Ontario’s Capital Markets Modernization Task Force issued 47 draft recommendations in July aimed at changing capital markets regulation and mechanisms in Canada’s largest jurisdiction for securities regulation.
When the Task Force was first announced, SHARE helped to convene a group of Canada’s largest pension investors and asset management firms to present proposals to the Task Force, working together to encourage Canadian regulators to take up improved environmental, social and governance (ESG) disclosure requirements, improve corporate diversity, and address climate change.
Most of these proposals ended up amongst the Task Force’s published draft recommendations, which were subject to a brief comment period which ended on September 7th. Amongst other things, the Task Force recommended that:
· TSX-listed issuers be required to adopt and report on diversity targets – including for Black, Indigenous and People of Colour, and beyond the board level;
· TSX-listed issuers be required to report on ESG indicators using the Task Force on Climate Related Financial Disclosures (TCFD) and the Sustainability Accounting Standards Board (SASB) models;
· TSX-listed issuers be required to hold an annual advisory shareholders’ vote on the board’s approach to executive compensation (“Say on Pay”)
A couple of additional recommendations were put forward by the Task Force, however, which SHARE and others opposed, including offering issuers a right of rebuttal to proxy advisory service reports to their own private clients, and instituting a “no action” letter process in Canada to regulate the use of shareholder proposals, mirroring the process in place in the USA. In both cases we were concerned that these new measures would limit shareholder rights and interfere in shareholder decision-making with regard to critical tools in the responsible investment toolbox: proxy voting and shareholder proposals.
Together our broad group of Canadian institutions developed a set of joint responses to the Task Force recommendations, which were adapted for use by many institutions in their individual submissions, and also included in a joint submission by a group of institutions including SHARE. We also worked with a group of US-based investors with more than $4.3 trillion in assets under management to issue a joint commentary on the proposals from those with experience in the US market.
The next step is for the Task Force to issue its final recommendations, which are due soon. Given the strong response from institutional investors on these core recommendations, we’re hopeful that the Government of Ontario and securities regulators will take up the opportunity to modernize Canada’s capital markets by embedding accountability, diversity and inclusion, environmental sustainability and social responsibility in the very heart of investor and issuer activity.
Joint Canadian investor letter to the Modernization Task Force, September 7, 2020
Joint US investor letter to the Modernization Task Force, September 5, 2020