Why Canada’s Investors Should Take Action To Improve Sustainability Impacts And Mitigate Climate Risks

Today, the Principles for Responsible Investment (PRI) in partnership with the United Nations Environment Programme Finance Initiative (UNEPFI) and the Generation Foundation released the Canada Legal Framework for Impact policy report.

It sets out how Canadian investment law permits - and in some circumstances requires investors to consider pursuing improved sustainability outcomes, as a means to achieve financial returns and protect financial value.

But narrow interpretation of existing laws and reluctance to change established practices mean Canada’s investors still limit themselves from pursuing sustainability impacts.

To help address sustainability challenges, the report recommends new guidance to clarify laws and investment policy reforms that help investors to address sustainability impact goals in accordance with their fiduciary responsibility.

“By providing investors with legal clarity and enabling policies, Canada can emerge as a leader when it comes to responsible investing,” said David Atkin, CEO at the Principles for Responsible Investment.

“Climate considerations are not luxuries when it comes to finance; our planet’s viability, and therefore the viability of economies around the world, depend on the actions we take now to address the causes and consequences of climate change.

“This report roadmaps immediate policy steps to enable Canadian investors to consider sustainability issues, contribute to positive sustainability impacts, and protect long term returns from the threat of system-level risks.”

Equitable and just transition

Although Canada is taking steps to address climate change, it still lacks economic policies that emphasise long-term commitment to a low-carbon economy through just transition.

Further; it lacks comprehensive sustainable finance policies, enabling investors to manage climate risks and opportunities while contributing to national sustainability objectives.

The report proposes various policy recommendations, including clarifications of legal duties. Canada’s legal framework is complex, so the specific recommendations on legal duties relate only to pension funds, with wider policy recommendations covering all institutional investors. Specific policy recommendations include:

• Clarify when sustainability impacts can or must be considered by pension administrators in discharging their legal duties
• Facilitate consideration of climate-related risks and opportunities via legislation and regulatory guidance
• Introduce sustainable finance tools that enable investing for sustainability impact such as sustainable finance taxonomy, stewardship, and sustainability-related disclosures
• Explore measures to encourage consideration of retail investors’ views on sustainability issues

The Canadian report is the latest in a series of policy reports from the PRI, in partnership with UNEPFI and the Generation Foundation, addressing investing for sustainability impact throughout global markets.

Previous papers for markets including the EU, Australia, UK and United States can be found here.

Background

The Principles for Responsible Investment (PRI) is the world’s leading proponent of responsible investment. Supported by the United Nations, it works to understand the investment implications of environmental, social, and governance (ESG) factors and to support its international network of investor signatories in incorporating these factors into their investment and ownership decisions.

The PRI acts in the long-term interests of its signatories, of the financial markets and economies in which they operate, and ultimately of the environment and society as a whole. Launched in New York in 2006, the PRI has grown to more than 4,900 signatories, managing over $121 trillion AUM.