A new Mercer report outlines the “impressive” growth in pension fund activity and assets invested using responsible investing guidelines.
The report, Best Practices in Responsible Investment for Canadian Pension Funds, commissioned by the Social Investment Organization and funded by Environment Canada, notes that there is a “growing consensus that responsible investment insights should be integrated into mainstream investing strategies if fiduciary duties to current and future beneficiaries are to be respected.”
Pension fund assets invested using SRI guidelines have jumped to more than $544 billion in 2008 from $25 billion in 2004, largely due to the adoption of responsible investment policies by major public and private funds, including the BC Investment Management Corporation, the Caisse and the CPP Investment Board.
Still, the report notes that many Canadian institutional investors continue to lag behind in incorporating ESG factors in the decision-making process.
“There is a growing body of evidence that ESG issues can have a material impact on financial returns,” the report states.
“Arguably, institutional investors that completely ignore ESG issues may be breaching their fiduciary obligations. Some environmental and human rights issues are becoming so pervasive and serious it is difficult to see how investors can continue to be indifferent to their impact. This seems especially true of climate change scenarios.”
"The release of a best practices roadmap for Canadian pension funds is timely," said Jane Ambachtsheer, Mercer's Global Head of Responsible Investment. "With the recent financial crisis, expectations for financial reform – and a longer-term approach to investment risks and opportunities – have never been stronger. Institutions around the world, from smaller corporate plans to mega funds, are embracing responsible investment strategies; this can only serve as further encouragement for Canadian asset owners to roll up their sleeves and engage as well."
"Canadian pension funds, endowments and foundations are increasingly recognizing the benefits of responsible investment policies," adds Eugene Ellmen, executive director of the Social Investment Organization. "Responsible investment is legally prudent and a means to identify and manage risk. RI can also help generate long-term value for stakeholders.”
The report makes a number of recommendations for pension plan trustees and administrators, including increased disclosure related to ESG issues and corporate governance, regulations to clarify the fiduciary obligations of trustees and incorporating long-term liabilities within current pension plan structures.
More specifically, the report calls on the federal government to “lead by example” and actively integrate ESG factors into federal funding of grants and projects related to capital markets and that the Social Investment Organization work with the Pension Investment Association of Canada to survey the quality of ESG-related educational materials offered to pension trustees.
The report also includes a section on responsible investment strategies for individual pension plans and a comprehensive list of key collaborative initiatives in which institutional investors can participate, such as the Canadian Coalition for Good Governance, the Carbon Disclosure Project and the UN’s Principles for Responsible Investment.
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