On January 19, 2022, the Canadian Securities Administrators (the CSA) released Staff Notice 81-334 ESG-Related Investment Fund Disclosure, which provides guidance on the disclosure practices of investment funds as they relate to environmental, social and governance (ESG) considerations. As specifically mentioned in the notice, no new legal requirements are being created (or amended), but managers of funds whose objectives or strategies reference ESG factors should take note and read the guidance carefully with a view to understanding the current regulatory requirements and best practices in respect of ESG disclosure. Staff is particularly concerned about disclosure that is misleading or could be considered “greenwashing”.
Some of the areas covered in the notice include the appropriate use of ESG references in the name, investment objective and investment strategies of a fund. For example, it is noted that a fund that uses an ESG strategy as a material aspect of the fund must disclose those strategies as an investment objective. Staff would encourage funds that intend to generate a measurable ESG outcome (e.g. reducing carbon emissions) to clearly state the intended outcome as part of the fund’s investment objectives. Staff also believe that investment strategy disclosure should identify and explain any ESG factors used and identify how those factors are evaluated and monitored. The notice provides further guidance on a number of other disclosure matters, including ESG related risk disclosure by both ESG related funds and all other funds.
With respect to continuous disclosure, the CSA includes reference to a best practice for funds that have ESG related investment objectives of disclosing, as part of the summary of the results of operations in a fund’s MRFP, the ESG related aspects of those operations. There is also a very comprehensive discussion about permitted sales communications to ensure they accurately reflect the extent to which a fund is focused on ESG, and the particular aspect of ESG that the fund is focused on, to ensure it is not misleading. The discussion includes references to permitted use of fund-level ESG ratings, scores and rankings.
The notice is also a worthwhile read for those interested in an overview of common ESG-related terms and strategies and an understanding of global and domestic developments in the area.
Our colleagues at BLG will be publishing their analysis of the guidance shortly, as noted in BLG’s related bulletin article referenced in the BLG Resource Corner below.
January 31, 2022