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In case you missed it – The importance of enhancing ESG disclosure: OSC roundtable on ESG-related issues in asset management

As we round out 2021, our ESG and Sustainability team is highlighting key developments in securities regulation that may have slipped by unnoticed in recent months. In this post, we look at the September 27, 2021 Ontario Securities Commission (“OSC”) virtual roundtable entitled “ESG-Related Regulatory Issues in Asset Management” (the “Roundtable”).

The Roundtable was moderated by Wendy Berman, Vice-Chair of the OSC, and discussed various issues arising from an increased interest in environmental, social, and governance (“ESG”) investing from Canadian investors and the investment fund industry. In particular, the Roundtable considered the importance and potential benefits of enhancing ESG-related fund disclosure.

The following are key topics and takeaways from the Roundtable. Please contact Robert Richardson, Will Horne, or Gurvir Sangha to discuss the potential impact of securities regulations concerning ESG on your business.

Key topics and takeaways emerging from the Roundtable

  1. Clarifying disclosure requirements is a priority for regulators - The Canadian Securities Administrators (“CSA”) have conducted reviews of regulatory disclosure documents and sales communications in order to assess the quality of disclosures by Canadian ESG-branded investment funds. An integral objective of this assessment is to determine whether these communications are misleading. As a result, staff of the CSA are preparing a Staff Notice on ESG-Related Investment Fund Disclosure, which will clarify the disclosure requirements that apply to ESG funds.
  2. Greenwashing is a significant risk to investors – Investors currently face high exposure to “greenwashing” risks. Greenwashing is a practice whereby marketing materials for investment funds and products that discuss ESG approaches and characteristics are either deliberately or inadvertently misleading. This increased risk is due in part to increased investor demand for “green” investment products that has outpaced the regulators’ response to this market development.
  3. The meaning of ESG varies amongst investors – Given the breadth of subject matters covered by ESG, there are varying conceptions of what constitutes “ESG investment.” Generally, investors may consider ESG investments to be those that either align with certain core values or that mitigate risk and increase returns through sustainable methods. Investors should review investment funds and investment products carefully against how the investor conceptualizes responsible investment to ensure the funds and products that are offered align with the investors’ views, as well as those of key stakeholders.
  4. Investors need visibility – Investors need clarity from investment funds with respect to what they are doing, why they are doing it, and what their objectives are. One panelist viewed this lack of clarity and visibility as a greater concern for investors than greenwashing. Potential solutions to mitigate visibility issues include clearer communication by investment funds, engaging experts where appropriate, and enhancing disclosure requirements to reflect the standards that investors have developed.
  5. Disclosure of process in addition to results can be valuable – Investors may benefit from the disclosure of information by investment funds that extend beyond end results. The inclusion of procedural updates and background context in communications to investors will signal to investors how their voices are heard and indicate how they influence decision-making. Examples of more fulsome disclosure can include, amongst other things, publishing portfolio-specific voting quarterly and explaining the procedure involved in investment strategies.
  6. Awards and general statements may be misleading – Several asset managers purport to be aligned with international campaigns such as the Paris Climate Accord and the United Nations Sustainability Development Goals. Similarly, websites may include ratings, claims of being leaders in the field, and awards or recognition from various organizations. Investors should be aware of these claims and the fact that they may not be useful indicators of whether an asset manager aligns with the investor’s particular ESG goals.

The bottom line

While proposed improvements to disclosure mechanisms will take time to implement, increasing market interest will almost certainly continue to drive capital toward ESG-branded investment products in the meantime.

Guidance from regulators such as the OSC can assist investors in being alert to shortcomings in the current ESG disclosures that they should consider when making investment decisions. As highlighted by the Roundtable, investors should be aware of misleading information including greenwashing and blanket statements and they should seek opportunities to gain increased visibility and clarification where possible.

As discussed in a number of our recent posts, ESG factors are an increasing focus of Canadian securities regulation. Other complementary developments include:

  • OSC roundtable on diversity targets and board term limits, which we reviewed here; and
  • Canadian Securities Administrators proposed national instrument on climate-related financial disclosure, which we reviewed here.

We’re here to help

McCarthy Tétrault has a multidisciplinary ESG and Sustainability team that is equipped to provide clients with a full suite of advice and support to assist them in integrating ESG thinking into their organizational DNA. With a robust understanding of business, industry, and market drivers, we are well-suited to provide contextualized guidance. Please contact Robert Richardson, Will Horne, or Gurvir Sangha to learn more – we would be happy to assist you.



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