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Most investment fund managers in Canada that offer ESG products have changed their practices in response to increased regulatory scrutiny, according to a survey by law firm Borden Ladner Gervais LLP.

BLG received responses from 46 fund managers for the survey it conducted in late September and early October. More than eight in 10 said they’ve changed their practices since the CSA issued guidance for fund managers on ESG disclosure in January 2022.

Almost six in 10 fund managers made disclosure changes in their fund offering documents, BLG’s report said, and roughly half of those surveyed changed their sales communication or marketing materials as a result of the CSA notice or the ESG “sweeps” that securities regulators have been conducting.

About six in 10 respondents said they were subject to an ESG sweep. Sweeps were more common among managers with more than $25 billion in assets under management.

Earlier this year, Purpose Investments Inc. said it updated its ESG disclosures and clarified which of its funds are classified as ESG following requests from the Ontario Securities Commission.

BLG said four in 10 fund managers updated their management report of fund performance disclosure (including proxy voting and shareholder engagement, or how portfolios align with ESG strategies), and almost one-quarter said they’d made changes to their policies and procedures.

Only about 5% reported making changes to their client reporting, it said.

The report noted the regulatory uncertainty that managers are forced to operate under. The International Sustainability Standards Board (ISSB) published its climate-disclosure standards in June, and the CSA plans to consult on adopting similar standards for Canada. The industry is also waiting for climate disclosure rules from the U.S. Securities and Exchange Commission.

“Despite Canada’s need for clarity, the CSA have recognized that they cannot be the first movers in certain aspects of ESG standard-setting, lest they risk creating a fragmented and less competitive market,” the BLG report said.

Almost three-quarters of fund managers expect to see a “moderate to significant increase” in compliance costs related to ESG disclosures, the report said.

There are also industry efforts to tackle ambiguous terminology. Earlier this month, the CFA Institute, the Global Sustainable Investment Alliance and the Principles for Responsible Investment developed a new resource to define five common terms used in responsible investing.

Despite the regulatory obligations, almost two-thirds of respondents said they consider ESG factors in
a material way in their investment process.