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Ontario investment policies: DC plans and ESG factors

The Financial Services Commission of Ontario ("FSCO") has released final versions of its proposed Investment Guidance Notes ("IGNs") on Environmental, Social, & Governance (ESG) factors and on statements of investment policies and procedures ("SIPPs") for member-directed defined contribution ("DC") pension plans. The draft IGNs were discussed in the July 2015 News and Views.

IGN-003: Statements of Investment Policies and Procedures (SIPPs) for member-directed DC plans

IGN-003 has undergone several changes from the original draft. The changes include the following:

  • FSCO now states that the administrator is expected to give due consideration to a number of factors for inclusion in the DC SIPP, rather than expecting each single factor to be enumerated in the SIPP.
  • The proposed requirement for an investment policy statement is now rephrased as a requirement to set out the plan’s general investment principles.
  • It is clarified that the plan administrator should document the rationale for key investment policies and procedures, although this does not have to be documented in the SIPP itself.
  • The final IGN states that member-directed DC plans are exempt from the requirement to have an annual review, but states that the DC SIPP should be reviewed when certain triggering events occur, such as major plan events, changes in the plan’s investment principles, changes in key service providers, or changes in relevant legislation. Furthermore, the SIPP should be periodically reviewed to ensure it remains relevant.
  • The SIPP is not specifically required to set out requirements to monitor service providers such as third party administrators, although a process is still required to monitor investment managers, which may involve other service providers.
  • There is room to incorporate other governance documents by reference in the SIPP, although in that case the document will form part of the SIPP and will have to be filed with FSCO. Alternatively, excerpts may be reproduced in the SIPP.

IGN-004 - Environmental, Social and Governance (ESG) Factors

IGN-004 has undergone only a few minor changes from the original draft. The changes include the following:

  • There is a statement defining each component of ESG factors. According to the IGN, environmental factors relate to a company or industry’s interactions with the physical environment, social factors concern the social impact of a company and/or industry on a community or society, and governance factors typically relate to how companies and/or countries are governed.
  • Clarification that the two approaches to ESG factors set out in the IGN (investment-driven versus ethics or moral-driven) are two opposite ends of the spectrum and that the IGN does not consider every possible and evolving approach.
  • Where ESG factors are incorporated, FSCO has replaced its original requirement of a "brief explanation of the methodology used by the plan to incorporate ESG factors" with a broader requirement of a "brief explanation of the approach taken by the plan to incorporate ESG factors."


The revisions to the original draft IGN-003 are welcome as they clarify that all of the items in FSCO’s list of expectations do not necessarily have to be included in a DC SIPP. Nevertheless, the IGN sets out useful suggestions for pension plan administrators to consider in the development of a DC SIPP and its improvement over time.

IGN-004 provides useful context for the consideration of whether to consider ESG factors in a plan’s investment decision-making, and if so, how that can be done.

As a reminder, Ontario plan administrator are required to set out in their SIPPs whether ESG factors are considered and, if so, how. This requirement comes into force on January 1, 2016. Administrators are required to file their SIPPs with FSCO within 60 days of the start of 2016.