Wednesday, March 30, 2011

Ontario budget announces mandatory disclosure of pension ESG policies

By Eugene Ellmen

The Ontario government will require provincially-regulated pension plans to file their statements of pension policies with the pension regulator and to disclose whether those policies address environmental, social or governance (ESG) factors.

The announcement was contained in the Ontario Budget released on March 29.

In an extensive section on pension reform, the Ontario budget notes recommendations from the Expert Commission on Pensions, which reported in 2008. The Commission recommended a number of wide-ranging reforms to Ontario’s pension system, including mandatory ESG disclosure to bring Ontario pensions in line with requirements in the United Kingdom and a number of other European jurisdictions.

In the budget, the government pledges to “require plans to file Statements of Investment Policies and Procedures (SIPPs) with the regulator and disclose whether or not their SIPPs address environmental, social or governance factors.”

The announcement is welcome news to the SRI industry. In 2007, the Social Investment Organization (SIO) appeared at an Expert Commission hearing, and filed a brief calling for this measure, along with disclosure of pension funds’ proxy voting policies and records. The SIO’s brief is available here. The Expert Commission did not recommend the proxy voting aspects of SIO’s recommendations.

The SRI industry around the world supports pension ESG disclosure. We view it as a fundamental issue of transparency to pension plan members, and an incentive to Boards and staff to examine whether ESG policies should be included in their SIPPs. Similar regulations in the UK and European jurisdictions have been effective at raising the level of awareness about ESG policies in their pension sectors.

SIO welcomes the Ontario announcement as a way to modernize Ontario pension funds with regard to ESG disclosure, and to bring needed balance to the discussion of environmental, social and governance issues in pension management. As the largest pension jurisdiction in Canada, the Ontario announcement is expected to encourage other provinces and the federal government to adopt similar provisions.

However, it is not immediately clear how much transparency will result from this initiative. For example, it is not clear whether pension plan members can obtain their SIPPs and statement of ESG disclosure from the regulators. SIO recommended that the SIPPs, ESG disclosure statements and proxy voting records be made available on pension websites where they have them.

The SIO will continue to monitor the issue, and press for transparency for plan members.

Eugene Ellmen is executive director of the Social Investment Organization

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