The Association of Canadian Pension Management is advising the Canadian Association of Pension Supervisory Authorities to take a less prescriptive approach in its proposed guidelines on risks related to environmental, social and governance factors, cybersecurity and leverage.
In an open letter to the CAPSA, the ACPM said a one-size-fits-all approach to ESG regulation could potentially place a significant burden on the administrators of small pension plans, defined contribution plans or plans with limited ability to control or influence their asset manager’s implementation of a desired ESG approach.
While the proposed ESG guideline addresses the concept of pension plan proportionality, the ACPM said it should specify multiple factors including complexity, governance structure, plan administrators’ corporate sustainability strategy, plan size and resources. It also recommended a principles-based approach to ensure plans of all sizes recognize cybersecurity as an evolving risk and are aware of their fiduciary duty to manage this risk, with fewer specific directions.
“While large plans may have specific cyber event resilience plans and incident responses, smaller plans may rely heavily on external service providers where the administrator would be expected to exercise more of a monitoring function, as opposed to being required to develop detailed policies or practices of its own that are specific to the plan.”
The ACPM also suggested that the CAPSA remind administrators that cybersecurity overlaps with several governance approaches that should already be in place to monitor privacy and confidentiality of information more generally.
And it noted it’s against the creation of a single complex risk management standard for all types of leverage, noting it may dissuade smaller pension plans from using leverage to manage other risks and could result in an increase of overall risk.
“It is important to note that many pooled investment funds, such as one that hedges its foreign currency exposures or a real estate fund with mortgages, would be classified as levered,” said the letter. “Even publicly traded equity will involve leverage, as very few companies can operate without ever borrowing. Therefore, most pension plans in Canada would be using leverage and would be expected to comply with the requirements of this guideline.”