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ESG Legitimate By-Product Of Plan Management

Pension fund fiduciaries should not ignore climate change and other?environmental, social, and governance (ESG) factors that are relevant to financial purposes, says a C.D. Howe Institute report. In ‘ESG and Climate Change: Pension Fund Do’s and Don’ts,’ author Randy Bauslaugh finds that while pension plan fiduciaries have no legal duty to make the world a better place, either socially or environmentally, such outcomes may be a legitimate by-product of prudent pension plan management for the purpose of providing lifetime retirement income. However, when fiduciaries use climate change and other ESG factors to prioritize social or environmental concerns over financial factors – concerns materially relevant to financial opportunity, financial risk management, and long-term financial sustainability – or to respond to the social or environmental concerns of plan members, they put themselves on shaky legal grounds.?Unlike corporate officers and directors who can safely navigate multiple lanes of interest in the best interest of a corporation, pension fiduciaries are legally required to adhere to the legislated ‘primary purpose’ of providing lifetime retirement income. Their duty is to manage the plan assets prudently to achieve that primary purpose. “Fiduciaries can be held personally accountable if investment policy is not consistent with the primary financial purpose dictated by the?Income Tax Act, pension standards legislation, or the common law,” says Bauslaugh. He recommends that regulators should resist any framework that imposes specific ESG metrics, considerations, or financial approaches as this would discourage growth of Canada’s workplace pension system.

FSRA Encourages Financial Advice

The Financial Services Regulatory Authority of Ontario (FSRA) is encouraging consumers to get financial advice from qualified financial services professionals. It has found that a significant number of Ontarians may be making investment decisions based on information from questionable sources or from individuals who may not be qualified. Its poll found 68 per cent of respondents get financial advice and tips from the Internet, word of mouth, or social media. Other sources of financial information include professional consultants, financial reports, financial technology tools such as self-directed investing, TV, radio, and newspapers. “Clearly, many people are getting financial information from a variety of different sources. However, investors should always ask about and validate the credentials of the financial services professionals they are working with,” says Huston Loke, executive vice-president, market conduct, at FSRA. “You want to ensure you are developing a financial plan that is right for you and your family and that will serve you well over the long term.”

For details on these stories, visit www.bpmmagazine.com

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