The Canadian Association of Pension Supervisory Authorities' (CAPSA) draft guideline on ESG sets out three principles as guidance for pension plan administrators:
CAPSA's draft guideline for Environmental, Social and Governance Considerations in Pension Plan Management provides plan administrators with guidance as they consider ESG risks and opportunities when dealing with pension assets. It sets out three overarching principles and offers practical suggestions for plan administrators to consider. Comments on the draft guidance are due October 14, 2022.
The guideline was developed by CAPSA's Committee on Integrating ESG Factors in Pension Plan Supervision in consultation with the ESG industry working group. The group consisted of individuals noted for their expertise, comprising plan administrators, actuaries, consultants and lawyers. I had the privilege to be a part of the working group.
Pension plan administrators (either directly or through their delegates) should consider ESG characteristics that may have material relevance to the financial risk-return profile of the pension fund’s investments.
Plan administrators, as part of their standard of care, need to assess whether their plan governance, risk management and investment decision-making practices are sufficient to identify and respond to material ESG information in a manner proportionate to their plans and appropriate for their investment beliefs.
Pension plan administrators should disclose in their statement of investment policies and procedures (SIPP), information about the pension fund’s investment policies in relation to ESG considerations. Where appropriate, pension plan administrators should also provide reports on their stewardship activities as well as request companies in which they invest to disclose their ESG-related policies.
The guideline provides best practices for plan administrators:
In addition to soliciting feedback on the draft ESG guidance, CAPSA is consulting on whether to incorporate its planned ESG guidance into a consolidated risk management guideline for pension plans (which would also address CAPSA's draft leverage and cyber security guidelines). The guidance is currently expected to be finalized in 2023.