In Part I of this series, I discussed the Financial Services
Commission of Ontario's (FSCO) Investment Guidance Note
IGN-003 which provides guidance on the preparation of a
Statement of Investment Policies and Procedures (SIPP) for a
member-directed defined contribution (DC) pension plan, in response
to recent changes to federal pension standards legislation that is
incorporated by reference into the Ontario pension standards
In this post, I will focus on FSCO Investment Guidance Note IGN-004, which provides guidance on the incorporation of
environmental, social, and governance (ESG) factors into the
Effective January 1, 2016, SIPPs for Ontario-registered pension
plans will have to include information on whether ESG factors are
incorporated into the SIPP and, if they are, how they are
incorporated. This requirement will be found in subsection
78(3) of the Pension Benefit Act (PBA)
The new regulation makes it clear that the incorporation of ESG
factors into the investment decision-making process is not
mandatory; an administrator may decide not to incorporate ESG
factors into the investment selection process. All
administrators must now turn their minds to the issue, however.
The PBA Regulations do not contain a definition of ESG factors
nor do they provide any further information on how ESG factors
might be incorporated. FSCO has therefore published IGN-004,
which provides plan administrators with additional guidance in this
regard. IGN-004 describes ESG factors in high-level terms as
Environmental – how a company or
industry interacts with the physical environment;
Social – the impact of a company or
industry on a community or society;
Governance – how companies or countries
The Investment Guidance Note describes two potential approaches
to ESG factors.
The first focuses on the impact of ESG factors on an
investment's financial performance over the short, medium, or
long term. (For example, the administrator may believe that,
all other things being equal, a company with transparent and robust
corporate governance policies is likely to financially out-perform
a company with poor governance practices.)
Alternatively, investors can approach ESG factors from a moral
or ethical perspective (for example, eschewing investments in
companies involved in military arms production).
FSCO cautions administrators about adopting the latter approach,
advising that the administrator's fiduciary duty requires that
it act in the best interests of the plan members, and that the
courts have typically equated members' best interests with
their financial best interests. The Investment Guidance Note
suggests that administrators obtain legal advice before adopting
such "ethical screens".
According to the Investment Guidance Note, each plan
Decide whether or not to incorporate ESG factors into its
investment policies and procedures; and
Establish and document its own views on what is meant by ESG
If the administrator decides not to incorporate ESG factors, it
must make a statement to that effect in the SIPP. In
addition, it may also wish to include a brief explanation of the
rationale for its decision.
If the administrator decides to incorporate ESG factors, it must
make a statement to that effect in the SIPP, and also include
information on how ESG factors have been incorporated. For
example, the administrator may have decided to focus on certain
factors (e.g., corporate governance) rather than all ESG
factors. The SIPP should contain sufficient information on
the incorporation of ESG factors so that everyone involved in plan
investments can comply with the SIPP in that regard.
As noted my previous blog post, all plan members, including retirees starting in
2017, must be sent written pension statements, which must now
include information on whether and how ESG factors are incorporated
into the SIPP, and information on how the individual can obtain a
copy of the SIPP. Administrators may therefore expect that
plan members will have more questions about the plan's
investments, including the incorporation of ESG factors, than they
have in the past.
FSCO Investment Guidance Notes
FSCO has only recently begun publishing policies related to
pension plan investments in the form of "Investment Guidance
Notes". Much like other FSCO policies, while they do not
have the force of law, pension plan administrators are well-advised
to follow them, as they represent FSCO's views on the proper
application of the PBA and the PBA Regulations.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
Unfortunately, reasonable accommodation for employees in the workplace continues to be the source of significant litigation and even today we continue to see outrageous examples of employers behaving badly.
We are now beginning to see reported cases involving charges and subsequent fines laid against employers for failing to provide information, instruction and supervision to protect a worker from workplace violence.
On October 13, 2016, the Supreme Court of Canada denied leave to appeal an Ontario Court of Appeal decision which ordered an employer to pay a former employee 37 months of salary and benefits following termination.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).