MB Civic

RICHARD BLACKWELL

Canada’s pension plans should be forced to disclose exactly how environmental and social issues influence their decision making, a government-appointed committee has recommended.

The National Round Table on the Environment and the Economy — a body made up of two dozen business leaders, academics and former politicians — released a report yesterday saying that pension plans are currently obsessed with “short termism” and ignore important non-financial risk factors when investing.

That must change, the report said, if investors are to understand all the longer-term risks associated with environmental, social and governance issues.

The report, unveiled at a press conference in Toronto, recommends that guidelines be put in place to clarify that pension plans must consider social, environmental and governance issues that are “financially material” to their investment decisions.

And funds should have to disclose publicly how those issues are taken into account when they invest and when they make proxy voting decisions.

Over all, “we need a broad political and societal consensus for increasing the transparency of pension fund investment,” the report said.

David Myers, policy adviser to the round table, said many pension funds — including the Caisse de dépôt et placement du Québec and the Canada Pension Plan Investment Board — already have responsible investment policies. Still, “much more work is left to be done” to engrain that attitude in all funds, and to ensure the process is transparent, he said.

David Wheeler, dean of the faculty of management at Dalhousie University in Halifax and a participant on the task force that came up with the recommendations, said it is clearly part of a fund manager’s fiduciary duty to take into account social and environmental issues.

Fund managers could even face class action suits if they don’t, he said.

Still, “there are unacceptable levels of ignorance” among fund managers and financial advisers concerning what constitutes fiduciary duty, Mr. Wheeler said.

He also suggested that the people who have control of the capital that flows to Canadian businesses need to be more creative in taking advantage of the increased concerns over the environment, by converting that concern into business opportunities. “We still have this hopelessly outdated notion that the environment is a cost,” he said. “It’s anything but a cost.”

Canada’s splintered regulatory regime — with the federal government and the provinces regulating different pension funds — could make it difficult to implement the report’s recommendations.

But Mr. Wheeler said the federal government could get the ball rolling by stating clearly that pension funds should take environmental and social issues into account in their decision making.

The report also said it is not just pension fund regulators that need to change their policies. Accounting and actuarial bodies should also look at how their standards affect issues of sustainability, it said.

Institutional investors, and pension funds in particular, have a huge impact on the Canadian economy, the report says, and “ignoring issues such as human rights or climate change . . . is no longer an option.”

 

Taken from “The Globe and Mail”, Canada.