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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’.

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