In an unprecedented move, some of Canada's largest institutional investors have banded together to ask companies for more rigorous disclosures of environmental, social and governance factors, an effort they say is meant to promote more sustainable and inclusive economic growth.
A group of eight pension funds, which together manage a total of about $1.6 trillion in assets, called on corporations in a joint statement Wednesday to standardize their disclosures of so-called ESG factors to help them in their investment decision-making and better assess and manage their risks.
“How companies identify and address issues such as diversity and inclusion, human capital, board effectiveness and climate change can significantly contribute to value creation or erosion,” the funds wrote.
The group of eight funds includes global investment heavyweights such as the Canada Pension Plan Investment Board, the Ontario Teachers' Pension Plan, and the Caisse de Depot et Placement du Quebec.
Richard Leblanc, a professor at York University who specializes in corporate governance, said the funds' statement will put even more pressure on companies to disclose how well they perform relative to international benchmarks for ESG factors, which, Leblanc said, amount to 75 per cent of the risks facing businesses.
“This is signalling to capital markets that 1/8 the funds 3/8 are taking this very seriously,” Leblanc said. “At the end of the day, boards take their marching orders from investors.”
Fund managers around the world have been increasingly looking at environmental, social and governance issues when evaluating investments. In doing so, investment managers examine performance on the environment and other sustainability issues along with financial results.
Larry Fink, the CEO of BlackRock, which manages more than US$7 trillion, last year called on the leaders of the world's largest corporations to weigh non-financial factors such as climate-change risks and social issues into their decision-making. And in September, PIMCO, an investment management firm in the United States with US$1.9 trillion under management, announced that it was launching a new fund to target investments with strong ESG credentials.
Earlier this year, Brookfield Asset Management named former Bank of Canada and Bank of England governor Mark Carney as vice-chair and head of ESG and impact fund investing.
Khurram Asghar, a partner at PwC Canada who co-authored a report this year on ESG, said the funds' statement will drive the need for companies to standardize their reporting of ESG factors, making it easier to compare different investments on those metrics.
In the statement, the funds asked that companies adopt the standards set forth by the Sustainability Accounting Standards Board and the Task Force on Climate-Related Financial Disclosures in communicating their data to investors.
As well as the Caisse, CPP Investments and Teachers, the statement is signed by the chief executives of Alberta Investment Management Corp., B.C. Investment Management Corp., the Healthcare of Ontario Pension Plan, the Ontario Municipal Employees Retirement System and the Public Sector Pension Investment Board.
The funds said they are committed to creating more sustainable and inclusive growth by integrating environmental, social and governance factors into their strategies and investment decisions.
The funds said it is an integral part of their duty to contributors and beneficiaries and will unlock opportunities and mitigate risks, but that they require transparency from companies.
“Companies have an obligation to disclose their material business risks and opportunities to financial markets and should provide financially relevant, comparable and decision-useful information,” the funds wrote.
The investment managers said the pandemic and other events this year have revealed pre-existing business strengths and shortcomings with respect to social inequity, including systemic racism and environmental threats.
“It is imperative we rebuild our economies in ways that create greater systemic resiliency and inclusive growth,” the statement said.