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A Primer on How to Avoid Greenwashing: CSA Guidance on ESG-Related Investment Fund Disclosure

by Josh Shneer and Denna P. Jalili


On January 19, 2022, the Canadian Securities Administrators (the “CSA”) released Staff Notice 81-334 (the “Notice”)[1] which clarifies regulations applicable to funds that incorporate or reference environmental, social and governance (“ESG”) considerations in their asset management strategies and objectives (“ESG-Related Funds”). The Notice also sets out recommendations for funds’ disclosure and marketing protocols, but does not establish new legal requirements or modify current regulations.

Background and Context

According to the Notice, ESG investing, both by retail and institutional investors, has significantly expanded in the past several years. For example, a 2020 report published by the Global Sustainable Investment Alliance found that Canada experienced the largest increase in “sustainable investment” assets in the preceding two years (48% growth), compared to Japan, Australasia, and the United States. Further, the Notice references another report that found that the value of “sustainable funds” in Canada was $18 billion in 2021, representing an increase of 160% from 2020.

As demand for ESG-focused investing increases, so too does the risk of “greenwashing”; marketing that “intentionally or inadvertently misleads investors about the ESG-related aspects of the fund”. Accordingly, the Notice outlines best practices to ensure that ESG-Related Funds appropriately respond to investors’ ESG appetite.

Contents of the Notice

The Notice is divided into the following three categories:

  • An overview of common ESG-related terms and strategies;
  • A summary of key international and domestic developments in ESG investing; and
  • Relevant and practical guidance for investment funds, particularly ESG-Related funds, designed to ensure that disclosure documents and sales communications are not misleading and are consistent with the funds’ regulatory documents.

The focus of this article is the Notice’s guidance in respect of investment objectives, investment strategies, continuous disclosure, and sales communications.

(a)        Investment objectives and fund names

Funds often reference ESG in their names to distinguish themselves from competitors and to signal the focus of the fund to prospective investors. The Notice emphasizes that if a fund references an aspect of ESG in its name, it must also reference that specific ESG aspect in the fund’s fundamental investment objectives.

The Notice also highlights the requirement to describe ESG strategies in plain language. This ensures investors can understand the fund's investment objectives, consistent with the requirement that a prospectus provide full, true and plain disclosure of all material facts.

(b) Investment strategies

A fund’s prospectus must disclose the key investment strategies that the fund intends to use in achieving its investment objectives and the process by which the fund's portfolio adviser selects securities for the fund's portfolio, including any investment approach, philosophy, practices and techniques used.

The Notice explores the potential dissonance between a fund’s objectives and its investments. The Notice explains that funds that reference ESG in their names or investment objectives are not necessarily precluded from investing in companies that appear to be inconsistent with ESG values. Take for example an investor that expects funds that reference ESG in their names or investment objectives to steer clear of investments in companies involved in thermal coal and weapons. While such investments would seem, intuitively, impermissible, it depends on the specific fund. A fund may have a cap on certain investments, or may specifically contemplate certain investments to “use shareholder engagement to improve the ESG practices of those companies”.

Given this potential conflict, the Notice stresses that a fund should disclose whether: (i) it may, at any point in time, hold such investments, (ii) what those holdings would include, and (iii) how such holdings meet the fund's investment objectives. Conversely, where a fund is not permitted to hold such investments at all, this should be disclosed in its investment strategies together with information about its screening process.

(c)        Continuous disclosure

The Notice promotes better compliance with continuous disclosure requirements – which facilitate ongoing performance monitoring – by ESG-Related Funds. Continuous disclosure may include:

  • reporting on divestments from companies that no longer meet the fund’s ESG-based criteria;
  • reporting on changes in the holdings of a company in furtherance of the fund’s ESG-related objectives; and
  • providing updates on the fund’s progress in achieving its non-financial ESG-related objectives.

While websites and non-regulatory documents are increasingly used to provide ongoing information about the ESG performance and metrics, these tools are considered “sales communications” under National Instrument 81-102 Investment Funds (NI 81-102).

(d)        Sales communications

Beyond the basic warning that communications should not be vague or exaggerated, the Notice discusses potentially problematic ESG-specific marketing. For example, certain communications may not accurately reflect a fund’s ESG focus, the particular aspect of a fund’s ESG focus, or a fund’s performance. Consequently, these communications may mislead investors and risk being contrary to the fund’s offering documents. Examples include:

  • suggesting the fund is focused on ESG when it is not;
  • suggesting that a fund is focused on all three ESG elements when it is not;
  • misrepresenting the fund’s ESG strategies; and,
  • selectively presenting or cherry-picking data.

The CSA is attuned to the use of ESG ratings or scores; an assessment of an organization or product's relative ESG characteristics, effectiveness and performance, including its exposure to ESG risks and/or opportunities. These tools, while permissible, may also mislead investors and therefore funds should explain the rating system and disclose the methodology underlying the scores.


With increased demand for ‘responsible’ investments, comes increased scrutiny of those offering to meet that demand. Given the “greenwashing” risk, regulators are zeroing in on ESG-focused funds and emphasizing the existing regulatory framework to ensure that investors are making informed decisions. Participants in the ESG investment industry, particularly managers of ESG-Related Funds, should carefully review the Notice and heed the recommendations for best practices.

[1] The Notice can be accessed online: CSA Staff Notice 81-334 - ESG-Related Investment Fund Disclosure | OSC.

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