Canada's Maple 11 Embrace New ISSB Disclosure Framework

CPP Investments put out a press release stating the CEOs of leading Canadian pension plan investment managers support the inaugural International Sustainability Standards Board (ISSB) standards:

June 28, 2023 – Today, CEOs of 11 of Canada’s leading pension plan investment managers, representing more than $2 trillion in assets under management, call on companies focused on long-term value to embrace the new International Sustainability Standards Board (ISSB) disclosure framework, launched this week.

Together, Alberta Investment Management Corporation (AIMCo), British Columbia Investment Management Corporation (BCI), Caisse de dépôt et placement du Québec, CPP Investments, Healthcare of Ontario Pension Plan (HOOPP), Investment Management Corporation of Ontario, OMERS, Ontario Teachers’ Pension Plan, OP Trust, PSP Investments and University Pension Plan have issued a joint statement in support of the inaugural ISSB standards (“Standards”). The new ISSB standards help consolidate existing disclosure standards including the Sustainability Accounting Standards Board (SASB) standards and the Task Force on Climate-related Financial Disclosures (TCFD) framework.

The CEOs said they believe widespread adoption of this new global baseline will spur companies to more closely examine and manage activities that are having an increasingly material impact on long-term value creation.

The joint statement declares that Canada’s pension plan investment managers “are mandated to deliver long-term risk-adjusted returns that help support retirement and benefit security for millions of people. In 2020, many of our organizations spoke about the importance of companies and investment partners placing long-term sustainability of their business at the centre of their strategic planning, operations, and reporting. We believe that integrating material sustainability-related factors into our strategies and investment decisions is an integral part of the duty that many of us owe to clients, contributors and beneficiaries. Understanding these factors helps us individually work to unlock opportunities and mitigate risks.

How companies identify and address issues such as diversity and inclusion, human capital, board effectiveness and climate change can significantly contribute to value creation or erosion. Companies have an obligation to disclose their material business risks and opportunities to their investors and, in our view, should provide financially relevant, comparable, and decision-useful information.

For our part, we will continue to strive to strengthen our own sustainability disclosures and allocate capital to businesses best placed to preserve and create value over the long run.”

The ISSB, which released the new standards on June 26, said this new framework will help to improve trust and confidence in company disclosures about sustainability to inform investment decisions. For the first time, the Standards create a common language for disclosing the effect of climate-related risks and opportunities on a company’s prospects, the ISSB noted.

The Standards have been developed to be used in conjunction with any accounting requirements under the International Financial Reporting Standards (IFRS).

  • IFRS S1 provides a set of disclosure requirements designed to enable companies to communicate to investors about the sustainability-related risks and opportunities they face over the short, medium and long term.
  • IFRS S2 sets out specific climate-related disclosures and is designed to be used with IFRS S1.

Both fully incorporate the TCFD recommendations.

The ISSB developed IFRS S1 and IFRS S2 with the benefit of extensive market feedback and in response to calls from the G20, the Financial Stability Board (FSB) and the International Organization of Securities Commissions (IOSCO), as well as leaders in the business and investor community. This support for a comprehensive global baseline of sustainability-related disclosures demonstrates the widespread demand for a consistent understanding of how sustainability factors affect companies’ prospects.

About:

Alberta Investment Management Corporation (AIMCo)
AUM $158 billion (as at December 31, 2022)
Website

Media:
Carolyn Quick
Tel: +1 (647) 249 8917
Email: mediarelations@aimco.ca

 

BCI
Gross AUM $233.0 billion (as at March 31, 2023)
Website

Media:
Olga Petrycki
Tel: +1 (778) 410 7100
Email: media@bci.ca

 

CDPQ
AUM $402 billion (as at December 31, 2022)
Website

Media:
Conrad Harrington
Tel: +1 (514) 847 5493
Email: charrington@cdpq.com

 

CPP Investments
AUM $570 billion (as at March 31, 2023)
Website

Media:
Steve McCool
Tel: +44 (7780) 224 245
Email: smccool@cppib.com

 

HOOPP
AUM $103.7 billion (as at December 31, 2022)
Website

Media:
James Geuzebroek
Email: jgeuzebroek@hoopp.com

 

Investment Management Corporation of Ontario
AUM $73.3 billion (as at December 31, 2022)
Website

Media:
Neil Murphy
Tel: +1 (416) 898 3917
Email: neil.murphy@imcoinvest.com

 

OMERS
AUM $124.2 billion (as at December 31, 2022)
Website

Media:
Lori McLeod
Tel: + 1 (437) 241 8480
Email: media@omers.com

 

Ontario Teachers’ Pension Plan
AUM $247.2 billion (as at December 31, 2022)
Website

Media:
Dan Madge
Tel: +1 (416) 730 6451
Email: media@otpp.com

 

OPTrust
AUM $24.6 billion (as at December 31, 2022)
Website

Media:
Claire Prashaw
Tel: +1 (416) 859 9386
Email: cprashaw@optrust.com

 

PSP Investments
AUM $243.7 billion (as at March 31, 2023)
Website

Media:
Maria Constantinescu
Tel: +1 (514) 218 3795
Email: media@investpsp.ca

 

University Pension Plan
AUM $10.8 billion (as at December 31, 2022)
Website

Media:
Zandra Alexander
Tel: +1 (647) 454 2612
Email: zandra.alexander@universitypensionplan.ca


You can read the joint statement below:

The CEOs signed off on this important statement because they are all unified in their thinking that companies need to disclose more to investors:

To achieve this, we need companies to be transparent. This is why we are coming together today to encourage the companies in which we invest and those seeking our capital to  leverage the recently introduced International Sustainability Standards Board (ISSB)  disclosure framework. How companies identify and address issues such as diversity and  inclusion, human capital, board effectiveness and climate change can significantly  contribute to value creation or erosion. Companies have an obligation to disclose their  material business risks and opportunities to their investors and, in our view, should provide financially relevant, comparable, and decision-useful information.

Companies face a myriad of disclosure frameworks and requests, which we recognize impose costs and burdens. The new ISSB standards help to address that challenge by consolidating existing disclosure standards, a highly constructive development. These include the Sustainability Accounting Standards Board (SASB) standards and the Task  Force on Climate-related Financial Disclosures (TCFD) framework. We believe  widespread adoption of this new global baseline will spur companies to more closely examine and manage activities that are having an increasingly material impact on long-term value creation.

Now, a few points on this joint statement from Canada's Maple 11 (I know CAAT, Vestcor and others were left out):

  • First, we do need more disclosure but as I read this statement, I was wondering why aren't regulators taking the lead here to impose the new ISSB standards on companies?
  • Second, we need to quantify statement as "having an increasingly material impact on long-term value creation" or else it's meaningless drivel that sounds cool but has no real value whatsoever.
  • Third, what's good for the goose is good for the gander, meaning it's great that Canada's large pension investment managers are all unified on the new ISSB disclosure framework but they need to practice this internally and even go further in my opinion before they start demanding it from the companies they invest in.

What else? Just a small technical note, I would have had Barb and Deb sign off first but I realize they went from alphabetical order of pension name. No big deal, just an observation.

In other related news,  Erin Arvedlund of Pensions & Investments reports the US Treasury has partnered up with with CDPQ and asset managers on sustainable investing:

The U.S. Treasury has partnered with Canadian pension fund CDPQ, asset managers Natixis Investment Managers and Ninety One, the Rockefeller Foundation and others to accelerate pension fund and other institutional investment in emerging and developing countries over the next three years.

In particular, the new partnership will focus on investing in energy transition and sustainable infrastructure, and will be led by the Investor Leadership Network, according to a statement from U.S. Treasury Secretary Janet Yellen.

"Today, we are proud to announce that the Investor Leadership Network, which includes companies with a total of over $10 trillion in assets under management, has launched a new commitment to accelerate pension fund and institutional investments in emerging and developing economies over the next three years," Ms. Yellen said in remarks at the U.S. Embassy in Paris.

The Investor Leadership Network is working with its members such as the C$400 billion ($303 billion) Caisse de depot et placement du Quebec, Montreal; Natixis, with $1.2 trillion in assets under management; Ninety One, with $159 billion in AUM; the $6.4 billion Rockefeller Foundation, New York; and the Sustainable Markets Initiative.

The group launched the new commitment alongside the U.S. Treasury at the Summit for a New Global Financing Pact in Paris on June 22-23.

The ILN's membership also includes the C$125 billion Ontario Municipal Employees' Retirement System, Toronto and money managers with aggregate assets of $10 trillion.

CDPQ is currently the only pension fund participating in the Treasury partnership, while others "remain interested but are 'listening' only," ILN spokeswoman Jackie Clark said.

The ILN focuses on private capital mobilization for sustainable development; diversity, equity and inclusion; and climate change.

Hendrik du Toit, founder and CEO of the London and Cape Town, South Africa-based Ninety One, said in a statement: "To achieve real-world decarbonization, investors must finance new infrastructure and industries that will help the transition. This includes investing at scale in green technology, but also providing capital for credible transition pathways for today's high emitters — especially in emerging markets." He added, "climate change does not respect national borders. The developed world cannot decarbonize in isolation."

You can read the ILN statement here and see Marielle Brunelle's LinkedIn post below along with a picture of Secretary Yellen, Denise Campbell Bauer, Marc-André Blanchard and Amy Hepburn:



I agree with Hendrik du Toit, founder and CEO of Ninety One, unless large institutional investors engage emerging markets in a meaningful way, sustainable investing as it is currently practiced will be akin to pissing in the wind.

My apologies for being so blunt and vulgar but I'm fed up of big proclamations on responsible investing and fear the world is slipping further and further away from  delivering on climate targets.

Lastly, this morning I posted an important article on LinkedIn by Rick Newman of Yahoo Finance, Good riddance, 'ESG', where he explains why BlackRock CEO Larry Fink will no longer be using the term:

Woke is walking.

Larry Fink, CEO of investing giant BlackRock, said he’ll no longer be using the buzzphrase “ESG,” which stands for environmental, social, and governmental factors when evaluating companies to invest in. ESG investing gained some popularity in recent years as a set of non-financial metrics to help guide conscientious investors toward ethical companies and away from malfeasant ones.

Supporters argue that ESG investing, while fostering a clear conscience, also generates superior returns.

Yet like any do-gooder effort these days, ESG investing also produced a politicized backlash, mostly from conservatives protesting liberal overreach, or the “woke mind virus,” as Florida Gov. Ron DeSantis likes to say. Fink says the term and the concept of ESG have been “totally weaponized” and “misused by the far left and the far right.” Fink has been a leading proponent of ESG investing, so his about-face may mark the beginning of the end of this socially conscious trend.

I’m shedding no tears. ESG investing may have been worth a shot, but it has turned out to be counterproductive, outdated, and ineffective. For one thing, research suggests ESG investing might produce higher short-term returns only because the trendiness of it leads to more short-term demand for certain ESGish tickers. Over the long term, ESG returns are nothing special.

Markets should also do what markets are good at, which is maximizing profits and efficiency. Other institutions should regulate pollution rules, police corporate governance, enforce the rights of all minority groups, and pursue the other goals of ESG investing. There’s never a bright line delineating where the market ends and government begins, and the ESG movement has been a kind of trial-and-error effort to move those lines a little bit, which is fine. But the experiment failed. Here is how each leg of ESG investing flopped.

Laurence D. Fink, Chairman and Chief Executive Officer BlackRock attends a panel at the World Economic Forum in Davos, Switzerland Tuesday, Jan. 17, 2023. The annual meeting of the World Economic Forum is taking place in Davos from Jan. 16 until Jan. 20, 2023. (AP Photo/Markus Schreiber)

Environmental. The biggest push along this axis has been the movement to disinvest in fossil fuel companies. Be careful what you ask for. Guess who benefits when free-market economies start to move away from oil and natural gas: Vladimir Putin, Saudi Arabia, Iran, and other unsavory oil-producing nations that don’t care about ESG values. This played out in stark fashion last year when Putin’s Russia invaded Ukraine and energy prices soared, producing a windfall for Russia to use to finance its war. Here in the United States, enviro-president Joe Biden faced a huge political problem as gasoline prices skyrocketed to $5 per gallon. The ultimate irony was Biden, a green-energy acolyte, begged US drillers to produce more oil. Everybody forgot that most of the US and world economies still run on fossil fuels.

The ESG mindset on energy is binary: Renewables are good and fossil fuels are bad — get rid of fossil fuels as fast as possible. This is completely disconnected from what’s happening in the world and even from the best-case scenario for green-energy adoption. The world will need a lot of oil and natural gas for decades, and gas is even a crucial “base load” fuel that will allow the faster adoption of renewables. Pressure to disinvest in companies that produce vital commodities we depend on today is foolish. The better approach is a steady transition from one to the other without jumping so fast you cause self-defeating shortages.

When ESG investing kicked off, governments weren’t doing much to combat climate change. Now they’re doing a lot. Biden has signed the most aggressive legislation in US history to incentivize green energy adoption — and the evidence so far is that it's drawing even more private-sector money into renewables than most people anticipated. There will be stumbles, but that’s a lot better than a minority of investors trying to accomplish this through market manipulation.

Social. Who sets the rules for what is socially acceptable behavior at publicly owned companies? This is obviously a minefield for CEOs, with the recent Bud Light fiasco showing that outreach to one group can enrage other subsets of customers. ESG investors want to favor companies demonstrating the most tolerance toward the widest group of people, which is laudable. Maybe just do not do it through your portfolio?

There are already laws against discrimination and other types of abuse. Corporations struggle with social policies because there’s a giant clash of cultures nationwide, whipped up by frothing politicians like DeSantis and Donald Trump and amplified on cable news and social media. There are plenty of activists to fight these battles. Doing so in the name of investing returns is kind of silly.

Governance. Aren’t investors supposed to take account of corporate governance as a matter of course, and not as some special side venture? Isn’t that why we have a whole elaborate set of reporting requirements governed by the Securities and Exchange Commission? What more do you need? Again, this is a bit of a guise meant to assure favored companies do the right thing, whatever the right thing is. If you doubt the effectiveness of plain-old corporate governance, watch what happens to a company’s stock when it discloses it has received a Wells Notice or files an 8-K report providing notice of some accounting irregularity.

The intent of ESG investing won’t go away, even if the phrase or the concept does. There are a lot of investors who want to feel good about the companies they invest in. Larry Fink and other smart money managers will find ways to serve them. If they could honor the cause without being so judgy, it would be a worthy evolution.

Whether or not you agree with them, Larry Fink and Rick Newman raise important points and we really need to stop obsessing over the ESG label and focus on how responsible investing can add value over the long run.

Again, value creation over long run needs to be measured and to do that properly, companies need to disclose a lot more and we need to measure this right, not politicize it so right-wing or left-wing politicians can weaponize it.

Look, I'm very cynical on ESG, have always been, there is no much nonsense and BS in the public and private market realm, I wouldn't know where to begin.

If pension funds and others are going to do responsible investing right, they need to practice what they preach and measure success properly. 

So, in my humble opinion, RIP "ESG" and let's focus on long-term responsible investing.

The market, by the way, is brutal, it will punish companies that do not do the right thing over the long run, so let's trust markets first and foremost and adopt sensible regulations that every company can easily abide by.

Alright, let me wrap it up there.

Below, the ISSB Standards Nigeria Launch organised by NGX Regulation Limited and Financial Reporting Council Nigeria marks the launch of the ISSB’s first two IFRS Sustainability Disclosure Standards, better known as IFRS S1 and IFRS S2 (insights here are excellent).

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