Canada: FSCO Releases Final Guidance On Environmental, Social And Governance Factors

Last Updated: November 10 2015
Article by Scott McEvoy

Most Read Contributor in Canada, September 2016

The Financial Services Commission of Ontario (FSCO) published Investment Guidance Note — IGN-004 Environmental, Social and Governance (ESG) Factors on October 21, 2015 (Note). The purpose of the Note is to provide information and guidelines to administrators of Ontario registered pension plans to meet the requirements under section 78(3) of Regulation 909 under the Pension Benefits Act (Ontario) (the PBA) which comes into force on January 1, 2016, to include information in a pension plan's statement of investment policies and procedures (the SIPP) as to whether ESG factors are incorporated into the plan's investment policies and procedures and, if so, how those factors are incorporated.

A draft version of the Note had been released for public consultation on June 30, 2015 with the comment period closing August 28, 2015. Investment guidance notes are issued by FSCO from time to time to set out FSCO's expectations of plan administrators relating to the investment of pension plan assets, and the administrators investment-related obligations under the PBA and Regulation 909 thereunder.

These new requirements are set against the increasing recognition that investment decision-making must consider a range of relevant factors beyond those typically enumerated in traditional securities analysis and portfolio management.1

FSCO's guidance makes it clear that all investment decisions made by the administrator (or its delegates), including whether to incorporate ESG factors, must be made in accordance with the administrator's fiduciary duties. In contrast to the draft released in June 2015, that offered no definition of ESG factors, FSCO makes some small attempt by stating in the Note that "ESG Factors" can be described "as a broad term that encompasses a wide range of environmental, social and governance factors. Environmental factors relate to a company or industry's interactions with the physical environment, social factors concern the social impact of a company and/or industry on a community or society, and governance factors typically relate to how companies and/or countries are governed."

As with its earlier version, the Note outlines two approaches, considered at opposite ends of the spectrum, to incorporating ESG factors into investment policies and procedures. One approach involves integrating ESG factors into fundamental investment analysis to the extent that they are "relevant" to investment performance. This approach sees ESG factors as among the many factors that may impact the investment performance of an asset. It is interesting to highlight that FSCO deleted the word "material" from the earlier draft inserting "relevant" in its place, stating that "it is up to the administrator as fiduciary to evaluate which factors are relevant and how to take them into account." Materiality, and in particular, whether an ESG factor is financially material to the performance of an investment over time is often cited as a useful way to frame whether an ESG factor is included in investment practices and processes.

The second approach is to incorporate ESG factors into the investment process from an ethical or moral perspective by using, for example, ethical screens. FSCO cautions that the best interests of plan beneficiaries has traditionally been defined by the courts in terms of the beneficiaries' financial interests, with the result that there is a potential conflict with investing with other goals in mind, such as ethical or moral considerations. FSCO encourages an administrator considering such an approach to consult with its legal counsel.

Disclosure Obligations

It is FSCO's expectation that the administrator, after consulting with a plan's trustees, investment committee and/or investment advisers, as appropriate, will by January 1, 2016:

  • establish and document (in minutes of the meeting(s) where the issue was discussed, or in an internal memorandum) its own view or understanding on what is meant by ESG factors; and
  • consider whether it will incorporate ESG factors and document the basis for its decision.

Once this process is completed the administrator must state in the SIPP that it has decided not to incorporate ESG factors into its investment policies and procedures (if this is the case). The support/rationale for the decision could also be included.

If the administrator decides to incorporate ESG factors into its investment policies and procedures, a statement to that effect must be made in the SIPP together with information on how those factors have been incorporated. In a tip of hat to a less prescriptive approach, the Note deletes the words "description as to [how]" using the words "information on [how]" in their place. Additionally FSCO expects a listing of all ESG factors that are incorporated or a broad statement that all ESG factors are incorporated. Investment managers may be consulted and provide assistance in drafting this language but caution is advised. FSCO states that it will interpret general references to incorporating ESG factors as including the broadest range of ESG factors. It may be more helpful to focus on specific factors within an ESG category — for example, shareholder rights within "Governance", or labour relations within "Social".

FSCO also expects an explanation of the approach taken by the plan to incorporate ESG factors as well as a description of the scope of the application of ESG factors (for example, should the factors be considered across the entire pension fund or only certain portions of the pension fund).

While the changes are not effective until January 1, 2016, for pension plans currently registered in Ontario, the SIPP must be filed with FSCO within 60 days of January 1, 2016. For plans registered after January 1, 2016 the SIPP must be filed within 60 days after registration. Any amendments that are made to the SIPP must be filed with FSCO 60 days after the amendment is made.

Effective July 1, 2016, member, former member and retiree statements must include a statement that the administrator of the pension plan must establish a SIPP that contains information about whether ESG factors are incorporated into the SIPP and, if so, how those factors are incorporated.


1. Articulated in papers published by, among others, the UNEP Finance Initiative, PRI Association and UK Law Commission. Please also see the United States Department of Labor's Interpretive Bulletin IB 2015-01 Relating to the Fiduciary Standard under ERISA in Considering Economically Targeted Investments released on October 26, 2015.

About BLG

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

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
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).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.