegate your responsibility to a poll. Ultimately, deciding whether it’s a good financial decision is up to the fiduciary. You’ve got to keep your eye on the financial ball and prioritize value over values.”