Canada requires clear, consistent guidance on the integration and reporting of sustainability factors into investment decisions, according to a new report from the United Nations-based principles for responsible investment.
“There are currently no consistent regulatory requirements for sustainability reporting that apply to all investors and issuers across Canada,” noted the report. “Without such a tool, the risk of greenwashing by issuers is high; investors may also be led to believe they are investing responsibly when they are not.”
According to the PRI’s findings, Canadian law permits institutional investors to incorporate sustainability-related factors to improve investment outcomes, though it’s unclear if fiduciaries are required to incorporate them. “Our own analysis shows that many Canadian investors may be interpreting their legal duties in ways that discourage them from considering sustainability impact goals even where pursuing such goals can help them discharge their duty to achieve financial returns.”
Read: Assessing investment managers’ progress in sustainable investing
The ambiguity is due to the existence of conflicting language in rules from five federal and 21 provincial regulatory bodies. To clarify this, the report recommended the proposed guidelines be underpinned by a taxonomy built on science-based criteria to define what is and isn’t referred to by sustainable economic activity.
The report also recommended that regulators settle the question of whether pension plan sponsors should or must be required to consider sustainability-related factors. “In the absence of clearer regulation and direction from regulators, Canadian asset owners and asset managers will remain hesitant to use investment decisions, stewardship and policy engagement to pursue positive sustainability impacts — even if doing so is in line with their duty to prioritize investment returns.”
The PRI proposed that new guidelines require the assessment of sustainability risks in the investment process and also require a pension plan’s statement of investment policies and procedures to provide annual updates on how this is being done. “Regulators should clarify that the actions available to investors are not limited to asset allocation decisions and should encourage the use of stewardship, including collaborative engagement, by investors.”
Read: A look at the latest legal issues around ESG investing