Released on January 19 by the Canadian Securities Administrators (CSA), CSA Staff Notice 81-334 - ESG-Related Investment Fund Disclosure (‘The Guidance’) clarifies and explains the disclosure requirements applicable to environmental, social and governance (ESG) funds, ESG strategy Funds and ESG-Related Funds.
The Guidance provides clarification on 11 areas, some of which are outlined hereunder:
1/ Investment objectives and fund names: a fund’s name and investment objectives should accurately reflect the primary focus of the fund.
2/Fund types: a mutual fund that includes ESG in its fundamental investment objectives may wish to characterize itself as a fund that is focused on ESG in addition to its primary fund type.
3/Investment strategies disclosure:
Funds using one or more ESG strategies, either as principal investment strategies or as part of its investment selection process, must disclose the ESG-related aspects of its investment selection process and strategies.
ESG-Related Funds using proxy voting or shareholder engagement as ESG strategies must disclose this in their investment strategies.
Funds using multiple ESG strategies must explain in their disclosure explaining how the different ESG strategies are applied during the investment selection process.
ESG-Related Funds using internal or third-party company-level ESG ratings or scores, or ESG-related indices or benchmarks, as part of their principal investment strategies or investment selection process, must explain how those ratings, scores, indices or benchmarks are used.
4/Proxy voting and shareholder engagement policies and procedures: disclosure of a fund’s proxy voting policies and procedures for ESG funds using proxy voting.
5/Risk disclosure: requirements specific to (i) ESG - Related funds (e.g. concentration risk, risk arising from potential over-reliance on third-party ESG ratings) and (ii) all funds (e.g. climate change risk and bribery and corruption risks)
6/Suitability: where applicable, inclusion of a brief statement stating that an ESG Fund is suitable for investors who have ESG-related investment objectives.
7/Continuous disclosure: includes requirement to disclose in an ESG-Related fund Management Report of Fund Performance (MRFP) the composition and changes to the composition of the investment portfolio related to the fund’s ESG-related investment objectives and/or strategies.
8/Sales communications: Must accurately reflect the extent to which the fund is focused on ESG. Must not include misleading statements about the ESG performance of the fund.
As specified by the CSA: ‘the Guidance does not create new legal requirements or modify existing ones’.