Greenwashing has become an issue for regulators who worry that investors could be intentionally or inadvertently misled about the green credentials of the funds they buy.
“In addition to leading investors to invest in funds that do not meet their objectives or needs, greenwashing may also have the effect of causing investor confusion and negatively impacting investor confidence in ESG investing,” the CSA warned in its notice setting out the new guidance.
The regulators reported that targeted reviews of investment funds’ continuous disclosure in this area revealed a number of shortcomings. Some funds had potentially misleading disclosure, the CSA found, while others featured inadequate reporting to investors on investment strategies, proxy voting practices and ESG performance.
Many funds “lacked detailed disclosure” about the specific ESG factors considered in their investment strategies and how those factors are evaluated.
Regulators also found that many funds provided more detailed ESG disclosure in their marketing materials than in their prospectuses; that most funds didn’t detail portfolio changes that were driven by ESG considerations; and that more than half of the funds that use proxy voting as part of their ESG strategies didn’t set out specific voting policies.
“In addition, the vast majority of the funds reviewed did not report on their progress or status with regard to meeting their ESG-related investment objectives,” it said.
In the wake of that review, the regulators indicated they don’t believe current disclosure requirements need to be revised to specifically address ESG factors. However, the CSA said “regulatory guidance is needed to clarify how the current disclosure requirements apply to ESG-related funds and other ESG-related disclosure in order to improve the quality of ESG-related disclosure and sales communications.”
The new guidance doesn’t add requirements for fund managers, but it does provide insight into areas where firms may be falling short of meeting existing disclosure expectations.
For investment funds, the regulators are hoping that guidance will be enough by bringing “greater clarity to ESG-related fund disclosure and sales communications to enable investors to make more informed investment decisions.”
Among other things, the guidance recommends that funds that aim to generate a measurable ESG outcome report their results to investors.
“For example, where a fund’s investment objectives refer to the reduction of carbon emissions, investors would benefit from disclosure in the fund’s [performance report] that includes the quantitative key performance indicators for carbon emissions,” it said.
On marketing materials, the CSA said that “a sales communication that does not accurately reflect the extent to which a fund is focused on ESG, as well as the particular aspect(s) of ESG that the fund is focused on, would both be misleading and conflict with the information in the fund’s regulatory offering documents.”
It also said that the use of fund-level ESG ratings, scores or rankings may be misleading. Reasons include conflicts with the rating provider, cherry-picking positive scores, and failing to disclose qualifications or limitations to a rating or ranking that would supply added context.
“Interest in ESG investing is on the rise and this enhanced and practical guidance will play an important role in helping investors make informed decisions about ESG products, as well as preventing potential greenwashing,” said Louis Morisset, chair of the CSA and president and CEO of the Autorité des marchés financiers (AMF), in a release.
The CSA indicated that it will continue to review ESG-related disclosures as part of its continuous disclosure reviews.
TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.
The S&P/TSX composite index was up 103.40 points at 24,542.48.
In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.
The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.
The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.
The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.
This report by The Canadian Press was first published Oct. 16, 2024.
TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.
The S&P/TSX composite index was up 205.86 points at 24,508.12.
In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.
The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.
The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.
The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.
This report by The Canadian Press was first published Oct. 11, 2024.
TORONTO – Canada’s main stock index was little changed in late-morning trading as the financial sector fell, but energy and base metal stocks moved higher.
The S&P/TSX composite index was up 0.05 of a point at 24,224.95.
In New York, the Dow Jones industrial average was down 94.31 points at 42,417.69. The S&P 500 index was down 10.91 points at 5,781.13, while the Nasdaq composite was down 29.59 points at 18,262.03.
The Canadian dollar traded for 72.71 cents US compared with 73.05 cents US on Wednesday.
The November crude oil contract was up US$1.69 at US$74.93 per barrel and the November natural gas contract was up a penny at US$2.67 per mmBTU.
The December gold contract was up US$14.70 at US$2,640.70 an ounce and the December copper contract was up two cents at US$4.42 a pound.
This report by The Canadian Press was first published Oct. 10, 2024.
