Report on ESG and Fiduciary Responsibilities

A new report published by C.D. Howe Institute suggests that plan sponsors should avoid prioritizing Social, Environmental and Governance (ESG) factors when making decisions that could potentially affect the financial outcome of their plan members.  As some plan members shift their values in everyday decisions and choices that incorporate ESG factors, there may also be a shift to do the same with their investment choices.  The report indicates that plan sponsors should not ignore ESG factors that are relevant for financial purposes, however fiduciaries of pension plans are legally required to adhere to the overall purpose of the plan; provide lifetime retirement income through prudent management of plan assets.

“Fiduciaries can be held personally accountable if investment policy is not consistent with the primary financial purpose dictated by the Income Tax Act, pension standards legislation or the common law,” says Randy Bauslaugh, author of the report and leader of the national pension, benefits and executive compensation practice at McCarthy Tetrault LLP.

The report recommends minimal regulatory framework that imposes specific ESG consideration to ensure plan sponsors continue to prioritize financial performance and growth in pension plans.