Climate change denial is not an option for pension fund trustees in Canada making investment decisions, said a report released Tuesday from Shareholder Association for Research & Education, a corporate governance organization whose focus includes advocacy in responsible investing.
Climate change denial is not an option for reasonable fiduciaries that must disregard their personal ideological positions, concludes the 36-page report, “Climate Change and the Fiduciary Duties of Pension Fund Trustees in Canada.
Among other conclusions, “Climate change risks may affect financial performance and must be considered by pension fund fiduciaries.”
“There is no meaningful distinction between 'non-financial' criteria that may affect financial performance and financial criteria; trustees must take both into account when making investment decisions … Climate change risks may affect financial performance and must be considered by pension fund fiduciaries where the risk is not too remote.”
Kevin Thomas, director of shareholder engagement at SHARE, said in an interview the organization's plan is to widely distribute the report, including through its network of clients and its trustee educational programs.
The report “dispels the thinking fiduciaries cannot take social and environmental factors into account in making investment decisions,” Mr. Thomas said.
“With climate change it is almost the reverse. You must take it into account to meet your fiduciary duties as a trustee” to act in the best interest of pension plan beneficiaries, Mr. Thomas said.
While the report doesn't address fiduciary duty outside Canada, Mr. Thomas said, “the principles of fiduciary duties are common” among the U.S., U.K. and Canada. “I think there is an overlap.”
Once a trustee concludes inclusion of climate change in investment decision-making is a fiduciary duty, that determination doesn't instruct a trustee what to do, Mr. Thomas said.
“Pension fund fiduciaries have a fair amount of leeway” in deciding how to invest, Mr. Thomas said, noting they could, for example, screen investments to include more renewable energy or reduce exposure to carbon-intensive sectors.
“I don't think pension funds trustees normally see themselves as advocates for public policy,” Mr. Thomas said. ”But it is not inconsistent with their fiduciary duties to advocate for public policy.”
“The goal is protect the assets of their beneficiaries,” Mr. Thomas said.
SHARE commissioned Koskie Minsky, a Canadian pension law firm, “to prepare a research paper setting out the legal basis for considering climate change as part of a pension trustee's fiduciary duty,” the report said.
The Environmental Dispute Resolution Fund, a legal aid program administered by British Columbia's West Coast Environmental Law Association, provided financial support to produce the report.
The report is available on SHARE's website.
