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The Canadian Securities Administrators (“CSA“) of the recently published guidance (the “Advice“) for investment funds on their environmental, social and governance disclosure practices (“ESG“), including funds whose investment objectives refer to ESG factors and other funds that use ESG strategies (“ESG-related funds“).1 The guidelines are based on existing regulatory requirements and address areas of disclosure including investment objectives, fund names, investment strategies, risk disclosure, continuous disclosure and marketing communications. As the investment fund industry creates new funds and integrates ESG considerations into existing funds to meet demand, there is increased potential for “greenwashing” – where the disclosure or marketing of a fund intentionally or inadvertently misleads investors about the ESG aspects of the fund. The Guide aims to help investment funds and their fund managers improve the ESG-related aspects of fund regulatory disclosure documents and ensure that ESG-related fund marketing communications are not misleading. or misleading and comply with the funds’ regulatory offering documents. .

Fund – According to a 2020 report by the Global Sustainable Investment Alliance, compared to other regions such as the United States, Japan and Australasia, Canada has seen the greatest increase in “sustainable investment” assets over the previous two years, with growth of 48%, and at the time of the report, Canada was the market with the highest proportion of sustainable investment assets at 62%.2 In 2021, the value of “sustainable funds” in Canada was $18 billion at the end of the first quarter, representing a 160% increase from 2020, and there were 156 sustainable funds at the end of March 2021 against 105 on the same date. times the previous year.3 The growing interest in ESG investing and the increased potential for green money laundering has led securities regulators and international organizations to address issues related to ESG investing, including ESG-related funds. ESG. In particular, the International Organization of Securities Commissions (“IOSCO“) recently released a final report outlining recommendations for securities regulators and policymakers to improve sustainability-related practices, policies, procedures and disclosure in the asset management industry. assets (the “IOSCO report“).4

International and national developments related to ESG – A number of securities regulators around the world have developed and implemented regulatory requirements or issued recommendations and guidance on ESG policy or sustainability-related disclosure for investment funds.5 In addition, IOSCO has set up the Sustainable Finance Task Force (the “STF“) with the aim of: (a) improving the information provided by issuers and asset managers with regard to sustainable development; (b) collaborating with other international organizations to avoid duplication and strengthen the coordination of approaches relevant regulatory and prudential issues; and (c) conduct research studies and analyzes of transparency, investor protection and other relevant issues within sustainable finance.The STF has three workstreams, with Workstream 2 focusing on practices, policies, procedures and disclosure related to sustainability in the asset management industry.6

Review of ESG-related funds – Staff conducted continuous disclosure reviews of regulatory disclosure documents and marketing communications of ESG-linked funds and other funds that have marketed themselves as ESG-linked funds (the “Reviews on ESG CD“). In addition, in October 2020, the Canadian Investment Funds Standards Committee (“CIFSC“) proposed a framework for identifying Canadian investment funds that practice responsible investing (the “IR fund identification framework“).seven The objective of the RI Fund Identification Framework is to provide an objective and comprehensive list of Canadian responsible investment funds. In March 2021, after a comment period, the CIFSC published a response to comments received and announced that it will publish a second version of the RI Fund Identification Framework for additional comments.8

Advice – Based on findings from CD ESG reviews, staff observations on ESG-related changes to existing funds, and recommendations from IOSCO, staff provided advice on how regulatory requirements for standards apply to investment funds with respect to ESG considerations, in particular ESG-Related Funds, in the following areas: (i) investment objectives and fund names; (ii) types of funds; (iii) disclosure of investment strategies; (iv) proxy voting and shareholder engagement policies and procedures; (v) risk disclosure; (vi) relevance; (vii) continuous disclosure; (viii) commercial communications; (ix) ESG-related changes to existing funds; and (x) ESG-related terminology.

The CSA have emphasized that full, truthful and clear disclosure is essential to maintaining and enhancing investor confidence and the efficiency of capital markets. In addition, it is important that investment funds are marketed to investors through marketing communications that are not false or misleading and that comply with a fund’s regulatory offering documents. Staff will continue to monitor regulatory disclosure documents and marketing communications of ESG-related funds and any other funds that present themselves as ESG-focused and will consider future policy initiatives as necessary.

Footnotes

1. CSA Staff Notice 81-334 “Disclosure of ESG-Related Investment Funds”, January 19, 2022.

2. Global Alliance for Sustainable Investment, “Global Sustainable Investment Review 2020”, accessible at: http://www.gsi-alliance.org/wp-content/uploads/2021/08/GSIR-20201.pdf.

3. The Globe and Mail, “Investment Firms Shift Business as Interest in ESG Grows” (June 30, 2021), available at: https://www.theglobeandmail.com/ investing/globe-advisor/advisor-news/article-investment-firms-transfer-business-as-interest-to-esg/.

4. International Organization of Securities Commissions, “Recommendations on Sustainability-Related Practices, Policies, Procedures and Disclosure in Asset Management: Final Report” (November 2021), accessible at: https://www.iosco.org/library/pubdocs /pdf/IOSCOPD688.pdf

5. See for example the “Sustainable Finance Disclosure Regulation” of the European Union (Regulation 2019/2088, accessible at: https://eur-lex.europa.eu/eli/reg/2019/2088/oj), the “Information to be provided by UCITS incorporating non-financial approaches” (AMF Position DOC-2020-03, accessible at: https://www.amf-france.org/fr/regulation/policy/doc-2020-03), “Circular to management companies of SFC-authorized unit trusts and mutual funds – ESG funds” from Hong Kong (accessible at: https://apps.sfc.hk/edistributionWeb/gateway/EN/circular/products/product-authorization/doc ?refNo=21EC27) and the “Guidelines on Sustainable and Responsible Investment Funds” of Malaysia (SC-GL/4-2017, accessible at: https://www.sc.com.my/api/documentms/download.ashx ?id=9a455914 -71db-4982-a34b-9a8fc7df79b5) For an overview of regulatory requirements and guidance on sustainability-related product disclosure, see Chapter 3 of the IOSCO report.

6. The Ontario Securities Commission is co-responsible for Tier 2, along with the Hong Kong Securities and Futures Commission. Workstream 1 focuses on sustainability-related disclosures for issuer companies while Workstream 3 focuses on ESG ratings and data providers. The Ontario Securities Commission is a member of Workstream 1 and the Autorité des marchés financiers is a member of Workstream 3.

7. Canadian Investment Funds Standards Committee, “CIFSC Responsible Investment Identification” (October 2020), available at: https://www.cifsc.org/the-cifsc-proposes-to-adopt-an-ri- fund-identification- cadre/

8. Canadian Investment Funds Standards Committee, “RE: CIFSC response to public comments regarding RI fund identification proposal” (March 19, 2021), available at: https:// www.cifsc.org/wp-content/uploads/2021/03/CIFSC-response-to-comments-regarding-RI-fund-identification-proposal-1.pdf.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.