Dealing with ESG risks in pension plan management

  • November 28, 2023

The Canadian Association of Pension Supervisory Authority, or CAPSA, released a draft guideline for risk management earlier this year that reviews and updates several key risk concepts, as well as third-party risks such as cyber risks and risks related to environmental, social and governance risks, or ESG. The latter is the subject of a letter from the CBA’s Pensions and Benefits Law Section.

The Section approves of CAPSA’s overall approach in the guideline, “most notably its express recognition of the complexity and importance of proportionality when developing guidelines applicable to plans that vary greatly in size and sophistication.”

The only concern from the Section is about ESG considerations when assessing risks, specifically the suggestion that a “review should be conducted at least annually, or whenever there is a material change in the risks facing the plan or governance process.”

The CBA letter suggests it would be more appropriate to review a plan’s approach to ESG risks at the same intervals that risks are normally reviewed by the plan administrator, or whenever there is a material change in the risks facing the plan or governance process. In short, concludes the letter, “recognizing that ESG risks are a subset of general risks facing the plan.”