Purpose revises ESG disclosures amid greater regulatory scrutiny

Toronto-based Purpose Investments Inc. has updated its ESG disclosures and clarified which of its funds are classified as ESG following requests from the Ontario Securities Commission (OSC).

The changes included adding disclaimers to an older ESG-related press release and an article, explaining they were “point-in-time publications,” and replacing the phrase “ESG Always” on the firm’s “About” page with “ESG Conscious.”

Purpose also updated its ESG policy page “to more closely align” with new guidance the Canadian Securities Administrators (CSA) released in January 2022 on ESG fund disclosures.

Purpose detailed the changes in a release earlier this month.

Vlad Tasevski, chief operating officer of Purpose, said both Purpose and the OSC wanted to ensure disclosures made “many years ago when there were no specific guidelines” were now aligned with current requirements.

“We support [the OSC’s] initiative to provide more clarity in the market so investors have a better understanding when different managers talk about ESG as a concept,” Tasevski said. “This concept has evolved very quickly globally, and the OSC — rightfully so — wants to provide a better framework to help investors better understand what ESG means in different contexts, and provide guardrails.”

The OSC declined to comment about how it was enforcing ESG guidance and whether it was contacting firms. In a statement, the commission said it was “unable to confirm or comment on the existence, status or nature of any complaint, review or investigation.”

In October 2022, the OSC stated it would “continue to review the continuous disclosure documents of ESG-related funds … to assist [investment fund managers] in improving the disclosure of such funds.”

Purpose also clarified that 38 of its funds do not fall under an ESG classification. The firm now lists 25 ESG-related funds on its ESG page, only one of which — the Purpose Global Climate Opportunities Fund — also appears in the Canadian Investment Funds Standards Committee’s (CIFSC) responsible investment identification framework that was finalized in January.

“Since 2019, we have more directly and more explicitly included ESG information to make our [overall] investment decision process more informed,” Tasevski said. “What we did not do, unlike some other providers, was launch ESG-only versions of our existing strategies. We did not believe that was the right approach.”

As a result, the funds Purpose defines as ESG may not have been on CIFSC’s radar, he said, especially as the fund’s names do not include typical ESG terminology. (Examples include the Purpose Core Dividend Fund and the Purpose Global Bond Class.) While Purpose has not spoken to CIFSC regarding its ESG funds, the firm is open to future engagement, he added.

CIFSC has stated it will review requests to have funds added or removed from its responsible investing list monthly.

More ESG disclosure revisions coming

Conor Chell, head of the ESG practice group with MLT Aikins LLP in Calgary, said he thinks “we’re going to see a whole lot more” revisions to ESG disclosures generally. With regulators internationally looking more closely at public ESG statements, adjustments will become more frequent, he predicted.

“I’ve yet to find one [entity] whose reporting would be, from a sustainability perspective, entirely accurate or transparent and would meet the mandatory reporting requirements that are coming in, whether that’s CSA National Instrument 51-107 or the OSFI B-15 Guideline that was just finalized,” Chell said, noting that, for example, “the vast majority of net-zero goals are just not realistic.”

The CSA’s proposals are for climate disclosure standards for reporting issuers, while OSFI’s climate risk guideline is for federally regulated financial institutions.

Chell said companies generally choose to approach outdated or misleading disclosures in three ways: do nothing; update them quietly, protecting themselves against liability but leaving stakeholders to determine what’s changed; or detail the changes proactively and transparently.

Doing nothing “is the worst from a risk perspective, because you’re open now to a legal risk, relative to the reporting, and also a reputational risk,” he said.

Chell said that ESG statements are coming under particular scrutiny now because of a confluence of factors: the emergence of regulatory standards, the advent of tools sophisticated enough to measure ESG impacts, and a critical mass of large organizations making public disclosures about ESG. (According to the Net Zero Tracker, 836 of the world’s 2,000 largest public companies have a net zero target.)

Chell said investment fund manufacturers face a “double-edged sword” when it comes to disclosure risk: not only do they have to manage their own disclosures, but they must also carefully review their holdings’ disclosures in light of new requirements.

Tasevski said Purpose is well-placed to meet this challenge. “Our approach is to actively incorporate ESG information on issuers as part of our final decision as to whether they should be included in the portfolio or not,” he said. “The [ESG] sector is evolving, so it’s going to be important for us to stay up to date and understand how [new information] will impact the prospects of those businesses.”

Melissa Shin

Melissa is the editorial director of Advisor.ca and leads Newcom Media Inc.’s group of financial publications. She has been with the team since 2011 and been recognized by PMAC and CFA Society Toronto for her reporting. Reach her at mshin@newcom.ca. You may also call or text 416-847-8038 to provide a confidential tip.