The CSA published additional guidance on ESG investment fund disclosure practices on March 7, 2024. CSA Staff Notice 81-334 (Revised) ESG-Related Investment Fund Disclosure (Staff Notice) replaces and augments the guidance published in January 2022. The 2024 guidance summarizes key findings from the ESG sweeps, provides additional guidance on ESG fund characterization as well as disclosure in prospectus and sales communications for each fund characterization.
Of particular interest to those operating a publicly offered ESG fund, the Staff Notice categorizes ESG- Related Funds into the following three fund categories, dependent on the level of ESG inclusion in their investment process to help investment fund managers correctly identify an ESG-Related Fund:
- ESG Objective Funds – funds whose investment objectives reference ESG factors.
- ESG Strategy Funds – funds whose investment objectives do not reference ESG factors but that use ESG strategies, where the consideration of ESG factors plays a significant role in their investment process.
- ESG Limited Consideration Funds – funds whose investment objectives do not reference ESG factors but that use ESG strategies, where the consideration of ESG factors plays a limited role in their investment process.
The CSA also lists one other fund type: the Non-ESG Fund. The CSA identified this type of fund as one that does not consider ESG factors in their investment process and would include a fund in an ESG-related asset class but that does not consider ESG factors, a fund that is subject to an exclusionary screen that has no impact on the investment selection process, and a fund that is subject to an investment fund manager's general proxy voting or engagement approach that addresses ESG matters.
The Staff Notice emphasizes that these classifications are not intended to be used as investor-facing labels or classifications in prospectuses, other disclosure documents, or sales communications.
The CSA also provided further guidance on their expectations regarding when a fund name can reference ESG, the appropriateness of ESG disclosure in a fund's suitability statement and what to include in a fund's investment strategies disclosure.
With respect to sales communications, the CSA continues to warn registrants against making misleading or inaccurate ESG-related statements, or statements that would otherwise conflict with prospectus disclosure. Staff did acknowledge that Required ESG-Related Initiative Communications could be excluded as a sales communication if they are explicitly required to be made public as part of the investment fund manager's commitment to a voluntary ESG-related initiative that is: (a) administered by an organization that is not affiliated with the fund or its investment fund manager, portfolio adviser or principal distributor; and (b) widely recognized.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
