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Transparency Needed On Investment Policies And Voting

By: Eugene Ellmen

The current federal consultation on Defined Benefit pension plans is raising some thorny questions on pension surpluses, employee entitlement, and solvency requirements. But there are some even thornier issues – about how much pension funds have to disclose about their investment policies and voting – that are being left off the table.

In May, Finance Canada announced a national consultation on the state of DB pension plans regulated under the Pension Benefits Standards Act (PBSA). It’s an important consultation – the PBSA regulates about 10 per cent of pension assets in Canada – and the outcome is expected to establish the model for pension legislation across Canada for years to come.

Given the importance of this review, it’s a mystery why such important questions as the disclosure of investment policies and voting were not cited in the discussion paper launching the review.

Not only is pension management an issue, but so too is the topic of shareholder voting. In Canada, mutual funds will soon be required to lift the veil on their proxy voting activities, disclosing their voting policies and showing exactly how they vote on shareholder resolutions on governance and social and environmental issues. The requirement follows similar rules in the U.S. driven by the belief that mutual funds were asleep at the switch when executives were raiding corporate coffers at Enron, World- Com, and other companies.

The Social Investment Organization is calling for these issues to be included in the new regulations of the PBSAand we’re hoping to get the support of the pension industry for these reforms. Let me explain why.

In recent years, pension management in Europe has undergone a revolution. Recently, a group of European pension funds and asset firms managing more than 360 billion euros have called on investment brokers to begin analyzing non-financial factors as part of their investment analysis.

Institutions such as the giant ABP in the Netherlands are using social and environmental analysis as part of their investment selection and management.

One of the drivers of this activity is new rules in the UK, Germany, France, and other countries requiring pension funds to disclose the extent to which they take social and environmental factors into account in their investment decision-making. By providing regular information on these issues to plan members, European pension funds are providing their members with an additional level of knowledge about their investment policies. These disclosures answer important questions from plan members about the social responsibility of their pension assets.

Similarly, questions about how pension funds vote their assets will become more prevalent when mutual funds start disclosing their voting records next year. Votes on governance issues such as dual class voting structures or sustainability issues such as climate change will get far more attention in the future as pension plan members see how their mutual funds voted on these contentious matters. Such disclosure also represents good pension plan governance, as is shown by such leaders as Ontario Teachers, the CPP Investment Board, and the Ontario Municipal Employees Retirement System.

Pension funds are going to have to answer the questions of how social responsibility, sustainability, corporate governance, and proxy voting fit into their long-term investment vision. Not every pension plan will answer these questions in the same way. But now that these questions have been asked, they will need to be answered, and mandated disclosure is the best way to ensure that plan members get the answers.


What Is SIO? Established in 1989, the Social Investment Organization is the national non-profit association for the socially responsible investment (SRI) industry in Canada. The mandate of the SIO is to take a leadership role in furthering the use of social and environmental criteria within the investment community; to raise public awareness of socially responsible investment; to establish the case for environmental/social analysis with other investment organizations; and to provide a forum and information source on socially responsible investment for its members and the public. The Social Investment Organization defines SRI as the process of selecting or managing investments according to social or environmental criteria The SIO estimates there is approximately $65.5 billion in socially responsible investment assets under management in Canada.

Eugene Ellmen is the executive director of the Social Investment Organization.

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