New pension guidelines help clarify fiduciary duty

By: Kevin Thomas, Director of Shareholder Engagement

The growing consensus that environmental, social and governance (ESG) issues are a legitimate concern for pension fiduciaries has now been reflected in new guidance from the Canadian Association of Pension Supervisory Authorities (CAPSA).

Although purely advisory, CAPSA’s pension plan governance guidance documents are intended to assist Canadian pension plan administrators to implement and maintain good governance practices.

Last fall, SHARE wrote to CAPSA, which was in the process of reviewing its guidance, saying that managing ESG risks such as climate change is critical for pension fund management and the successful exercise of fiduciary duty by pension administrators.

We said that CAPSA should update its guidance documents to signal to pension administrators the relevance of ESG factors to investment outcomes. This would illustrate to pension administrators that they may take these factors into account in developing investment policies and making investment decisions, thereby assisting administrators in understanding their fiduciary duties. We said this would be consistent with current understanding of fiduciary duty as well as recent developments in Canadian pension regulation.

CAPSA recently released a new set of guidance documents, responding to SHARE’s concern. CAPSA noted that plan administrators “should establish and document a framework and ongoing processes, appropriate to the pension plan, to identify and manage the plan’s risks.” In a subsequent list of possible investment risks, CAPSA has now included “environmental, social or governance risks”.

CAPSA also accepted SHARE’s suggestion that its illustrative list of the kind of information plan administrators should obtain to ensure that they are meeting their fiduciary and other responsibilities should include proxy voting reports. Proxy voting reports identify the exercise of specific rights attached to ownership of public equities by a pension plan. The results of votes undertaken at annual meetings (such as electing the board of directors) can have a material impact on investment outcomes, therefore the administrator should be aware of how their managers or agents are exercising those rights on their behalf.

We welcome CAPSA’s new guidance, which further clarifies to Canadian pension plan administrators and trustees that it is within their fiduciary duty to consider ESG matters in investment decision-making and to take an active interest, as asset owners, in the exercise of their rights as shareholders.

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