The Pension Investment Association of Canada is urging the U.S. Securities and Exchange Commission to adopt new rules mandating enhanced disclosures of climate risks and other environmental, social and governance factors.
In a letter submitted by Natasha Trainor, PIAC’s chair, the association said it supports regulatory proposals that would require businesses to disclose more information on ESG risks. “[The] PIAC believes, because of the potential for climate change and broader ESG factors to have financial impacts on plan investments now and well into the future, it is within the scope of our members’ role as fiduciaries, as currently defined, to consider these in their investment processes and stewardship activities.”
The letter is a response to a March request from the SEC for market participants to review and provide recommendations made in a report issued by the ESG subcommittee of the SEC asset management advisory committee. The report noted the SEC should require the adoption of standards by which corporate issuers disclose material ESG risks and that ESG risks should be disclosed in a manner consistent with the presentation of other financial disclosures.
The PIAC views the proposed regulatory changes as vital for its members to live up to their own fiduciary duties. “Specifically, investors need information that allows them to understand the financial implications of climate change on a company’s business model, how management and the board is overseeing this risk and allows them to assess how companies are measuring and monitoring their Scope 1, 2 and 3 emissions.”
The PIAC also indicated its desire for changes to disclosure regulations to look beyond climate-related concerns and provide detail on all ESG issues. “As such, PIAC supports disclosure rules that would mandate enhanced disclosure of not just climate risk, but of ESG factors more broadly.”
The letter also referred to a similar May 11 submission from the Sustainability Accounting Standards Board, an organization that’s since changed its name to the Value Reporting Center. In it, the board advised the SEC that investor demand for consistent, comparable, reliable disclosure of financially material sustainability information on ESG has been increasing.
“The protection of investors exposed to company-specific sustainability risks and/or systematic sustainability risks such as climate change therefore requires more effective, standardized disclosure than existing commission guidance has thus far elicited from registrants. In addition, as asset managers respond to client demand and increase the number — and variety — of sustainability-related financial products for retail and institutional clients, investors need efficient price discovery in markets, which in turn requires decision-useful and widely available information regarding financially material sustainability risks and opportunities.”
The board also included a framework the SEC could use to implement these potential regulatory changes. According to the proposal, reporting companies would be required to provide structured narrative on its governance, strategy and risk management practices, along with quantitative metrics, for all financially material sustainability topics — one now officially endorsed by the PIAC.
“We note that SASB has provided a structure for sustainability disclosure that proposes to seek interoperability of existing standards and frameworks in their submission,” noted the letter. “PIAC believes this would be a suitable and workable structure that would meet investors’ needs.”