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CSA Staff Notice 81-334 ESG-Related Investment Fund Disclosure [Part G Guidance]
Part G Guidance
V. Risk Disclosure
Section (b)

ESG-related risk disclosure by all funds

The disclosure of material ESG-related risks by all types of funds, regardless of whether they are ESG-Related Funds, may assist investors with making informed investment decisions about how ESG issues can impact their investments.

All investment funds, regardless of whether they are ESG-Related Funds, should consider whether there are any material ESG-related risk factors that are applicable to the fund and disclose such risk factors where applicable. Examples of such risk factors may include climate change risk and bribery and corruption risks.

In order to be able to provide useful ESG-related risk disclosure, staff remind IFMs to ensure that their risk management framework takes ESG-related risks into account.


CSA Staff Notice 81-334 ESG-Related Investment Fund Disclosure [Part G Guidance]
Part G Guidance
V. Risk Disclosure
Section (a)

Risk disclosure by ESG-Related Funds

The risk disclosure of ESG-Related Funds enables investors to better understand the challenges faced by the fund in meeting its ESG-related investment objectives, if applicable, or using its ESG strategies.

An ESG-Related Fund should consider whether there are any material risk factors that are applicable to the fund as a result of the fund’s ESG-related investment objectives and/or its use of ESG strategies and disclose such risk factors where applicable. Examples may include concentration risk, risk of underperformance due to the fund’s ESG-related focus, and risk arising from potential over-reliance on third-party ESG ratings in assessing the ESG performance of underlying holdings.


CSA Staff Notice 81-334 ESG-Related Investment Fund Disclosure [Part G Guidance]
Part G Guidance
IX. ESG-Related Changes to Existing Funds

ESG-Related Changes to Existing Funds

As noted above under “Investment objectives and fund names”, where a fund’s name references ESG, the fundamental investment objectives of the fund are required to reference the aspect of ESG included in the name of the fund.

Accordingly, where a fund intends to change its name to add or remove a reference to ESG, the fund should consider whether it is also required to change its fundamental investment objectives.

Staff remind funds that an investment fund that changes its fundamental investment objectives is required to obtain the prior approval of its securityholders. [FN 43] Consequently, the addition or removal of references to ESG in the fundamental investment objectives of a fund is subject to the requirement to obtain prior securityholder approval.

Staff note that a fund that does not have ESG-related investment objectives may still use ESG strategies and may therefore reference ESG in its investment strategies disclosure without referencing ESG in its name or indicating that the fund is focused on ESG in its sales communications. Where an ESG strategy is not a material or essential aspect of a fund and is therefore not included in the fund’s fundamental investment objectives, a fund that adds or removes disclosure about the ESG strategy in its investment strategies disclosure is not subject to the securityholder approval requirement in NI 81-102.

The guidance above is illustrated in Figure 2.

FN 43 Paragraph 5.1(1)(c) of NI 81-102.


CSA Staff Notice 81-334 ESG-Related Investment Fund Disclosure [Part G Guidance]
Part G Guidance
III. Investment Strategies Disclosure
Section (c)

Use of ESG ratings, scores, indices or benchmarks

An ESG rating or score is an assessment of an organization or product’s relative ESG characteristics, effectiveness and performance, including its exposure to ESG risks and/or opportunities.

In staff’s view, where an ESG-Related Fund uses internal or third-party company-level ESG ratings or scores, or ESG-related indices or benchmarks, as part of its principal investment strategies or investment selection process, the fund should explain how those ratings, scores, indices or benchmarks are used.

Staff’s view is that, for funds that use ESG-related indices or benchmarks as part of their principal investment strategies or investment selection process, the fund should identify the index or benchmark used. [FN 25] For funds that use third-party, company-level ESG ratings or scores as part of their principal investment strategies or investment selection process, the fund should identify the provider of the ratings or scores.

In staff’s view, the disclosure should also include a description of the methodology used to create the company-level ESG ratings or scores, or ESG-related indices or benchmarks, including, for example, whether the methodology is based on quantitative or qualitative data and the level of subjectivity involved in the methodology.

FN 25 Staff also remind funds and their IFMs that index mutual funds are required to, as part of their fundamental investment objectives, (a) disclose the name or names of the permitted index or permitted indices on which the investments of the index mutual fund are based and (b) briefly describe the nature of that permitted index or those permitted indices, under Item 4(5) of Part B of Form 81-101F1.


CSA Staff Notice 81-334 ESG-Related Investment Fund Disclosure [Part G Guidance]
Part G Guidance
III. Investment Strategies Disclosure
Section (b)

Use of multiple ESG strategies

Funds that use multiple ESG strategies are required to provide disclosure explaining how the different ESG strategies are applied during the investment selection process. In staff’s view, this disclosure should include the order in which the strategies are applied, if the strategies are not applied simultaneously. For example, a fund that uses negative screening as an initial filter on the fund’s investment universe and then uses an ESG integration strategy to evaluate the potential investments should disclose this in its prospectus.


CSA Staff Notice 81-334 ESG-Related Investment Fund Disclosure [Part G Guidance]
Part G Guidance
X. ESG-Related Terminology

ESG-Related Terminology

As discussed earlier, there is currently a lack of consistency in ESG-related terminology and definitions used throughout the investment fund industry, especially with regard to ESG strategies, which increases the potential for investor confusion around ESG-Related Funds.

A fund’s description of the ESG strategies that it uses must be written using plain language in order to ensure that investors are able to understand the fund‘s investment strategies. In addition, if a fund’s prospectus includes other ESG-related terms that are not commonly understood, it should provide a clear explanation of those terms using plain language in accordance with the requirement that the prospectus provide full, true and plain disclosure of all material facts.

Staff encourage industry participants, including IFMs, to develop common ESG-related terms and definitions, particularly with regard to ESG strategies, which would enable investors to better understand ESG-Related Funds and make informed investment decisions about them.


CSA Staff Notice 81-334 ESG-Related Investment Fund Disclosure [Part G Guidance]
Part G Guidance
III. Investment Strategies Disclosure

Investment Strategies Disclosure

An investment fund is required to disclose, in its prospectus, the principal 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. [FN 23] In addition, as mentioned above, a prospectus must provide full, true and plain disclosure of all material facts.

Investment strategies disclosure provides clarity to investors about how the fund will achieve its investment objectives, including the nature and extent of the strategies employed by the fund, the investment universe from which the fund will select its investments, and which countries, industries, sectors or companies the fund may invest in. Full, true and plain ESG-related investment strategies disclosure enables investors to understand the ways in which the fund will meet its ESG-related investment objectives (if the fund is an ESG Fund) and the types of investments that the fund may make.

A fund that uses one or more ESG strategies, either as principal investment strategies or as part of its investment selection process, is required to provide disclosure about the ESG-related aspects of its investment selection process and strategies.

For both funds that use one or more ESG strategies as part of their principal investment strategies and those that use one or more ESG strategies as part of their investment selection process, the description of these ESG strategies must be written using plain language in order to ensure that investors are able to understand the fund’s investment strategies, in accordance with the requirement that the prospectus provide full, true and plain disclosure of all material facts.

In addition, in staff’s view, the investment strategies disclosure should include identifying any ESG factors used and explaining the meaning of each ESG factor and how the ESG factors are evaluated and monitored. This may include an explanation of whether the evaluation of the ESG factor is quantitative or qualitative and whether the evaluation is conducted using third-party data. Some ESG factors may be more complicated for investors to understand and may require further explanation, such as “involvement in severe controversial events” and “clean air”, which are examples of some of the factors that were identified but not explained in the regulatory disclosure documents reviewed as part of the ESG CD Reviews.

If a fund’s use of one or more ESG strategies includes the use of targets for specific ESG-related metrics, such as carbon emissions, staff encourage such funds to disclose those targets as part of their investment strategies and identify if those targets may evolve or change over time in response to changing circumstances.

Staff note that funds that reference ESG in their names or investment objectives may invest in companies that appear to be inconsistent with ESG values. For example, some investors may expect funds that reference ESG in their names or investment objectives to exclude investments in companies involved in thermal coal and weapons. However, a fund’s disclosed ESG-related investment objectives and strategies may permit such holdings. For example, some of these funds may be permitted to invest in such companies up to a certain percentage of their portfolios or in order to use shareholder engagement to improve the ESG practices of those companies. Alternatively, a fund’s ESG-related investment objectives and strategies may be focused only on a particular aspect of ESG that would not preclude investments in such companies. [FN 24] To provide greater clarity to investors and in line with the principle of full, true and plain disclosure of all material facts, staff’s view is that an ESG Fund should disclose whether it may, at any point in time, hold such investments, what those holdings would include (including examples), and how such holdings meet the fund’s investment objectives. If an ESG Fund is not permitted to hold such investments at any point in time, this should be disclosed in its investment strategies along with information about the monitoring process used by the fund to screen out such investments, and the fund should ensure that its portfolio does not include any such investments.

Staff have observed that the prospectuses of some funds state that the fund “may” exclude certain types of investments from their portfolios. If a fund has discretion over whether a type of investment is excluded from its portfolio, this should be clearly disclosed.

Staff note that the above guidance relating to investment strategies disclosure applies to all investment funds, including index-tracking funds. The following guidance applies specifically to funds that use any of the following: (a) proxy voting or shareholder engagement as an ESG strategy; (b) multiple ESG strategies; and (c) ESG ratings, scores, indices or benchmarks.

FN 23 Item 5(1)(a) and (b) of Part B of Form 81-101F1; Item 6.1(1)(a) and (c) of Form 41-101F2.

FN 24 However, staff’s view is that such a focus should be clearly disclosed in the investment objectives and strategies disclosure; also see the discussion below under G. VI. Suitability.


CSA Staff Notice 81-334 ESG-Related Investment Fund Disclosure [Part G Guidance]
Part G Guidance
VIII. Sales Communications
Section (c)

Sales communications that include fund-level ESG ratings, scores or rankings

Staff understand that some IFMs may wish to include fund-level ESG ratings, scores or rankings on their websites or other sales communications. These would include, but are not limited to, fund-level ESG ratings or scores that are primarily weighted averages of the company-level ESG ratings or scores of the underlying portfolio holdings of the fund (Portfolio-Based ESG Ratings), and fund-level ESG rankings based solely on Portfolio-Based ESG Ratings (Portfolio-Based ESG Rankings).

While staff are of the view that the Portfolio-Based ESG Ratings and Portfolio-Based ESG Rankings that staff have observed to date are not “performance data” and “performance ratings or rankings” within the context of Part 15 of NI 81-102 (Part 15), other types of fund-level ESG ratings, scores and rankings that are not Portfolio-Based ESG Ratings and Portfolio-Based ESG Rankings may be considered “performance data” or “performance ratings or rankings”. Similarly, while staff are of the view that the comparison of Portfolio-Based ESG Ratings and Portfolio-Based ESG Rankings that staff have observed to date are not comparisons of performance within the context of Part 15, [FN 41] the comparison of other types of fund-level ESG ratings, scores and rankings that are not Portfolio-Based ESG Ratings and Portfolio-Based ESG Rankings may be considered to be comparisons of performance.

If a type of fund-level ESG rating, score or ranking is considered “performance data” or a “performance rating or ranking”, or a comparison of that type of fund-level ESG rating, score or ranking is considered to be a comparison of performance, sales communications that include this type of fund-level ESG rating, score or ranking, or a comparison thereof, may not be able to comply with some of the provisions of Part 15 that relate to “performance data”, “performance ratings or rankings” and comparisons of performance (the Performance Requirements). Staff remind IFMs to review and consider the Performance Requirements to determine whether such sales communications are in compliance and encourage IFMs that wish to include other types of fund-level ESG ratings, scores and rankings in their sales communications to contact staff of their principal regulator as needed.

In addition, any sales communication that includes fund-level ESG ratings, scores or rankings, including Portfolio-Based ESG Ratings and Portfolio-Based ESG Rankings, must not be misleading. In staff’s view, a sales communication that includes fund-level ESG ratings, scores or rankings may be misleading for a number of reasons, including any of the following:

  • there are conflicts of interest involving the provider that prepares the fund-level ESG rating, score or ranking;
  • the selection of the specific fund-level ESG rating, score or ranking is the result of cherry-picking fund-level ESG ratings, scores or rankings in order to present the fund’s ESG characteristics or performance in a positive light;
  • the selected fund-level ESG rating, score or ranking is not representative of the ESG characteristics or performance of the fund;
  • the sales communication does not include explanations, qualifications, limitations or other statements necessary or appropriate to make the inclusion of the fund-level ESG ratings, scores or rankings in the sales communication not misleading.

Guidance on how to avoid these four issues is provided below.

Staff note, however, that a sales communication that includes fund-level ESG ratings, scores or rankings may also be misleading for reasons that have not been identified in this Notice and remind IFMs to review and consider the requirements under Part 15 when preparing sales communications.

Conflicts of interest

To address conflicts of interest, staff’s view is that the fund-level ESG rating, ranking or score that is included in the sales communication should be prepared by a provider that:

(a) rates, scores or ranks the ESG characteristics or performance of the fund through an objective methodology that is (i) applied consistently to all funds rated, scored or ranked by it, and (ii) disclosed on the provider’s website;

(b) is not a member of the organization of the fund; [FN 42] and

(c) is not paid to assign a fund-level ESG rating, score or ranking to the fund by the promoter, manager, portfolio adviser, principal distributor or participating dealer of any fund or any of their affiliates.

In addition, for a fund-level ESG ranking, the ranking should be based on a published category of funds, such as Canadian equity funds, that is not established or maintained by a member of the organization of the fund.

Selection of fund-level ESG rating, score or ranking

To help ensure that the selection of the fund-level ESG rating, score or ranking is not the result of cherry-picking, staff are of the view that the selection of the rating, score or ranking should be consistent with the following parameters:

(a) the IFM should consider whether the selected fund-level ESG rating, score or ranking is an accurate representation of the fund (and its portfolio, if the fund-level ESG rating, score or ranking is based on the fund’s portfolio) during the time period that the sales communication appears or is in use and therefore, whether the inclusion of the selected fund-level ESG rating, score or ranking in a sales communication may be misleading;

(b) for a fund-level ESG ranking, the ranking should be based on a published category of funds, such, as for example, Canadian fixed income funds, that provides a reasonable basis for evaluating the ESG characteristics or performance of the fund;

(c) if a fund-level ESG rating, score or ranking is disclosed on the website of a fund that is not an ESG Fund, the IFM should disclose the same type of fund-level ESG rating, score or ranking from the same provider, if available, for all of the funds that it manages; and

(d) if a fund-level ESG rating, score or ranking is disclosed on the website of an ESG Fund, the IFM should disclose the same type of fund-level ESG rating, score or ranking from the same provider, if available, for all of the ESG Funds that it manages.

However, staff would not view paragraph (d) as applicable to an ESG Fund that has a specialized ESG focus, such as a fund focused on climate change, if the fund-level ESG rating, score or ranking that is being disclosed is specific to the specialized ESG focus of the fund, such as a rating relating to carbon emissions.

In addition, staff encourage funds that wish to disclose fund-level ESG ratings, scores or rankings in their sales communications to disclose fund-level ESG ratings, scores or rankings from at least 2 different providers.

Representativeness of fund’s ESG characteristics or performance

Furthermore, for a Portfolio-Based ESG Rating, if only a certain percentage of a fund’s underlying portfolio is covered by the Portfolio-Based ESG Rating (i.e. if less than 100% of the fund’s underlying portfolio has been rated), staff’s view is that the IFM should consider whether the portion of the portfolio that has not been rated has substantially similar ESG characteristics to the rest of the portfolio and therefore, whether the Portfolio-Based ESG Rating is an accurate representation of the ESG characteristics or performance of the entire portfolio. If the portion of the portfolio that has not been rated does not have substantially similar ESG characteristics as compared to the rest of the portfolio, the Portfolio-Based ESG Rating may not be an accurate representation of the entire portfolio and therefore, the inclusion of the Portfolio-Based ESG Rating in a sales communication may be misleading.

The above also applies to Portfolio-Based ESG Rankings that are based on Portfolio-Based ESG Ratings where less than 100% of the fund’s underlying portfolio has been rated.

Accompanying disclosure

Finally, to avoid being misleading, staff are of the view that a sales communication that includes fund-level ESG ratings, scores or rankings should include the following disclosure:

(a) the name of the provider that prepared the fund-level ESG rating, score or ranking;

(b) the date or time period covered by the fund-level ESG rating, score or ranking:

(i) if the fund-level ESG rating, score or ranking is as of a specific point in time, the date of the specific point in time;

(ii) if the fund-level ESG rating, score or ranking covers a time period:

(A) the period of time; and

(B) a brief explanation of how the fund-level ESG rating, score or ranking was determined for the specified time period (e.g. if the fund-level ESG rating, score or ranking is based on an average of the monthly fund-level ESG ratings, scores or rankings from the past 12 months);

(c) how often the fund-level ESG rating, score or ranking is updated by the provider (e.g. on a monthly basis);

(d) cautionary language stating that the fund’s ESG characteristics and performance may differ from time to time;

(e) for Portfolio-Based ESG Ratings, the percentage of the fund’s underlying portfolio holdings that has been rated;

(f) for Portfolio-Based ESG Rankings, the percentage of the fund’s underlying portfolio holdings that has been rated for the purpose of the Portfolio-Based ESG Rating on which the Portfolio-Based ESG Ranking is based;

(g) for fund-level ESG ratings or scores, the range of the fund-level ESG rating or score (e.g. AAA to CCC);

(h) for fund-level ESG rankings:

(i) the classification of the peer group used for the ranking (e.g. Canadian equity); and

(ii) the number of funds in the peer group;

(i) if the fund is not an ESG Fund, cautionary language that states that the fund does not have ESG-related investment objectives;

(j) if applicable, cautionary language that states that the fund-level ESG rating or score (or in the case of a fund-level ESG ranking, the fund-level ESG rating or score on which the ranking is based) does not evaluate the ESG-related investment objectives of, or any ESG strategies used by, the fund and is not indicative of how well ESG factors are integrated by the fund;

(k) a one or two sentence summary explaining what the fund-level ESG rating, score, or ranking measures or assesses, including:

(i) for a fund-level ESG ranking, language identifying the fund-level ESG rating or score that the ranking is based on;

(ii) for a Portfolio-Based ESG Rating or Portfolio-Based ESG Ranking, language that states that the fund-level ESG rating or score (or in the case of a fund-level ESG ranking, the fund-level ESG rating or score on which the ranking is based) is a weighted average ESG rating or score of the company-level ESG ratings or scores of the underlying portfolio holdings of the fund; and

(iii) for a fund-level ESG rating, score or ranking that is not a Portfolio-Based ESG Rating or Portfolio-Based ESG Ranking, an explanation of what the fund-level ESG rating or score (or in the case of a fund-level ESG ranking, the fund-level ESG rating or score on which the ranking is based) measures or assesses;

(l) if the sales communication is online, a link to the full methodology of the fund-level ESG rating or score (or in the case of a fund-level ESG ranking, the fund-level ESG rating or score on which the ranking is based);

(m) if the sales communication is not an online sales communication, language explaining how to easily access, free of charge, the full methodology of the fund-level ESG rating or score (or in the case of a fund-level ESG ranking, the fund-level ESG rating or score on which the ranking is based);

(n) if applicable, a statement indicating that other providers may also prepare fund-level ESG ratings or scores (or in the case of fund-level ESG rankings, the fund-level ESG ratings or scores on which the rankings are based) using their own methodologies, which may differ from the methodology used by the provider;

(o) if the sales communication is online, a link to the fund’s website containing the same type of fund-level ESG ratings, scores or rankings for the fund on the same periodic basis as updated by the provider over the past 12 months;

(p) if the sales communication is not an online sales communication, language explaining how to easily access, free of charge, the same type of fund-level ESG ratings, scores or rankings for the fund on the same periodic basis as updated by the provider over the past 12 months; and

(q) a cross-reference to the fund’s prospectus for further information about the fund’s investment objectives and strategies.

In addition, staff encourage funds to disclose separate fund-level ratings, scores or rankings, as applicable, for each of the three components of ESG.

The above accompanying disclosure should be clear and not buried within fine print.

Staff note that while the above list of accompanying disclosure has been provided to assist IFMs in the preparation of sales communications for their funds, the list is non-exhaustive and a sales communication that includes fund-level ESG ratings, scores or rankings and the above accompanying disclosure may still be misleading for other reasons.

FN 41 See, for example, subsection 15.3(1) and sections 15.7 and 15.7.1 of NI 81-102.

FN 42 See the definition of “member of the organization” in section 1.1 of National Instrument 81-105 Mutual Fund Sales Practices.


CSA Staff Notice 81-334 ESG-Related Investment Fund Disclosure [Part G Guidance]
Part G Guidance
VI. Suitability

Suitability

An investment fund must include, in its Fund Facts or ETF Facts, as applicable, a brief statement of the suitability of the fund for particular investors, including describing the characteristics of the investor for whom the fund may or may not be an appropriate investment, and the portfolios for which the fund is and is not suited. [FN 30] If the fund is particularly suitable for investors who have particular investment objectives, this can be disclosed. [FN 31]

Similar to fund names, investment objectives and fund types, in order to avoid greenwashing, the suitability statement should accurately reflect the extent of the fund’s focus on ESG as well as the particular aspect(s) of ESG that the fund is focused on, but only if applicable.

Where appropriate, an ESG Fund may wish to state that it is particularly suitable for investors who have ESG-related investment objectives. However, if the fund is only focused on a particular aspect of ESG, such as gender diversity in leadership or the reduction of carbon emissions, staff’s view is that any suitability statement that indicates that the fund is particularly suitable for investors who have ESG-related investment objectives should accurately reflect the particular aspect of ESG that the fund is focused on.

However, staff’s view is that an ESG Strategy Fund should not state that the fund is particularly suitable for investors who have ESG-related investment objectives, as the fund does not have ESG-related investment objectives.

FN 30 Item 7(1) of Part I of Form 81-101F3; Item 7(1) of Part I of Form 41-101F4.

FN 31 Instruction to Item 7 of Part I of Form 81-101F3; Instruction (1) to Item 7 of Part I of Form 41-101F4.


CSA Staff Notice 81-334 ESG-Related Investment Fund Disclosure [Part G Guidance]
Part G Guidance
IV. Proxy Voting and Shareholder Engagement Policies and Procedures
Section (b)

Shareholder engagement

Staff recognize that there is currently no requirement for investment funds to make their shareholder engagement policies and procedures publicly available. However, staff encourage all funds that use shareholder engagement as an ESG strategy to do so in order to provide investors with greater transparency into the scope and nature of the fund’s use of shareholder engagement as an ESG strategy.

As stated above, while staff acknowledge that for some IFMs, proxy voting and shareholder engagement are conducted at the IFM level rather than at the fund level, the above guidance is intended to apply specifically to funds that use proxy voting or shareholder engagement as an ESG investment strategy.


CSA Staff Notice 81-334 ESG-Related Investment Fund Disclosure [Part G Guidance]
Part G Guidance
VIII. Sales Communications
Section (a)

Sales communications that indicate that the fund is focused on ESG

A sales communication pertaining to an investment fund should accurately reflect the extent to which the fund is focused on ESG, as well as the particular aspect(s) of ESG that the fund is focused on.

In staff’s view, a fund should not include statements in its sales communications that indicates that it is focused on ESG unless the fund references ESG in its investment objectives.

A fund that does not reference ESG in its investment objectives but that discloses in its investment strategies prospectus disclosure that it uses an ESG strategy may include statements in its sales communications that accurately reflect the extent to which that strategy is used. However, such funds should not exaggerate the extent of the fund’s focus on ESG in their sales communications.

In contrast, while a fund that does not reference ESG in either its investment objectives or investment strategies may provide factual information about the ESG characteristics of its portfolio (such as fund-level ESG ratings, scores or rankings), it should not include any ESG-related claims about what the fund is trying to achieve. In staff’s view, such sales communications would both conflict with the investment objectives and investment strategies disclosure in the fund’s regulatory offering documents, which do not reference ESG at all, and be misleading.

In general, in staff’s view, a sales communication that does not accurately reflect the extent to which a fund is focused on ESG, as well as the particular aspect(s) of ESG that the fund is focused on, would both be misleading and conflict with the information in the fund’s regulatory offering documents. Examples of such sales communications may include those that do any of the following:

  • suggest that a fund is focused on ESG when it is not;
  • suggest that a fund is focused on all three components of ESG when it is only focused on one component, such as governance;
  • misrepresent the extent and nature of the fund’s use of ESG strategies, including:
    • in the case of a fund that has a discretionary or optional screening strategy, stating that the fund uses a negative or exclusionary screening strategy without clearly disclosing that the screening is discretionary or optional; or
    • failing to:
      • disclose that there is a maximum limit to the fund’s use of those strategies;
      • actually use the advertised ESG strategies, including using different types of ESG strategies altogether; or
      • prominently disclose material aspects of the ESG strategies.

Staff have noticed that some ESG-Related Funds provide more detail about the fund’s ESG strategies in their sales communications than they do in their prospectuses. Staff remind funds that a prospectus must provide full, true and plain disclosure of all material facts, including the investment strategies of the fund.


CSA Staff Notice 81-334 ESG-Related Investment Fund Disclosure [Part G Guidance]
Part G Guidance
VII. Continuous Disclosure
Section (a)

Funds that use proxy voting as an ESG strategy

An investment fund is required to maintain a proxy voting record [FN 34] and make its most recent annual proxy voting record available on its designated website, as well as promptly send it to any securityholder upon request. [FN 35]

Staff acknowledge that a fund is only required to make its most recent annual proxy voting record available on its designated website and to promptly send it to any securityholder upon request. However, staff encourage all funds, particularly funds that use proxy voting as an ESG strategy, to make all of their annual proxy voting records, including historical records from previous years, available on their designated websites. For funds that use proxy voting as an ESG strategy to meet their ESG-related investment objectives, such disclosure would provide greater transparency into how the fund has historically used proxy voting to meet the fund’s ESG-related investment objectives. In the case of a fund that does not have ESG-related investment objectives but that uses proxy voting as an ESG strategy, this disclosure would provide greater transparency into how the fund’s ESG-related proxy voting strategy has historically been implemented.

In addition, for the reasons stated above, staff encourage all funds that use proxy voting as an ESG strategy to include, as part of the summary of the results of the fund’s operations in the MRFP, disclosure about how the past proxy voting records during that period align with the ESG-related investment objectives and/or strategies of the fund.

FN 34 Section 10.3 of NI 81-106.

FN 35 Section 10.4 of NI 81-106.


National Instrument 81-102 Investment Funds
Part 15.1 Investment Risk Classification Methodology
Section 15.1.1

Use of Investment Risk Classification Methodology

A mutual fund must

(a) determine its investment risk level, at least annually, in accordance with Appendix F Investment Risk Classification Methodology, and

(b) disclose its investment risk level in the fund facts document in accordance with Part I, Item 4 of Form 81-101F3 of National Instrument 81-101 Mutual Fund Prospectus Disclosure, or the ETF facts document in accordance with Part I, Item 4 of Form 41- 101F4 of National Instrument 41-101 General Prospectus Requirements, as applicable.


Exemptive Relief Orders

CSA Staff Notice 81-334 ESG-Related Investment Fund Disclosure [Part G Guidance]
Part G Guidance
VIII. Sales Communications
Section (b)

Sales communications that reference a fund’s ESG performance

A fund must not include misleading statements in its sales communications about the ESG performance of the fund. Examples of such sales communications may include those that:

  • make inaccurate claims about the fund’s ESG performance or results;
  • make inaccurate claims about the existence of a direct causal link between the fund’s investment strategies and ESG performance or results; or
  • manipulate elements of disclosure to present the fund’s ESG performance or results in a positive light, such as cherry-picking data.

CSA Staff Notice 81-334 ESG-Related Investment Fund Disclosure [Part G Guidance]
Part G Guidance
VII. Continuous Disclosure
Section (b)

Funds that use shareholder engagement as an ESG strategy

Staff acknowledge that there are currently no continuous disclosure requirements relating to a fund’s past shareholder engagement activities.

However, staff encourage all funds that use shareholder engagement as an ESG strategy to provide disclosure about their past shareholder engagement activities on their designated websites, for the same reasons discussed above in relation to the disclosure of past proxy voting records.

In addition, similarly, staff encourage all funds that use shareholder engagement as an ESG strategy to include, as part of the summary of the results of the fund’s operations in the MRFP, disclosure about how the fund’s past shareholder engagements during that period align with the ESG-related investment objectives and/or strategies of the fund.


CSA Staff Notice 81-334 ESG-Related Investment Fund Disclosure [Part G Guidance]
Part G Guidance
VII. Continuous Disclosure

Continuous Disclosure

An investment fund must include, in its MRFP, a summary of the results of operations of the investment fund for the financial year to which the MRFP pertains, including a discussion of how the composition and changes to the composition of the investment portfolio relate to the fund’s fundamental investment objective and strategies. [FN 32] Staff note, however, that funds are only required to disclose information that is material. [FN 33]

Continuous disclosure, including the MRFP, enables investors to monitor a fund’s performance and evaluate its ability to meet its objectives on an ongoing basis. For funds that have ESG-related investment objectives, continuous disclosure can help prevent greenwashing by allowing investors to monitor the fund’s ESG performance and therefore evaluate the fund’s progress in terms of meeting its ESG-related investment objectives.

An ESG-Related Fund is required to disclose in its MRFP how the composition and changes to the composition of the investment portfolio relate to the fund’s ESG-related investment objectives and/or strategies. For example, if a fund that excludes companies that have had severe ESG-related controversies divests of its holdings in a company because the company has recently had a harassment scandal that is deemed by the fund to be a severe ESG-related controversy, the fund should disclose its divestment and the reason for the divestment in the MRFP. Another example would be a fund that uses a best-in-class strategy that has divested its holdings in a company that no longer meets the fund’s criteria. In addition to divestment, a fund may also choose to increase or decrease its holdings in a company in order to meet the fund’s ESG-related investment objectives and this should be disclosed.

Funds with ESG-related investment objectives, unlike other types of funds, typically aim to achieve ESG-related outcomes in addition to financial performance. In order to provide investors with meaningful disclosure about those ESG-related outcomes, staff encourage funds that have ESG-related investment objectives to disclose, as part of the summary of the results of the fund’s operations in the MRFP, the ESG-related aspects of those operations. This would include the fund’s progress or status with regard to meeting its ESG-related investment objectives. For example, in the case of a fund whose investment objectives state that the fund will invest in companies that contribute to the fight against climate change, investors would benefit from continuous disclosure that explains which companies the fund has invested in during the relevant period and how they have contributed to the fight against climate change.

In addition, staff encourage funds that intend to generate a measurable ESG outcome to report in their MRFPs on whether the fund is achieving that outcome. For example, where a fund’s investment objectives refer to the reduction of carbon emissions, investors would benefit from disclosure in the fund’s MRFP that includes the quantitative key performance indicators for carbon emissions.

Staff acknowledge that websites and non-regulatory documents are being increasingly used to provide ongoing information about the ESG performance and metrics of funds, as well as other ESG-related information. In addition to the required disclosure in the MRFP, staff encourage funds to provide investors with additional periodic information on how they are meeting their ESG-related investment objectives. We remind funds that websites and such non-regulatory documents are considered sales communications under National Instrument 81-102 Investment Funds (NI 81-102), which are discussed further below under “Sales communications”.

In order to be able to provide useful disclosure about the fund’s progress or status with regard to meeting its ESG-related investment objectives, staff encourage IFMs to regularly assess, measure and monitor the ESG performance of the funds that they manage.

FN 32 Items 2.3(1) of Part B and 2.1 of Part C of Form 81-106F1 Contents of Annual and Interim Management Report of Fund Performance (Form 81-106F1).

FN 33 Item 1(d) of Part A of Form 81-106F1.


CSA Staff Notice 81-334 ESG-Related Investment Fund Disclosure [Part G Guidance]
Part G Guidance
XI. IFM-Level Commitments to ESG-Related Initiatives

IFM-Level Commitments to ESG-Related Initiatives

Staff recognize that some IFMs are signatories to international or regional ESG-related entitylevel initiatives, such as the United Nations Principles for Responsible Investment and Task Force on Climate-related Financial Disclosures, and publicly disclose this information. For IFMs that are signatories to such initiatives, it is important for the disclosure of their signatory status or commitment to these initiatives to be clear that the commitment is at the entity-level rather than at the fund-level and where applicable, that the funds managed by the IFM may not be focused on ESG.


CSA Staff Notice 81-334 ESG-Related Investment Fund Disclosure [Part G Guidance]
Part G Guidance
I. Investment Objectives and Fund Names

Investment Objectives and Fund Names

An investment fund is required to disclose, in its prospectus, the fundamental investment objectives of the fund, including information that describes the fundamental nature or fundamental features of the fund that distinguish it from other funds.[FN 15] Similarly, an investment fund is required to include, in its Fund Facts or ETF Facts, as applicable, a description of the fundamental nature or fundamental features of the fund that distinguish it from other funds. [FN 16]

A fund’s name and investment objectives play a role in identifying the primary focus of the fund and distinguishing it from other funds. A fund’s name and investment objectives should therefore accurately reflect the primary focus of the fund. To prevent greenwashing, it is important that the name and investment objectives of a fund accurately reflect the extent to which the fund is focused on ESG, where applicable, including the particular aspect(s) of ESG that the fund is focused on.

Staff note that funds that do not have ESG-related investment objectives may still use ESG strategies. However, a fund that uses one or more ESG strategies as a material or essential aspect of the fund, as evidenced by the name of the fund or the manner in which it is marketed, is required to disclose such ESG strategies as an investment objective in its prospectus [FN 17] and in its Fund Facts or ETF Facts, as applicable. [FN 18] As discussed above, staff remind funds that the description of these ESG strategies must be written using plain language so that investors can understand the fund‘s investment objectives, in accordance with the requirement that the prospectus provide full, true and plain disclosure of all material facts.

Furthermore, a fund that primarily invests or intends to primarily invest, or whose name implies that it will primarily invest, in a type of issuer or industry segment associated with ESG is required to indicate this in its fundamental investment objectives, [FN 19] as well as in its Fund Facts or ETF Facts, as applicable. [FN 20] For example, this may include a fund that intends to primarily invest in companies that are transitioning to a low-carbon economy or a fund whose name implies that it will primarily invest in the water conservation industry.

Staff note that the existing requirements draw a link between a fund’s name and its investment objectives in order to ensure that there is consistency between them, given the importance of a fund’s name in distinguishing it from other funds. Accordingly, in staff’s view, where a fund’s name references ESG or other related terms such as sustainability, green, social responsibility, etc., the fundamental investment objectives of the fund are required to reference the aspect of ESG included in the name of the fund. This is illustrated in Figure 1 below.

Staff acknowledge that not all ESG-related investment objectives relate to a measurable ESG outcome. However, where an ESG Fund intends to generate a measurable ESG outcome, staff encourage such funds to clearly state the intended outcome as part of their investment objectives in order to allow investors to identify funds that match their own ESG-related goals. For example, staff encourage funds that aim to reduce carbon emissions to disclose a measurable carbon emissions reduction target in their investment objectives. The inclusion of a measurable ESG outcome in a fund’s investment objectives would also allow funds to provide meaningful continuous disclosure that reports on whether the fund is achieving its intended ESG outcome.

FN 15 Item 4(1) of Part B of Form 81-101F1 Contents of Simplified Prospectus (Form 81-101F1); Item 5.1(1) of Form 41-101F2.

FN 16 Item 3(1) of Part I of Form 81-101F3 Contents of Fund Facts Document (Form 81-101F3); Item 3(1) of Part I of Form 41-101F4 Information Required in an ETF Facts Document (Form 41-101F4).

FN 17 Instruction (3) to Item 4 of Part B of Form 81-101F1 states that if a particular investment strategy is a material aspect of the fund, as evidenced by the name of the fund or the manner in which it is marketed, this strategy must be disclosed as an investment objective. Similarly, Instruction (3) to Item 5 of Form 41-101F2 states that if a particular investment strategy is an essential aspect of the fund, as evidenced by the name of the fund or the manner in which it is marketed, this strategy must be disclosed as an investment objective

FN 18 Instruction (2) to Item 3 of Part I of Form 81-101F3; Instruction (2) to Item 3 of Part I of Form 41-101F4.

FN 19 Instruction (2) to Item 4 of Part B of Form 81-101F1 states that a mutual fund’s fundamental investment objectives must indicate if the mutual fund primarily invests, or intends to primarily invest, or if its name implies that it will primarily invest, in a particular type of issuer or industry segment. Similarly, Instruction (2) to Item 5 of Form 41-101F2 states that if a fund primarily invests, or intends to primarily invest, or if its name implies that it will primarily invest, in a particular type of issuer or particular industry segment, the fundamental investment objectives should so indicate.

FN 20 Instruction (1) to Item 3 of Part I of Form 81-101F3; Instruction (1) to Item 3 of Form 41-101F4.


CSA Staff Notice 81-334 ESG-Related Investment Fund Disclosure [Part G Guidance]
Part G Guidance
III. Investment Strategies Disclosure
Section (a)

Use of proxy voting or shareholder engagement as an ESG strategy

Some ESG-Related Funds use proxy voting or shareholder engagement as ESG strategies. If a fund uses proxy voting or shareholder engagement as a principal investment strategy, the fund is required to disclose this in its investment strategies. Furthermore, funds that use proxy voting or shareholder engagement as a part of their investment selection process are required to disclose how they are used by the fund.

For both scenarios, in staff’s view, the disclosure should include the criteria used by the proxy voting or shareholder engagement strategy, the goal of the proxy voting or shareholder engagement strategy and the extent of the monitoring process used to assess the success of the proxy voting or shareholder engagement strategy.

For example, a portfolio adviser may choose to invest in a company that has poor environmental practices in order to improve those practices by way of shareholder engagement. In this scenario, the use of shareholder engagement should be disclosed in the fund’s investment strategies, along with the criteria used to determine whether a company has poor environmental practices, the aim of improving those practices through shareholder engagement and the extent of the monitoring process used to assess the success of the shareholder engagement strategy in improving the environmental practices of the company.

While staff acknowledge that for some IFMs, proxy voting and shareholder engagement are conducted at the IFM level rather than at the fund level, the above guidance is intended to apply specifically to funds that use proxy voting or shareholder engagement as an ESG investment strategy.


CSA Staff Notice 81-334 ESG-Related Investment Fund Disclosure [Part G Guidance]
Part G Guidance
IV. Proxy Voting and Shareholder Engagement Policies and Procedures
Section (a)

Proxy voting

An investment fund must include in its prospectus and/or AIF, as applicable, a summary of the policies and procedures that the fund follows when voting proxies relating to portfolio securities. [FN 26]

Further, an investment fund is also required to promptly send the most recent copy of its proxy voting policies and procedures to any securityholder upon request. [FN 27]

Disclosure of a fund’s proxy voting policies and procedures can provide clarity to investors about the ways in which proxy voting is used by ESG Funds to achieve their ESG-related investment objectives, including the scope and limits of their use.

If a fund uses proxy voting as an ESG investment strategy, the prospectus and/or AIF, as applicable, is required to include a summary of the ESG aspects of the fund’s proxy voting policies and procedures. This summary would provide clarity about how the voting rights attached to the fund’s portfolio securities will be used to further the fund’s ESG-related investment objectives, or in the case of a fund that does not have ESG-related investment objectives but that uses proxy voting as an ESG strategy, how the ESG-related proxy voting strategy is implemented.

In order to provide investors with greater transparency, staff also encourage investment funds to make the most recent copy of their proxy voting policies and procedures available on their designated websites.

FN 26 Item 30.1 of Form 41-101F2; Item 4.15(5) of Part A of Form 81-101F1; Item 12(7) of Form 81-101F2.

FN 27 Subsection 10.4(3) of National Instrument 81-106 Investment Fund Continuous Disclosure (NI 81-106).


National Instrument 81-102 Investment Funds
Appendix F

Item 1 – Investment risk level

(1) Subject to subsection (2), to determine the investment risk level of a mutual fund,

(a) determine the mutual fund’s standard deviation in accordance with Item 2 and, as applicable, Item 3, 4 or 5,

(b) in the following table, locate the range of standard deviation within which the mutual fund’s standard deviation falls, and

(c) identify the investment risk level set opposite the applicable range.

Standard Deviation Range Investment Risk Level
0 to less than 6
Low
6 to less than 11
Low to medium
11 to less than 16
Medium
16 to less than 20
Medium to high
20 or greater
High

(2) Despite subsection (1), the investment risk level of a mutual fund may be increased if doing so is reasonable in the circumstances.

(3) A mutual fund must keep and maintain records that document:

(a) how the investment risk level of the mutual fund was determined, and

(b) if the investment risk level of the mutual fund was increased, why it was reasonable to do so in the circumstances.

Commentary:

(1) The investment risk level may be determined more frequently than annually. Generally, the investment risk level must be determined again whenever it is no longer reasonable in the circumstances.

(2) Generally, a change to the mutual fund’s investment risk level disclosed on the most recently filed fund facts document or ETF facts document, as applicable, would be a material change under securities legislation in accordance with Part 11 of National Instrument 81-106 Investment Fund Continuous Disclosure.

(3) In deciding whether to exercise the discretion to increase a mutual fund’s investment risk level as permitted in subsection (2) above, consideration should be given as to whether the standard deviation calculation applied under the Investment Risk Classification Methodology may result in a risk level that is below the manager’s own expectations for the mutual fund. This can occur, for example, when a mutual fund employs investment strategies that produce an atypical or nonnormal distribution of performance results. In such circumstances mutual funds are encouraged to consider supplementing the Investment Risk Classification Methodology with other factors or risk metrics in order to determine whether it would be appropriate to make an upward adjustment of the mutual fund’s risk level to better reflect the features of the mutual fund.


CSA Staff Notice 81-334 ESG-Related Investment Fund Disclosure [Part G Guidance]
Part G Guidance
II. Fund Types

Fund Types

A mutual fund that is not an ETF is required to identify, in its prospectus, the type of mutual fund that the fund is best characterized as. [FN 21] Examples of types of mutual funds may include money market, equity, bond or balanced funds related, if appropriate, to a geographical region, or any other description that accurately identifies the type of mutual fund. [FN 22]

Similar to fund names and investment objectives, the fund type identified in a fund’s prospectus plays a role in identifying the focus of the fund.

While it is not a requirement, a mutual fund that includes ESG in its fundamental investment objectives may wish to characterize itself as a fund that is focused on ESG in addition to its primary fund type. For example, an ESG Fund may wish to identify itself as an ESG Canadian equity fund.

However, staff’s view is that a fund that does not include ESG in its fundamental investment objectives should not characterize itself as a fund that is focused on ESG as it would not be an accurate identification of the fund type.

FN 21 Item 3(a) of Part B of Form 81-101F1.

FN 22 Instruction (2) to Item 3(a) of Part B of Form 81-101F1.


CSA Staff Notice 81-334 ESG-Related Investment Fund Disclosure [Part G Guidance]
Part G Guidance
V. Risk Disclosure

Risk Disclosure

An investment fund is required to describe, in its prospectus, any material risks associated with an investment in the fund, [FN 28] including any risks associated with any particular aspect of the fundamental investment objectives and investment strategies. [FN 29]

Risk disclosure enables investors to better understand the potential material risks associated with investing in the fund, including the impact of those risks on a fund’s performance.

FN 28 Item 9 of Part B of Form 81-101F1; Item 12 of Form 41-101F2.

FN 29 Instruction (2) to Item 9 of Part B of Form 81-101F1; Item 12.1(1) of Form 41-101F2.


Proposed Companion Policy 51-107CP Disclosure of Climate-Related Matters
Part 2 TCFD Recommendations
Section 3

TCFD and Other Guidance

The TCFD recommendations and their application are discussed more fully in the TCFD Final Report, as well as in other publications produced by the TCFD, such as:

(a) Implementing the Recommendations of the Task Force on Climate-related Financial Disclosures (June 2017); and

Lexata note: the 2017 document has been has been superceded by this 2021 document: Implementing the Recommendations of the Task Force on Climate-related Financial Disclosures ]

(b) Guidance on Risk Management Integration and Disclosure (October 2020).

In addition to this Policy, issuers should consider the TCFD Final Report and related publications from the TCFD in preparing the disclosure required by the Instrument. Issuers should also refer to guidance published by the CSA relating to assessing materiality and existing disclosure requirements that are consistent with the TCFD recommendations (as discussed below), including:

(a) National Policy 51-201 Disclosure Standards;

(b) CSA Staff Notice 51-333 Environmental Reporting Guidance (October 2010);

(c) CSA Staff Notice 51-354 Report on Climate Change-related Disclosures Project (April 2018); and

(d) CSA Staff Notice 51-358 Reporting of Climate Change-related Risks (August 2019).


CSA Staff Notice 81-334 ESG-Related Investment Fund Disclosure [Part G Guidance]
Part G Guidance
VIII. Sales Communications

Sales Communications

A sales communication pertaining to an investment fund is prohibited from including a statement that conflicts with information that is contained in the fund’s regulatory offering documents. [FN 36] In addition, a sales communication pertaining to an investment fund is also prohibited from being untrue or misleading. [FN 37]

The Companion Policy to NI 81-102 lists some of the circumstances in which, in the view of the Canadian securities regulatory authorities, a sales communication would be misleading. One such circumstance is if the sales communication contains a statement that lacks explanations, qualifications, limitations or other statements necessary or appropriate to make the statement in the sales communication not misleading. [FN 38] Another circumstance is if the sales communication contains a statement about the characteristics or attributes of an investment fund that makes exaggerated or unsubstantiated claims about management skill or techniques, characteristics of the investment fund or an investment in securities issued by the fund. [FN 39]

In addition, staff are of the view that sales communications should not contain statements that are vague or exaggerated, or that cannot otherwise be verified. [FN 40]

Sales communications, including websites, play a key role in providing information about the investment objectives, investment strategies and performance of funds that investors may consider investing in. Therefore, sales communications relating to ESG that are not untrue or misleading and that are consistent with a fund’s regulatory offering documents are important in order to prevent greenwashing.

FN 36 Paragraph 15.2(1)(b) of NI 81-102.

FN 37 Paragraph 15.2(1)(a) of NI 81-102.

FN 38 Paragraph 13.1(1)1 of Companion Policy 81-102CP to National Instrument 81-102 Investment Funds (81-102CP).

FN 39 Subparagraph 13.1(1)3(b) of 81-102CP.

FN 40 OSC Staff Notice 81-720 Report on Staff’s Continuous Disclosure Review of Sales Communications by Investment Funds.


Proposed Companion Policy 51-107CP Disclosure of Climate-Related Matters
Part 2 TCFD Recommendations
Section 2

TCFD Recommendations

(1) The disclosure requirements of the Instrument are set out in Form 51-107A and Form 51-107B and, subject to certain modifications, are consistent with the recommendations (the “TCFD recommendations”) developed by the Task Force on Climate-related Financial Disclosures (the “TCFD”) and published in their report entitled Recommendations of the Task Force on Climate-related Financial Disclosures dated June 2017 (the “TCFD Final Report”)

[Lexata note: the TCFD’s 2021 document Implementing the Recommendations of the Task Force on Climate-related Financial Disclosures supercedes the 2017 equivalent implementation document].

Notably, the Instrument does not require issuers to disclose a scenario analysis, which is the TCFD recommended disclosure that describes the resilience of an issuer’s strategy, taking into consideration different climate-related scenarios. In addition, issuers may elect to not provide the TCFD recommended disclosure respecting greenhouse gas (“GHG”) emissions and their related risks, provided they instead disclose their reasons for not including this disclosure. [FN 1]

FN 1 As an alternative, the CSA is also consulting on requiring issuers to disclose Scope 1 GHG emissions. Under this alternative, disclosure of Scope 2 and Scope 3 GHG emissions would not be mandatory. Issuers would have to disclose either their Scope 2 and 3 GHG emissions and the related risks or the issuer”s reasons for not disclosing this information.

(2) The TCFD recommendations are summarized in Figure 4 of Section C of the TCFD Final Report and are reproduced in Table 1 below. Table 1 also illustrates the modifications to the TCFD recommended disclosures required by the Instrument:

Table 1: TCFD Recommendations and disclosure required by the Instrument

TCFD Recommendations TCFD Recommended Disclosures Disclosure required by the Instrument
Governance

Disclose the organization’s governance around climate-related risks and opportunities.

a) Describe the board’s oversight of climate-related risks and opportunities.

b) Describe management’s role in assessing and managing climate-related risks and opportunities.

a) Same as TCFD Recommended Disclosures.

b) Same as TCFD Recommended Disclosures.

Strategy

Disclose the actual and potential impacts of climate-related risks and opportunities on the organization’s businesses, strategy, and financial planning where such information is material.

a) Describe the climate-related risks and opportunities the organization has identified over the short, medium, and long term.

b) Describe the impact of climate-related risks and opportunities on the organization’s businesses, strategy, and financial planning.

c) Describe the resilience of the organization’s strategy, taking into consideration different climate-related scenarios, including a 2°C or lower scenario.

a) Same as TCFD Recommended Disclosures.

b) Same as TCFD Recommended Disclosures.

c) Not required.

Risk management

Disclose how the organization identifies, assesses, and manages climate-related risks.

a) Describe the organization’s processes for identifying and assessing climate-related risks.

b) Describe the organization’s processes for managing climate-related risks.

c) Describe how processes for identifying, assessing, and managing climate-related risks are integrated into the organization’s overall risk management.

a) Same as TCFD Recommended Disclosures.

b) Same as TCFD Recommended Disclosures.

c) Same as TCFD Recommended

Metrics and targets

Disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities where such information is material.

a) Disclose the metrics used by the
organization to assess climate-related risks and opportunities in line with its strategy and risk management process.

b) Disclose Scope 1, Scope 2, and,
if appropriate, Scope 3 greenhouse gas (GHG) emissions, and the related risks.

c) Describe the targets used by the organization to manage climate-related risks and opportunities and performance against targets.

a) Same as TCFD Recommended Disclosures.

b) Not mandatory. An issuer must disclose its GHG emissions and the related risks or the issuer’s reasons for not disclosing this information.

c) Same as TCFD Recommended Disclosures.

(3) Consistent with the TCFD recommendations and with disclosure requirements respecting corporate governance matters under National Instrument 58-101 Disclosure of Corporate Governance Practices, the disclosure required by the Instrument relating to the TCFD recommendation “Governance” and “Risk management” in Table 1 above are not subject to a materiality assessment. Accordingly, issuers must provide this disclosure in the applicable continuous disclosure document as required by the Instrument.

Disclosure under the headings “Strategy” and “Metrics and targets” is only required where such information is material. Information is likely material if a reasonable investor’s decision whether to buy, sell or hold securities in an issuer would likely be influenced or changed if the information in question was omitted or misstated.

An issuer must disclose its GHG emissions and the related risks or the issuer’s reasons for not disclosing this information. As an alternative, the CSA is also consulting on requiring issuers to disclose Scope 1 GHG emissions either a) when that information is material, or b) in all cases. Under this alternative, disclosure of Scope 2 and Scope 3 GHG emissions would not be mandatory. Issuers would have to disclose either their Scope 2 and 3 GHG emissions and the related risks, or the issuer’s reasons for not disclosing this information. If necessary, the final form of Policy will be modified to reflect the alternative chosen.


National Instrument 81-102 Investment Funds
Appendix F

Item 3 – Difference in classes or series of securities of a mutual fund

Despite Item 2(2), if a series or class of securities of the mutual fund has an attribute that results in a different investment risk level for the series or class than the investment risk level of the mutual fund, the return on investment for that series or class of securities must be used to calculate the standard deviation of that series or class of securities.

Commentary: Generally, all series or classes of securities of a mutual fund will have the same investment risk level as determined under Items 1 and 2. However, a particular series or class of securities of a mutual fund may have a different investment risk level than the other series or classes of securities of the same mutual fund if that series or class of securities has an attribute that differs from the others. For example, a series or class of securities that employs currency hedging or that is offered in the currency of the United States of America (if the mutual fund is otherwise offered in the currency of Canada) has an attribute that could result in a different investment risk level than that of the mutual fund.


Companion Policy to NI 81-106 Investment Fund Continuous Disclosure
Part 2 Financial Statements
Section 2.8

Change in Year End End

(1) The change in year end reporting requirements are adopted from National Instrument 51-102, with appropriate modifications to reflect that investment funds report on a six month interim period.

(2) The definition of “interim period” in the Instrument differs from the definition of this term in National Instrument 51-102. An investment fund cannot have more than one interim period in a transition year.

(3) The interim financial report for the new financial year will have comparatives from the corresponding months in the preceding year, whether or not they arefrom the transition year or from the old financial year, they were previously prepared or not, or they straddle a year-end.

(4) If an investment fund voluntarily reports on a quarterly basis, it should follow the requirements set out in National Instrument 51-102 for a change in year end, with appropriate modifications.

(5) Appendix A to this Policy outlines the financial statement filing requirements under section 2.9 of the Instrument for an investment fund that changes its year end.


Form 81-106F1 Contents of Annual and Interim Management Report of Fund Performance
Part B Content Requirements for Annual Management Report of Fund Performance
Item 2

Management Discussion of Fund Performance

2.1 Investment Objective and Strategies

Disclose under the heading “Investment Objective and Strategies” a brief summary of the fundamental investment objective and strategies of the investment fund.

INSTRUCTION:

Disclosing the fundamental investment objective provides investors with a reference point for assessing the information contained in the MRFP. It must be a concise summary of the fundamental investment objective and strategies of the investment fund, and not merely copied from the prospectus.

2.2 Risk

Disclose under the heading “Risk” a discussion of how changes to the investment fund over the financial year affected the overall level of risk associated with an investment in the investment fund.

INSTRUCTIONS:

Ensure that the discussion is not merely a repeat of information contained in the prospectus of the investment fund, but rather a discussion that reflects any changes in risk level of the investment fund over the financial year.

Consider how the changes in the risks associated with an investment in the investment fund affect the suitability or investor risk tolerance stated in the prospectus or offering document. All investment funds should refer to Items 9 and 10 of Part B of Form 81-101F1 as if those sections applied to them.

2.3 Results of Operations

(1) Under the heading “Results of Operations” provide a summary of the results of operations of the investment fund for the financial year to which the MDFP pertains, including a discussion of

(a) any material changes in investments in specific portfolio assets and overall asset mix from the previous period;

(b) how the composition and changes to the composition of the investment portfolio relate to the investment fund’s fundamental investment objective and strategies or to changes in the economy, markets or unusual events;

(c) unusual trends in redemptions or sales and the effect of these on the investment fund;

(d) significant components and changes to the components of revenue and expenses;

(e) risks, events, trends and commitments that had a material effect on past performance; and

(f) unusual or infrequent events or transactions, economic changes and market conditions that affected performance.

(2) An investment fund that borrows money, other than immaterial operating overdrafts, must disclose,

(a) the minimum and maximum amount borrowed during the period;

(b) the percentage of net assets of the investment fund that the borrowing represented as of the end of the period;

(c) how the borrowed money was used; and

(d) the terms of the borrowing arrangements.

(3) An investment fund that uses leverage must disclose

(a) a brief explanation of the sources of leverage, including cash borrowing, short selling or use of specified derivatives, used during the reporting period,

(b) the lowest and highest levels of aggregate exposure to those sources of leverage in the period, and

(c) a brief explanation of the significance of the lowest and highest levels of aggregate exposure to those sources of leverage to the investment fund, including the impact of the use of specified derivatives for hedging purposes.

INSTRUCTIONS:

(1) Explain the nature of and reasons for changes in the investment fund’s performance. Do not only disclose the amount of change in a financial statement item from period to period. Avoid the use of boilerplate wording. Your discussion must be prepared in a manner that will assist a reasonable reader to understand the significant factors that have affected the investment fund’s performance.

(2) For the purposes of the disclosure required in Item 2.3 (3) (b), an investment fund must calculate its aggregate exposure to sources of leverage in accordance with section 2.9.1 of National Instrument 81-102 Investment Funds.

(3) In discussing the impact of the use of specified derivatives for hedging purposes on the investment fund’s calculation of its aggregate exposure to sources of leverage, the fund must discuss by how much the aggregate exposure was reduced by subtracting the notional value of the fund’s specified derivatives positions that are hedging transactions as is contemplated in paragraph 2.9.1 (2) (c) of National Instrument 81-102 Investment Funds.

2.4 Recent Developments

Under the heading “Recent Developments” discuss the developments affecting the investment fund, including

(a) known changes to the strategic position of the investment fund;

(b) known material trends, commitments, events or uncertainties that might reasonably be expected to affect the investment fund;

(c) changes to the manager or portfolio adviser, or change of control of the manager, of the investment fund;

(d) the effects of any actual or planned reorganizations, mergers or similar transactions;

(e) the estimated effects of changes in accounting policies adopted subsequent to year end; and

(f) changes to the composition or members of the independent review committee of the investment fund.

INSTRUCTIONS:

(1) Preparing the management discussion necessarily involves some degree of prediction or projection. The discussion must describe anticipated events, decisions, circumstances, opportunities and risks that management considers reasonably likely to materially impact performance. It must also describe management’s vision, strategy and targets.

(2) There is no requirement to provide forward-looking information. If any forward-looking information is provided, it must contain a statement that the information is forward-looking, a description of the factors that may cause actual results to differ materially from the forward-looking information, your material assumptions and appropriate risk disclosure and cautionary language. You must also discuss any forward-looking information disclosed for a prior period which, in light of intervening events and absent further explanations, may be misleading.

2.5 Related Party Transactions

Under the heading “Related Party Transactions” discuss any transactions involving related parties to the investment fund.

INSTRUCTIONS:

(1) In determining who is a related party, investment funds should look to the Handbook. In addition, related parties include the manager and portfolio adviser (or their affiliates) and a broker or dealer related to any of the investment fund, its manager or portfolio adviser.

(2) When discussing related party transactions, include the identity of the related party, the relationship to the investment fund, the purpose of the transaction, the measurement basis used to determine the recorded amount and any ongoing commitments to the related party.

(3) Related party transactions include portfolio transactions with related parties of the investment fund. When discussing these transactions, include the dollar amount of commission, spread or any other fee that the investment fund paid to any related party in connection with a portfolio transaction.

(4) If the investment fund has an independent review committee, state whether the investment fund has relied on the positive recommendation or approval of the independent review committee to proceed with the transaction, and provide details of any conditions or parameters surrounding the transaction imposed by the independent review committee in its positive recommendation or approval.


Companion Policy to NI 81-106 Investment Fund Continuous Disclosure
Part 10 Calculation of Management Expense Ratio
Section 10.1

Calculation of Management Expense Expense Ratio

(1) Part 15 of the Instrument sets out the method to be used by an investment fund to calculate its management expense ratio (MER). The requirements apply in all circumstances in which an investment fund circulates and discloses an MER. This includes disclosure in a sales communication, a prospectus, a fund facts document, an ETF facts document, an annual information form, financial statements, a management report of fund performance or a report to securityholders.

(2) Paragraph 15.1(1)(a) requires the investment fund to use its “total expenses” (other than distributions if these are an expense for the investment fund) before income taxes for the relevant period as the basis for the calculation of MER. Total expenses, before income taxes, include interest charges and taxes, including sales taxes, GST and capital taxes payable by the investment fund. Withholding taxes need not be included in the MER calculation.

The CSA is of the view that if an investment fund issues debt-like securities or securities that otherwise provide leverage to the fund, payments to holders of these securities should be treated as financing costs from the perspective of the investment fund’s other classes of securities (the classes that benefit from the financing or leverage). These costs should not be excluded from total expenses when calculating the MER of the investment fund’s other classes of securities. Securities that provide leverage generally include preferred shares.Non-optional fees paid directly by investors in connection with the holding of an investment fund’s securities do not have to be included in the MER calculation.

(3) The CSA recognize that an investment fund may incur fees and charges that are not included in total expenses, but that reduce the net asset value and the amount of investable assets of the investment fund. Sales commissions paid by an investment fund in connection with the sale of the investment fund’s securities are an example of such fees and charges. We believe that these fees and charges should be reflected in the MER of the investment fund.

(4) While brokerage commissions and other portfolio transaction costs are expenses of an investment fund for accounting purposes, they are not included in the MER. These costs are reflected in the trading expense ratio.

(5) In its management report of fund performance, an investment fund must disclose historical MERs for five years calculated in accordance with Part 15. If the investment fund has not calculated the historical MERs in the manner required by the Instrument, we are of the view that the change in the method of calculating the MER should be treated in a manner similar to a change in accounting policy underInternational Accounting Standard 8 Accounting Policies, Changes in Accounting Estimates and Errors. Under Canadian GAAP, a change in accounting policy requires a retrospective application of the change for all periods shown. However, the Handbook acknowledges that there may be circumstances where the data needed to restate the financial information is not reasonably determinable.

If an investment fund restates its MER for any of the five years it is required to show, the investment fund should describe this restatement in the first document released and in the first management report of fund performance in which the restated MERs are reported.

If an investment fund does not restate its MER for prior periods because, based on specific facts and circumstances, the information required to do so is not reasonably determinable, the MER for all financial periods ending after the effective date of the Instrument must be calculated in accordance with Part 15. In this case, the investment fund must also disclose

(i) that the method of calculating MER has changed, specifying for which periods the MER has been calculated in accordance with the change;

(ii) that the investment fund has not restated the MER for specified prior periods;

(iii) the impact that the change would have had if the investment fund had restated the MER for the specified prior periods (for example, would theMER have increased or decreased and an estimate of the increase or decrease); and

(iv) a description of the main differences between an MER calculated in accordance with the Instrument and the previous calculations.The disclosure outlined above should be provided for all periods presented until such time as all MERs presented are calculated in accordance with the Instrument.


National Instrument 81-106 Investment Fund Continuous Disclosure
Part 2 Financial Statements
Section 2.6

Acceptable Accounting Principles

(1) For financial years beginning before January 1, 2014, the financial statements of an investment fund must be prepared in accordance with Canadian GAAP applicable to public enterprises.

(2) For financial years beginning on or after January 1, 2014, the financial statements of an investment fund must be prepared in accordance with Canadian GAAP applicable to publicly accountable enterprises.

(3) Financial statements must be prepared in accordance with the same accounting principles for all periods presented in the financial statements.


CSA Staff Notice 81-331 Investment Funds Investing in Bail-in Debt

Date: August 23, 2018

Purpose

The purpose of this notice is to set out the views of the Canadian Securities Administrators (CSA) staff regarding the implementation of the Canadian bail-in regime and to provide clarity on certain issues for investment fund issuers subject to National Instrument 81-102 Investment Funds (NI 81-102).

Background

On June 22, 2016, federal amendments to the Bank Act and the Canada Deposit Insurance Corporation Act that implement a bail-in regime for Canada’s domestic systemically important banks (D-SIBs) received Royal Assent. [FN1] The Office of the Superintendent of Financial Institutions (OSFI) has declared the six largest domestic Canadian banks [FN2] as D-SIBs. In 2013, the Autorité des marchés financiers (AMF) designated the Desjardins Group as a domestic systemically important financial institution. On July 13, 2018, amendments to the Deposit Insurance Act (Québec) came into force, which established a bail-in regime that applies to the Desjardins Group. Subject to the upcoming adoption of implementing regulations, the Desjardins Group will be subject to a bail-in regime that is similar to the one applicable to D-SIBs.

If OSFI is of the opinion that a D-SIB has ceased, or is about to cease, to be viable, the Canada Deposit Insurance Corporation (CDIC) may, in certain circumstances, take temporary control or ownership of the D-SIB and convert all or a portion of the D-SIB’s bail-in debt (Bail-in Debt) into common shares of the D-SIB. The term “Bail-in Debt” refers to certain debt issued byD-SIBs before any conversion occurs under the Canadian bail-in regime.

The details of Bail-in Debt are set out in regulations under the Bank Act and the Canada Deposit Insurance Corporation Act that were adopted by the federal government on March 26, 2018, and will come into force on September 23, 2018 (Regulations). [FN3] Under the Regulations, Bail-in Debt generally includes all unsubordinated unsecured debt of a D-SIB that is tradeable and transferable with an original term to maturity of over 400 days. Explicit exclusions from the bail-in regime are provided for covered bonds, derivatives and certain structured notes. [FN4] The Regulations also include certain disclosure and naming requirements in respect of Bail-in Debt.

CSA staff guidance

CSA staff notes that pursuant to subsection 2.18(1) of NI 81-102, a money market fund is restricted in the types of securities it may have in its portfolio. In general, a money market fund may invest in investment grade short-term debt (i.e. remaining term to maturity of 365 days or less) to achieve its investment objectives of capital preservation and liquidity. CSA staff have received inquiries as to whether Bail-in Debt could be an eligible investment for a money market fund.

Given that Bail-in Debt is different from conventional convertible debt and is convertible in certain circumstances as defined in the Canada Deposit Insurance Corporation Act, CSA staff’s view is that money market funds are permitted to invest in Bail-in Debt so long as the Bail-in Debt continues to meet the prescribed eligibility requirements applicable to money market funds [FN5] as set out in NI 81-102. For example, investment fund managers (IFMs) must continually monitor their investments in Bail-in Debt to ensure that such investments are in compliance with the designated rating requirements as prescribed by NI 81-102 and are generally readily convertible to cash, among other requirements, to ensure the safety and liquidity in such a money market fund’s portfolio assets.

Should an investment fund decide to invest in Bail-in Debt, the IFM must fully understand the key features and risks of such Bail-in Debt and take into consideration any risks to their funds as a result of such investment, for example, the risk that the CDIC may convert all or a portion of the Bail-in Debt into common shares.

If an IFM determines that one or more of its investment funds will or may hold Bail-in Debt CSA staff remind the IFM that:

• any such holdings must be consistent with the fund’s investment objectives and strategies and be held in compliance with NI 81-102, as applicable; and

• such funds must consider their disclosure obligations to their securityholders, including, for example, appropriate risk disclosure as it relates to Bail-in Debt and distinctions
between Bail-in Debt and non-Bail-in Debt.

CSA staff will continue to monitor developments with respect to the implementation of the Canadian bail-in regime for investment fund issuers and will consider whether additional guidance is needed in this area. The CSA welcomes any input or feedback with respect to the issues in this notice.

FN1. Budget Implementation Act, 2016 No. 1 (Bill C-15).

FN2. As of the date of this Notice, the D-SIBs are the Bank of Montreal, The Bank of Nova Scotia, Canadian Imperial Bank of Commerce, National Bank of Canada, Royal Bank of Canada and The Toronto-Dominion Bank.

FN3. Bank Recapitalization (Bail-in) Conversion Regulations: SOR/2018-57; Bank Recapitalization (Bail-in) Issuance Regulations: SOR/2018-58.

FN4. The constituents of Bail-in Debt are prescribed in the Regulations.

FN5. Subsection 2.18(1) of NI 81-102.


Companion Policy to NI 81-106 Investment Fund Continuous Disclosure
Part 2 Financial Statements
Section 2.1

Interrelationship of Financial Statements Statements with Canadian GAAP

(1) [Repealed]

(1.1) Subsection 2.6(2) of the Instrument, applicable to financial years beginning on or after January 1, 2014, refers to Canadian GAAP for publicly accountable enterprises, which is IFRS incorporated into the Handbook, contained in Part I of the Handbook. IFRS is defined in National Instrument 14-101 Definitions as the standards and interpretations adopted by the International Accounting Standards Board.

Subsection 2.6(1) of the Instrument, applicable to financial years beginning before January 1, 2014, refers to Canadian GAAP as applicable to public enterprises, which the CSA considers to be the standards in Part V of the Handbook.

(2) The CSA believe that an investment fund’s financial statements must include certain information, at a minimum, in order to provide full disclosure. The Instrument sets out these minimum requirements, but does not mandate all the required disclosure. Canadian GAAP applicable to publicly accountable enterprises also contains minimum requirements relating to the content of financial statements. An investment fund’s financial statements must meet these requirements as well.In some cases, the Instrument prescribes line items that may already be required by Canadian GAAP, but these line items are expressed more specifically for the activities of an investment fund. For example, Canadian GAAP requires a “trade and other receivables” line item on the statement of financial position, but the Instrument requires accounts receivable to be broken down into more specific categories. In other instances, the line items prescribed in the Instrument are in addition to those in Canadian GAAP.

While the Instrument prescribes line items, it does not prescribe the order in which those line items are presented. Investment funds should present line items, as well as any subtotals or totals, in a logical order that will contribute to a reader’s overall understanding of the financial statements.

Investment funds are responsible for disclosing all material information concerning their financial position and financial performance in the financial statements.

(3) [Repealed].


National Instrument 81-106 Investment Fund Continuous Disclosure
Part 18 Effective Date and Transition
Section 18.6

Existing Exemptions

(1) An investment fund that has obtained an exemption or waiver from, or approval under, securities legislation, National Policy 39, National Instrument 81-101 Mutual Fund Prospectus Disclosure, National Instrument 81-102 Investment Funds, Multilateral Instrument 81-104 Commodity Pools or National Instrument 81-105 Mutual Fund Sales Practices relating to its continuous disclosure obligations is exempt from any substantially similar provision of this Instrument to the same extent and on the same conditions, if any, as contained in the exemption, waiver or approval, unless the regulator or securities regulatory authority has revoked that exemption, waiver or approval under authority provided to it in securities legislation.

(2) An investment fund must, at the time that it first intends to rely on subsection (1) in connection with a filing requirement under this Instrument, inform the securities regulatory authority in writing of

(a) the general nature of the prior exemption, waiver or approval and the date on which it was granted; and

(b) the provision in respect of which the prior exemption, waiver or approval applied and the substantially similar provision of this Instrument.


National Instrument 81-106 Investment Fund Continuous Disclosure
Part 3 Financial Disclosure Requirements
Section 3.12

Disclosure of Use of Leverage

(1) An investment fund that uses leverage must disclose the following information in its financial statements:

(a) a brief explanation of the sources of leverage, including cash borrowing, short selling or use of specified derivatives, used during the reporting period covered by the financial statements,

(b) the lowest and highest levels of the aggregate exposure to those sources of leverage in the period;

(c) a brief explanation of the significance to the investment fund of the lowest and highest levels of the aggregate exposure to those sources of leverage.

(2) For the purposes of subsection (1), an investment fund must calculate its aggregate exposure to the sources of leverage in accordance with section 2.9.1 of National Instrument 81-102 Investment Funds.


Proposed Companion Policy 51-107CP Disclosure of Climate-Related Matters
Part 2 TCFD Recommendations
Section 4

Consistency with Existing Disclosure Requirements

Certain disclosure requirements contained in the Instrument are consistent with pre-existing disclosure requirements under Canadian securities legislation. For example, item 1 (a) of Form 51-107B requires issuers to describe the climate-related risks and opportunities it has identified over the short, medium, and long term. This disclosure requirement is consistent with risk factor disclosure required under National Instrument 51-102 Continuous Disclosure Obligations. An issuer is required to disclose in its annual information form, if any, risk factors relating to it and its business that would be most likely to influence an investor’s decision to purchase the issuer’s securities, and an issuer is required to discuss in its annual management’s discussion and analysis its analysis of its operations for the most recently completed financial year, including commitments, events, risks or uncertainties that it reasonably believes will materially affect its future performance.


National Instrument 81-107 Independent Review Committee for Investment Funds
Part 6 Exempted transactions
Section 6.2

Transactions in securities of related issuers

(1) An investment fund may make or hold an investment in the security of an issuer related to it, its manager, or an entity related to the manager, if

(a) at the time that the investment is made,

(i) the independent review committee has approved the investment under subsection 5.2(2); and

(ii) the purchase is made on an exchange on which the securities of the issuer are listed and traded; and

(b) no later than the time the investment fund files its annual financial statements, the manager of the investment fund files with the securities regulatory authority or regulator the particulars of the investment.

(2) The investment fund conflict of interest investment restrictions do not apply to an investment fund with respect to an investment referred to in subsection (1) if the investment is made in accordance with that subsection.

(3) In subsection (2), “investment fund conflict of interest investment restrictions” has the meaning ascribed to that term in National Instrument 81-102 Investment Funds.

Commentary

1. This section is intended to relieve investment funds in Quebec, and mutual funds elsewhere in Canada, from the prohibitions in the securities legislation of each securities regulatory authority that preclude investments in securities of related issuers.

2. This section sets out the minimum conditions for purchases to proceed without regulatory exemptive relief. An IRC may consider including in any approval any terms or conditions in prior exemptive relief orders, waivers or approvals obtained from the securities regulatory authorities. The CSA expect that the IRC may give its approval in the form of a standing instruction as described in section 5.4 to allow the manager greater flexibility in its decisions.

3. This section contemplates that the manager will comply with the applicable reporting requirements under securities legislation for each purchase. The filing referred to in paragraph (1)(b) should be filed on the SEDAR group profile number of the investment fund, as a continuous disclosure document.

4. If an IRC gives its approval for the investment fund to purchase securities of an issuer described in this section, and then subsequently withdraws its approval for additional purchases, the CSA will not consider the continued holding of the securities to be subject to subsection 1.2(b) of the Instrument. However, we will expect the manager to consider whether continuing to hold those securities is a conflict of interest matter that subsection 1.2(a) of the Instrument would require the manager to refer to the IRC.


Exemptive Relief Orders

Companion Policy to NI 81-106 Investment Fund Continuous Disclosure
Part 7 Material Change
Section 7.2

Confidential Material Change Report Report

The CSA are of the view that in order for an investment fund to file a confidential material change report under Section 11.2 of the Instrument, the investment fund or its manager should advise insiders of the prohibition against trading during the filing period of a confidential material change report and must also take steps to monitor trading activity.


Companion Policy to NI 81-102 Investment Funds
Part 3 Investments
Section 3.3.1

Illiquid assets

(1) The Canadian securities regulatory authorities expect the manager of an investment fund (whether a mutual fund or a non-redeemable investment fund) to establish an effective liquidity risk management policy that considers the liquidity of the types of assets in which the investment fund will be invested, and the fund’s obligations and other liabilities (for example, meeting redemption requests, or margin calls from derivative counterparties). Appropriate internal limits for the investment fund’s liquidity needs, in line with its investment strategies, should be established.

(2) As portfolio assets may become illiquid when market conditions change, the Canadian securities regulatory authorities are of the view that the manager should regularly measure, monitor and manage the liquidity of the investment fund’s portfolio assets, keeping in mind the time to liquidate each portfolio asset, the price the asset may be sold at and the pattern of redemption requests.

(3) Furthermore, the Canadian securities regulatory authorities are of the view that illiquid assets are generally more difficult to value, for the purposes of calculating an investment fund’s net asset value, than assets which are liquid. As a result, where a non-redeemable investment fund has a large proportion of its assets invested in illiquid assets, this raises concerns about the accuracy of the fund’s net asset value and the amount of any fees calculated with reference to net asset value. Accordingly, staff of the Canadian securities regulatory authorities may raise comments or questions in the course of their reviews of the prospectuses or continuous disclosure documents of non-redeemable investment funds where such funds have a significant proportion of their assets invested in illiquid assets.


National Instrument 81-106 Investment Fund Continuous Disclosure
Part 3 Financial Disclosure Requirements
Section 3.6

Notes to Financial Statements

(1) The notes to the financial statements of an investment fund must disclose the following:

1. the basis for determining current value and cost of portfolio assets and, if a method of determining cost other than by reference to the average cost of the portfolio assets is used, the method used.

1.1 for financial years beginning on or after January 1, 2014, the basis for classifying the investment fund’s outstanding securities, or each class or series of outstanding securities, as either equity instruments or financial liabilities.

2. if the investment fund has outstanding more than one class or series of securities ranking equally against its net assets, but differing in other respects,

(a) the number of authorized securities of each class or series;

(b) the number of securities of each class or series that have been issued and are outstanding;

(c) the differences between the classes or series, including differences in sales charges, and management fees;

(d) the method used to allocate income and expenses, and realized and unrealized capital gains and losses, to each class;

(e) the fee arrangements for any class-level expenses paid to affiliates; and

(f) transactions involving the issue or redemption of securities of the investment fund undertaken in the period for each class of securities to which the financial statements pertain.

3. to the extent the amount is ascertainable, the portion of the total client brokerage commissions, as defined in National Instrument 23-102 – Use of Client Brokerage Commissions, paid or payable to dealers by the investment fund for the provision of goods or services by the dealers or third parties, other than order execution.

4. the total cost of distribution of the investment fund’s securities recorded in the statement of changes in financial position.

5. the net asset value per security as at the date of the financial statements compared to the total equity per security or net assets attributable to securityholders per security as shown on the statement of financial position, and an explanation of each of the differences between these amounts.

(2) If not disclosed elsewhere in the financial statements, an investment fund that borrows money must, in a note to the financial statements, disclose the minimum and maximum amount borrowed during the period to which the financial statements or management report of fund performance pertain.

(3) For financial years beginning on or after January 1, 2014, the notes to the financial statements must disclose

(a) in the case of annual financial statements, an unreserved statement of compliance with IFRS; and

(b) in the case of interim financial reports, an unreserved statement of compliance with International Accounting Standard 34 Interim Financial Reporting.


National Instrument 81-102 Investment Funds
Part 2 Investments
Section 2.10

Adviser Requirements

(1) If a portfolio adviser of an investment fund receives advice from a non-resident sub-adviser concerning the use of options or standardized futures by the investment fund, the investment fund must not invest in or use options or standardized futures unless

(a) the obligations and duties of the non-resident sub-adviser are set out in a written agreement with the portfolio adviser; and

(b) the portfolio adviser contractually agrees with the investment fund to be responsible for any loss that arises out of the failure of the non-resident sub-adviser

(i) to exercise the powers and discharge the duties of its office honestly, in good faith and in the best interests of the investment fund, and

(ii) to exercise the degree of care, diligence and skill that a reasonably prudent person would exercise in the circumstances.

(2) An investment fund must not relieve a portfolio adviser of the investment fund from liability for loss for which the portfolio adviser has assumed responsibility under paragraph (1)(b) that arises out of the failure of the relevant non-resident sub-adviser

(a) to exercise the powers and discharge the duties of its office honestly, in good faith and in the best interests of the investment fund, or

(b) to exercise the degree of care, diligence and skill that a reasonably prudent person would exercise in the circumstances.

(3) Despite subsection 4.4(3), an investment fund may indemnify a portfolio adviser against legal fees, judgments and amounts paid in settlement, actually and reasonably incurred by that person or company in connection with services provided by a non-resident sub-adviser for which the portfolio adviser has assumed responsibility under paragraph (1)(b), only if

(a) those fees, judgments and amounts were not incurred as a result of a breach of the standard of care described in subsection (1) or (2); and

(b) the investment fund has reasonable grounds to believe that the action or inaction that caused the payment of the fees, judgments and amounts paid in settlement was in the best interests of the investment fund.

(4) An investment fund must not incur the cost of any portion of liability insurance that insures a person or company for a liability except to the extent that the person or company may be indemnified for that liability under this section.


Companion Policy to NI 81-106 Investment Fund Continuous Disclosure
Part 1 Purpose and Application of the Companion Policy
Section 1.7

Corporate Law Requirements

Some investment funds may be subject to requirements of corporate law that address matters similar to those addressed by the Instrument, and which may impose additional or more onerous requirements. For example, applicable corporate law may require investment funds to deliver annual financial statements to securityholders. This Instrument cannot provide exemptions from these requirements.


Companion Policy 51-101 Standards of Disclosure for Oil and Gas Activities
Part 5 Requirements Applicable to All Disclosure
Section 5.10

Prospectus Disclosure

In addition to the general disclosure requirements in NI 51-101 which apply to prospectuses, the following commentary provides additional guidance on topics of frequent enquiry.

…(5) Relief to Provide More Recent Form 51-101F1 Information in a Prospectus – If a reporting issuer is filing a preliminary prospectus and wishes to disclose reserves data and other oil and gas information as at a more recent date than its applicable year-end date, the CSA may consider relieving the reporting issuer of the requirement to disclose the reserves data and other information as at year-end.

A reporting issuer may determine that its obligation to provide “full, true and plain disclosure” obliges it to include in its prospectus reserves data and other oil and gas information as at a date more recent than specified in the prospectus requirements. The prospectus requirements state that the information must be as at the reporting issuer’s most recent financial year-end in respect of which the prospectus includes financial statements.

CSA staff may consider granting relief on a case-by-case basis to permit a reporting issuer in these circumstances to include in its prospectus the oil and gas information prepared with an effective date more recent than the financial yearend date, without also including the corresponding information effective as at the year-end date. A consideration for granting this relief may include disclosure of Form 51-101F1 information with an effective date that coincides with the date of interim financial statements. The reporting issuer should request such relief in the covering letter accompanying its preliminary prospectus. The grant of the relief would be evidenced by the prospectus receipt….


National Instrument 81-106 Investment Fund Continuous Disclosure
Part 18 Effective Date and Transition
Section 18.5.1

Transition to IFRS

(1) For the first interim period in the financial year beginning on or after January 1, 2014, an investment fund must file, with its interim financial report for that interim period, an opening statement of financial position as at the date of transition to IFRS.

(2) For the first financial year beginning on or after January 1, 2014, an investment fund must file, with its annual financial statements for that financial year, an audited opening statement of financial position as at the date of transition to IFRS.

(3) Despite sections 3.1, 3.2, 3.3, 3.4 and 3.6, for financial years beginning before January 1, 2014, an investment fund may present line items and use terminology in its financial statements consistent with the immediately preceding financial year


Companion Policy to NI 81-102 Investment Funds
Part 7 Changes
Section 7.2

Mergers of Investment Funds

Subsection 5.6(1) of the Instrument provides that mergers of investment funds may be carried out on the conditions described in that subsection without prior approval of the securities regulatory authority. The Canadian securities regulatory authorities consider that the types of transactions contemplated by subsection 5.6(1) of the instrument when carried out in accordance with the conditions of that section address the fundamental regulatory concerns raised by mergers of investment funds. Subsection 5.6(1) of the instrument is designed to facilitate consolidations of investment funds within fund families that have similar fundamental investment objectives and strategies and that are operated in a consistent and similar fashion. Since subsection 5.6(1) will be unavailable unless the investment funds involved in the transaction have substantially similar fundamental investment objectives and strategies and are operated in a substantially similar fashion, the Canadian securities regulatory authorities do not expect that the portfolios of the consolidating funds will be required to be realigned to any great extent before a merger. If realignment is necessary, the Canadian securities regulatory authorities note that paragraph 5.6(1)(h) of the Instrument provides that none of the costs and expenses associated with the transaction may be borne by the investment fund. Brokerage commissions payable as a result of any portfolio realignment necessary to carry out the transaction would, in the view of the Canadian securities regulatory authorities, be costs and expenses associated with the transaction.


Proposed National Instrument 51-107 Disclosure of Climate-related Matters
Part 2 Disclosure Requirements
Section 4

Climate-related Strategy, Risk Management and Metrics and Targets Disclosure Requirements

(1) A reporting issuer must include the disclosure referred to in Form 51-107B in its AIF, or if it does not file an AIF, in its annual MD&A.

(2) A reporting issuer that includes the disclosure of GHG emissions referred to in Form 51-107B in its AIF or annual MD&A must use a GHG emissions reporting standard to calculate and report its GHG emissions.


National Instrument 81-102 Investment Funds
Part 19 Exemptions and Approvals
Section 19.2

Exemption or Approval under Prior Policy

(1) A mutual fund that has obtained, from the regulator or securities regulatory authority, an exemption or waiver from, or approval under, a provision of National Policy Statement No. 39 before this Instrument came into force is exempt from any substantially similar provision of this Instrument, if any, on the same conditions, if any, as are contained in the earlier exemption or approval, unless the regulator or securities regulatory authority has revoked that exemption or waiver under authority provided to it in securities legislation.

(2) Despite Part 7, a mutual fund that has obtained, from the regulator or securities regulatory authority, approval under National Policy Statement No. 39 to pay incentive fees may continue to pay incentive fees on the terms of that approval if disclosure of the method of calculation of the fees and details of the composition of the benchmark or index used in calculating the fees are described in the prospectus of the mutual fund.

(3) A mutual fund that intends to rely upon subsection (1) must, at the time of the first filing of its pro forma prospectus after this Instrument comes into force, send to the regulator a letter or memorandum containing

(a) a brief description of the nature of the exemption from, or approval under, National Policy Statement No. 39 previously obtained; and

(b) the provision in the Instrument that is substantially similar to the provision in National Policy Statement No. 39 from or under which the exemption or approval was previously obtained.


Exemptive Relief Orders

National Instrument 81-102 Investment Funds
Part 15 Sales Communications and Prohibited Representations
Section 15.14

Sales Communication – Multi-Class Investment Funds

A sales communication for an investment fund that distributes different classes or series of securities that are referable to the same portfolio must not contain performance data unless the sales communication complies with the following requirements:

1. The sales communication clearly specifies the class or series of security to which any performance data contained in the sales communication relates.

2. If the sales communication refers to more than one class or series of security and provides performance data for any one class or series, the sales communication must provide performance data for each class or series of security referred to in the sales communication and must clearly explain the reasons for different performance data among the classes or series.

3. A sales communication for a new class or series of security and an existing class or series of security must not contain performance data for the existing class or series unless the sales communication clearly explains any differences between the new class or series and the existing class or series that could affect performance.


Companion Policy to NI 81-102 Investment Funds
Part 1 Purpose
Section 1.1

Purpose

The purpose of this Policy is to state the views of the Canadian securities regulatory authorities on various matters relating to National Instrument 81-102 Investment Funds (the “Instrument”), including

(a) the interpretation of various terms used in the Instrument;

(b) recommendations concerning the operating procedures that the Canadian securities regulatory authorities suggest that investment funds subject to the Instrument, or persons performing services for the investment funds, adopt to ensure compliance with the Instrument;

(c) discussions of circumstances in which the Canadian securities regulatory authorities have granted relief from particular requirements of National Policy Statement No. 39 (“NP39”), the predecessor to the Instrument, and the conditions that those authorities imposed in granting that relief; and

(d) recommendations concerning applications for approvals required under, or relief from, provisions of the Instrument.


Companion Policy to NI 81-106 Investment Fund Continuous Disclosure
Part 4 Delivery of Financial Statements and Management Reports of Fund Performance
Section 4.2

Communication with Beneficial Owners

Generally, investment funds must apply the procedures set out in National Instrument 54-101 Communication with Beneficial Owners of Securities of a Reporting Issuer for the purposes of Part 5 of the Instrument, but an exemption from National Instrument 54-101 is available to investment funds that have beneficial owner information.

We recognize that different types of investment funds have different access to beneficial owner information (for example, mutual funds are more likely to have beneficial owner information than exchange-traded funds) and that the procedures in National Instrument 54-101 may not be efficient for every investment fund. We intend the provisions in Part 5 of the Instrument to provide investment funds with flexibility to communicate directly with the beneficial owners of their securities. If an investment fund has the necessary information to communicate directly with one or more beneficial owners of its securities, it can do so, even though it may need to rely on National Instrument 54-101 to communicate with other beneficial owners of its securities.


National Instrument 81-106 Investment Fund Continuous Disclosure
Part 10 Proxy Voting Disclosure for Portfolio Securities Held
Section 10.2

Requirement to Establish Policies and Procedures

(1) An investment fund must establish policies and procedures that it will follow to determine whether, and how, to vote on any matter for which the investment fund receives, in its capacity as securityholder, proxy materials for a meeting of securityholders of an issuer.

(2) The policies and procedures referred to in subsection (1) must include

(a) a standing policy for dealing with routine matters on which the investment fund may vote;

(b) the circumstances under which the investment fund will deviate from the standing policy for routine matters;

(c) the policies under which, and the procedures by which, the investment fund will determine how to vote or refrain from voting on non-routine matters; and

(d) procedures to ensure that portfolio securities held by the investment fund are voted in accordance with the instructions of the investment fund.

(3) An investment fund that has not prepared an annual information form in accordance with Part 9 or in accordance with National Instrument 81-101 Mutual Fund Prospectus Disclosure must include a summary of the policies and procedures required by this section in its prospectus.


Companion Policy to NI 81-106 Investment Fund Continuous Disclosure
Part 2 Financial Statements
Section 2.5.1

Disclosure of Investment Portfolio

(1) The term “statement of investment portfolio” is used to describe the disclosure required by section 3.5 of the Instrument. As this term is not used in the Handbook, preparers may refer to it as a “schedule of investment portfolio” within a complete set of investment fund financial statements. Regardless of how the disclosure is described, sections 2.1 and 2.3 of the Instrument require it to be included within a complete set of investment fund financial statements, and subsection 2.1(2) of the Instrument requires annual financial statements to be accompanied by an auditor’s report, for the purposes of securities legislation.

If financial statements for more than one investment fund are bound together, Part 7 of the Instrument requires all of the information pertaining to each investment fund to be presented together and not intermingled with information relating to another investment fund. The CSA is of the view that this requirement applies equally to the portfolio disclosure, which should be presented together with the other financial information relating to the investment fund.

(2) If an investment fund invests substantially all of its assets directly, or indirectly through the use of derivatives, in securities of one other investment fund, the investment fund should provide in the statement of investment portfolio, or the notes to that statement, additional disclosure concerning the holdings of the other investment fund, as available, in order to assist investors in understanding the actual portfolio to which the investment fund is exposed. The CSA is of the view that such disclosure is consistent with the requirements in the Handbook relating to financial instrument disclosure.


Form 81-106F1 Contents of Annual and Interim Management Report of Fund Performance
Part B Content Requirements for Annual Management Report of Fund Performance
Item 5

Summary of Investment Portfolio

(1) Include, under the heading “Summary of Investment Portfolio”, a summary of the investment fund’s portfolio as at the end of the financial year of the investment fund to which the annual MRFP pertains.

(2) The summary of investment portfolio

(a) must break down the entire portfolio of the investment fund into appropriate subgroups, and must show the percentage of the aggregate net asset value of the investment fund constituted by each subgroup;

(b) must disclose the top 25 positions held by the investment fund, each expressed as a percentage of net asset value of the investment fund;

(c) must disclose long positions separately from short positions; and

(d) must disclose separately the total percentage of net asset value represented by the long positions and by the short positions.

(3) Indicate that the summary of investment portfolio may change due to ongoing portfolio transactions of the investment fund and a quarterly update is available.

INSTRUCTIONS:

(1) The summary of investment portfolio is designed to give the reader an easily accessible snapshot of the portfolio of the investment fund as at the end of the financial year for which the annual MRFP pertains. As with the other components of the annual MRFP, care should be taken to ensure that the information in the summary of investment portfolio is presented in an easily accessible and understandable way.

(2) The Canadian securities regulatory authorities have not prescribed the names of the categories into which the portfolio should be broken down. An investment fund should use the most appropriate categories given the nature of the fund. If appropriate, an investment fund may use more than one breakdown, for instance showing the portfolio of the investment fund broken down according to security type, industry, geographical locations, etc.

(3) Instead of a table, the disclosure required by (2)(a) of this Item may be presented in the form of a pie chart.

(4) If the investment fund owns more than one class of securities of an issuer, those classes should be aggregated for the purposes of this Item, however, debt and equity securities of an issuer must not be aggregated.

(5) Portfolio assets other than securities should be aggregated if they have substantially similar investment risks and profiles. For instance, gold certificates should be aggregated, even if they are issued by different financial institutions.

(6) Treat cash and cash equivalents as one separate discrete category.

(7) In determining its holdings for purposes of the disclosure required by this Item, an investment fund should, for each long position in a derivative that is held by the investment fund for purposes other than hedging and for each index participation unit held by the investment fund, consider that it holds directly the underlying interest of that derivative or its proportionate share of the securities held by the issuer of the index participation unit.

(8) If an investment fund invests substantially all of its assets directly or indirectly (through the use of derivatives) in securities of one other fund, list only the 25 largest holdings of the other investment fund by percentage of net asset value of the other investment fund, as disclosed by the other investment fund as at the most recent quarter end.

(9) If the investment fund invests in other investment funds, include a statement to the effect that the prospectus and other information about the underlying investment funds are available on the internet at www.sedar.com.

(10) A labour sponsored or venture capital fund must disclose its top 25 positions, but is not required to express any of its venture investments as a percentage of the fund’s net asset value if it complies with the conditions in Part 8 of the Instrument to be exempt from disclosing the individual current values of venture investments in its statement of investment portfolio.


Companion Policy to NI 81-102 Investment Funds
Part 4 Use of Specified Derivatives
Section 4.3

Leveraging

(1) The investment restrictions in the Instrument are in part intended to prevent the use of specified derivatives for the purpose of leveraging the assets of a mutual fund. The definition of “hedging” prohibits leveraging with respect to specified derivatives used for hedging purposes. The provisions of subsection 2.8(1) of the Instrument restrict leveraging with respect specified derivatives used for non-hedging purposes.

(2) Alternative mutual funds however, are exempted from section 2.8 and are instead subject to the restrictions on the use of leverage set out in section 2.9.1 of the instrument, which limit exposure to certain sources of leverage to no more than 300% of alternative mutual fund’s net asset value. The calculation in section 2.9.1 requires an investment fund to determine the notional amount of its specified derivatives positions. While the Instrument does not define notional amount, in this context we would expect it to be determined in regards to the value of the underlying reference asset, as if the specified derivative position were converted into the equivalent position in the underlying reference asset at the time of the calculation.


National Instrument 81-102 Investment Funds
Appendix B-1

Audit Report

TO: [The appropriate securities regulatory authorities]

RE: Compliance Report on National Instrument 81-102 For the year ended [insert date]

We have audited [name of mutual fund]’s report made under section 12.1 of National Instrument 81-102 regarding its compliance for the year ended [insert date] with the applicable requirements of Parts 9, 10 and 11 of that National Instrument.

Compliance with these requirements is the responsibility of the management of [name of mutual fund] (the “Fund”). Our responsibility is to express an opinion on management’s compliance report based on our audit.

We conducted our audit in accordance with standards for assurance engagements set out in the CICA Handbook – Assurance. Those standards require that we plan and perform an audit to obtain reasonable assurance as a basis for our opinion. Such an audit includes examining, on a test basis, evidence supporting the assertions in management’s compliance report.

In our opinion, the Fund’s statement of compliance for the year ended [insert date] complies, in all material respects, with the applicable requirements of Parts 9, 10 and 11 of National Instrument 81-102.

This report is provided solely for the purpose of assisting the securities regulatory authority [ies] to which it is addressed in discharging its [their] responsibilities and should not be used for any other purpose.

City

Date

Chartered Accountants


National Instrument 81-102 Investment Funds
Part 15 Sales Communications and Prohibited Representations
Section 15.13

Prohibited Representations

(1) Securities issued by an unincorporated investment fund must be described by a term that is not and does not include the word “shares”.

(2) A communication by an investment fund or asset allocation service, its promoter, manager, portfolio adviser, principal distributor, participating dealer or a person providing services to the investment fund or asset allocation service must not describe the investment fund as an alternative mutual fund or as a vehicle for investors to participate in the speculative trading of, or leveraged investment in, derivatives, unless the investment fund is an alternative mutual fund.


National Instrument 52-112 Non-GAAP and Other Financial Measures Disclosure
Part 1 Definitions and Application
Section 4

Application – exceptions

(1) Despite sections 2 and 3, this Instrument does not apply to the following:

(a) an investment fund as defined in National Instrument 81-106 Investment Fund Continuous Disclosure;

(b) a designated foreign issuer, or an SEC foreign issuer, as defined in National Instrument 52-107 Acceptable Accounting Principles and Auditing Standards;

(c) an issuer in respect of disclosure required under any of the following:

(i) National Instrument 43-101 Standards of Disclosure for Mineral Projects;

(ii) section 5.4 of Form 51-102F2 Annual Information Form;

(iii) National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities, other than section 5.14 of that Instrument;

(d) an issuer in respect of disclosure in any of the following:

(i) a report prepared by a person or company other than the issuer or entity that is the subject of the specified financial measure;

(ii) a transcript of an oral statement;

(iii) pro forma financial statements required to be filed under securities legislation;

(iv) a filing required under section 12.1 or 12.2 of National Instrument 51-102 Continuous Disclosure Obligations or subparagraphs 9.1(1)(a)(ii) and 9.2(a)(ii) and section 9.3 of National Instrument 41-101 General Prospectus Requirements;

(e) an issuer in respect of disclosure of a specified financial measure that is required under law, or by an SRO of which the issuer is a member, if

(i) the law or the SRO’s requirement specifies the composition of the measure and the measure was determined in compliance with that law or requirement, and

(ii) in proximity to the measure, the issuer discloses the law or the SRO’s requirement under which the measure is disclosed;

(f) an issuer in respect of disclosure of a specified financial measure if the calculation of the specified financial measure is derived from a financial covenant in a written agreement;

(g) an issuer that is a registered firm in respect of disclosure of a specified financial measure if

(i) the document in which the disclosure is made is intended to be, or is reasonably likely to be, made available to a client or a prospective client of the registered firm, and

(ii) the measure does not relate to the registered firm’s financial performance, financial position or cash flow.

(2) Despite sections 2 and 3, this Instrument does not apply to disclosure required under Form 51-102F6 Statement of Executive Compensation and Form 51-102F6V Statement of Executive Compensation – Venture Issuers, except for the information required under paragraph 6(1)(b), clause 6(1)(e)(ii)(C), paragraph 9(c) and clause 10(1)(b)(ii)(C) of this Instrument.


Extension of Certain Filing, Delivery and Prospectus Renewal Requirements of Investment Funds with Deadlines during the period from June 2 to September 30, 2020

The Ontario Securities Commission (“OSC”), considering that to do so would not be prejudicial to the public interest, orders that effective on May 20, 2020, Ontario Instrument 81-505 entitled “Extension of Certain Filing, Delivery and Prospectus Renewal Requirements of Investment Funds with Deadlines during the period from June 2 to September 30, 2020” is made such that:

i. certain filing and delivery obligations of investment funds under securities legislation, where the obligations are required to be met during the period from June 2, 2020 to September 30, 2020, are extended for a period of 60 days, and

ii. certain investment funds distributing securities under a prospectus with a lapse date during the period from June 2, 2020 to September 30, 2020, have the lapse date extended for a period of 60 days.

The order does not provide a further extension of any deadline previously extended under Ontario Instrument 81-503 Extension of Certain Filing, Delivery and Prospectus Renewal Requirements of Investment Funds dated March 23, 2020.

May 20, 2020

Grant Vingoe, Acting Chair

Timothy Moseley, Vice-Chair

Authority under which the order is made:
Act and section: Securities Act, subsection 143.11(2)

Ontario Securities Commission

Ontario Instrument 81-505

Extension of Certain Filing, Delivery and Prospectus Renewal Requirements of Investment Funds with Deadlines during the period from June 2 to September 30, 2020

Definitions

  1. Terms defined in the Securities Act (Ontario) (“OSA”), Multilateral Instrument 11-102 Passport System (“MI 11-102”), National Instrument 14-101 Definitions, National Instrument 41-101 General Prospectus Requirements (“NI 41-101”), National Instrument 81-102 Investment Funds (“NI 81-102”) National Instrument 81-106 Investment Fund Continuous Disclosure (“NI 81-106”) and National Instrument 81-107 Independent Review Committee for Investment Funds (“NI 81-107”) have the same meaning as in this order.

    Exemptive Relief

  2. As a result of the coronavirus disease 2019 (“COVID-19”) outbreak, which was declared a pandemic by the World Health Organization on March 11, 2020 and has led to a “Declaration of Emergency” under the Emergency Management and Civil Protection Act by the Lieutenant Governor of Ontario on March 17, 2020, the Ontario Securities Commission (the “Commission” or “OSC”) acknowledges that this pandemic may present challenges for market participants in the meeting of certain obligations under Ontario securities law.

  3. Specifically, the outbreak of COVID-19 may present challenges to an investment fund’s ability to meet the filing and delivery requirements (the “Filing and Delivery Requirements”) under Ontario securities law listed in Exhibit A and the prospectus renewal requirements (the “Prospectus Renewal Requirements”) under Ontario securities law listed in Exhibit B.

  4. Under subsection 143.11(2) of the OSA if the Commission considers that it would not be prejudicial to the public interest to do so, the Commission may, on application by an interested person or company or on its own initiative, make an order exempting a class of persons or companies, trades, intended trades, securities or derivatives from any requirement of Ontario securities law on such terms or conditions as may be set out in the order, effective for a period of no longer than 18 months after the day on which it comes into force unless extended pursuant to paragraph (b) of subsection 143.11(3) of the OSA.

Order

  1. Consequently, this order provides for the temporary exemptions listed below.

  2. Any investment fund required to make a filing and/or delivery in accordance with the Filing and Delivery Requirements during the period from June 2, 2020 to September 30, 2020 has an additional 60 days from the deadline otherwise applicable under Ontario securities law to make the filing or to send or deliver the document, subject to the terms and conditions listed below.

  3. Any investment fund distributing securities under a prospectus with a lapse date that occurs during the period from June 2, 2020 to September 30, 2020 may add an additional 60 days to that lapse date in fulfilling the Prospectus Renewal Requirements, subject to the terms and conditions listed below.

  4. This order does not provide a further extension of any deadline previously extended under Ontario Instrument 81-503 Extension of Certain Filing, Delivery and Prospectus Renewal Requirements of Investment Funds dated March 23, 2020.

Terms and conditions

  1. Any investment fund relying on this order must, as soon as reasonably practicable and in advance of its filing or delivery deadline, notify the Director of the Investment Funds and Structured Products Branch by email at IFSPDirector@osc.gov.on.ca stating that the investment fund is relying on this order and each applicable requirement for which it is relying on this order.

  2. An investment fund relying on this order must, as soon as reasonably practicable and in advance of its filing or delivery deadline, post a statement on its public website, or the public website of its investment fund manager, stating that the investment fund is relying on this order and each applicable requirement for which it is relying on this order.

  3. Reference made in a notice pursuant to section 9 of this order, or a public website statement pursuant to section 10 of this order, to an equivalent exemption granted by a securities regulatory authority or regulator in another jurisdiction of Canada that is the investment fund’s principal regulator, as defined in MI 11-102, will be deemed to constitute a reference to the relevant exemption in this order.

  4. This order will come into effect on May 20, 2020 and expires on November 30, 2020.

Exhibit A – Filing and Delivery Requirements

(a) section 14.6(3) of NI 41-101 and section 6.7(3) of 81-102, which require a custodian to deliver to the securities regulatory authority, custodian compliance reports within 30 days after the filing of the annual financial statements of an investment fund,

(b) section 12.1 of NI 81-102, which requires a mutual fund, other than an exchange-traded mutual fund that is not in continuous distribution, that does not have a principal distributor, to complete and file a compliance report, within 140 days after the financial year end of the mutual fund,

(c) section 2.2 of NI 81-106, which requires that annual financial statements and an auditor’s report be filed on or before the 90th day after the investment fund’s most recently completed financial year,

(d) section 2.4 of NI 81-106, which requires that interim financial statements be filed on or before the 60th day after the end of the most recent interim period of the investment fund,

(e) section 2.11 of NI 81-106, which requires a mutual fund that is not a reporting issuer to provide notice to the regulator of reliance on the section 2.11 exemption to file its financial statements,

(f) section 4.2 of NI 81-106, which requires an investment fund, other than an investment fund that is a scholarship plan, to file an annual management report of fund performance for each financial year and an interim management report of fund performance for each interim period at the same time that it files its annual financial statements or its interim financial statements for that financial period,

(g) section 4.3 of NI 81-106, which requires a scholarship plan to file an annual management report of fund performance at the same time as it files its annual financial statements,

(h) section 5.1(2) of NI 81-106, which requires an investment fund to deliver to a securityholder its annual financial statements, interim financial statements, and the related management report on fund performance concurrently with the filing deadline set out in Part 2 of NI 81-106,

(i) section 5.2(5) of NI 81-106, which requires an investment fund acting in accordance with section 5.2 of NI 81-106, to send annually to each securityholder a request form that they may use to instruct the investment fund as to which of the documents the securityholder wishes to receive,

(j) section 5.3(3) of NI 81-106, which requires an investment fund to send annually to each securityholder a request form the securityholder may use to instruct the investment fund as to which document listed in subsection 5.1(2) of NI 81-106 the securityholder wishes to receive,

(k) section 5.4 of NI 81-106, which requires an investment fund to send a copy of the document listed in subsection 5.1(2) of NI 81-106 requested by securityholder by the later of the filing deadline of the requested document and ten calendar days after the request,

(l) section 8.2(c) of NI 81-106, which requires a labour sponsored or venture capital fund to concurrently file, where applicable, an independent valuation with the filing of its annual financial statements,

(m) section 9.3 of NI 81-106, which requires an investment fund to file an annual information form on or before 90 days after the most recently completed financial year, and

(n) section 4.4 of NI 81-107, which requires an independent review committee to prepare, for each financial year of an investment fund and no later than the date the investment fund files its annual financial statements, a report to securityholders of the investment fund that describes the independent review committee and its activities for the financial year.

Exhibit B – Prospectus Renewal Requirements

Section 62 of the OSA which requires an investment fund to file and obtain a receipt for a new prospectus, in accordance with certain timelines, in order to continue distribution of the investment fund’s securities for a further 12 months after the lapse date.


National Instrument 81-107 Independent Review Committee for Investment Funds
Part 3 Independent review committee
Section 3.15

Orientation and continuing education

(1) The manager and independent review committee must provide orientation consisting of educational or informational programs that enable a new independent review committee member to understand

(a) the role of the independent review committee and its members collectively; and

(b) the role of the individual member.

(2) The manager may provide a member of the independent review committee with educational or informational programs, as the manager considers useful or necessary, that enable the member to understand the nature and operation of the manager’s and investment fund’s businesses.

(3) The independent review committee may reasonably supplement the educational and informational programs provided to its members under this section.

Commentary

1. The CSA expect members of the IRC to regularly participate in educational or informational programs that may be useful to the members in understanding and fulfilling their duties.

Section 3.15 sets out only the minimum educational programs that a manager and IRC are expected to provide for members of the IRC. Educational activities could include presentations, seminars or discussion groups conducted by:

    • personnel of the investment fund or manager,
    • outside experts,
    • industry groups,
    • representatives of the investment fund’s various service providers, and
    • educational organizations and institutions.

  1. The CSA expect a discussion of a member’s role referred to in paragraph (1)(b) to include a reference to the commitment of time and energy that is expected from the member.

Companion Policy to NI 81-102 Investment Funds
Part 16 Exemptions and Approvals
Section 16.3

Waivers and Orders concerning “Fund of Funds”

(1) The Canadian securities regulatory authorities in a number of jurisdictions have provided waivers and orders from NP39 and securities legislation to permit “fund of funds” to exist and carry on investment activities not otherwise permitted by NP39 or securities legislation. Some of those waivers and orders contained “sunset” provisions that provided that they expired when legislation or a policy or rule of the Canadian securities regulatory authorities came into force that effectively provided for a new “fund of funds” regime. For greater certainty, the Canadian securities regulatory authorities note that the coming into force of the Instrument will not trigger the “sunset” of those waivers and orders.

(2) For greater certainty, note that the coming into force of the Instrument did not trigger the “sunset” of those waivers and orders. However, the coming into force of section 19.3of the instrument will effectively cause those waivers and orders to expire one year after its coming into force.


National Instrument 81-106 Investment Fund Continuous Disclosure
Part 2 Financial Statements
Section 2.9

Change in Year End

(1) This section applies to an investment fund that is a reporting issuer.

(2) Section 4.8 of National Instrument 51-102 applies to an investment fund that changes its financial year end, except that

(a) a reference to “interim period” must be read as “interim period” as defined in this Instrument;

(b) a requirement under National Instrument 51-102 to include specified financial statements must be read as a requirement to include the financial statements required under this Part; and

(c) a reference to “filing deadline” in subsection 4.8(2) of National Instrument 51-102 must be read as a reference to the filing deadlines provided for under section 2.2 and 2.4 of this Instrument.

(3) Despite section 2.4, an investment fund is not required to file an interim financial report for any period in a transition year if the transition year is less than nine months in length.

(4) Despite paragraphs 4.8(7)(a) and (b) and (8)(a) and (b) of National Instrument 51-102,

(a) for an interim financial report for an interim period in the transition year, the investment fund must include as comparative information

(i) a statement of financial position as at the end of its old financial year; and

(ii) a statement of comprehensive income, a statement of changes in financial position, and a statement of cash flows, for the interim period of the old financial year;

(b) for an interim financial report for an interim period in a new financial year, the investment fund must include as comparative information

(i) a statement of financial position as at the end of the transition year; and

(ii) a statement of comprehensive income, a statement of changes in financial position, and a statement of cash flows, for the period that is one year earlier than the interim period in the new financial year.


Companion Policy to NI 81-102 Investment Funds
Part 6 Securityholder Matters
Section 6.2

Limited Liability

(1) Investment funds generally are structured in a manner that ensures that investors are not exposed to the risk of loss of an amount more than their original investment. This is a very important and essential attribute of investment funds.

(2) Investment funds that are structured as corporations do not raise pressing liability problems because of the limited liability regime of corporate statutes.

(3) Investment funds that are structured as limited partnerships may raise some concerns about the loss of limited liability if limited partners participate in the management or control of the partnership. The Canadian securities regulatory authorities encourage managers of investment funds that are structured as limited partnerships to consider this issue in connection with the holding of meetings of securityholders, even if required under subsection 5.1(1) of the Instrument. In addition, in the view of the Canadian securities regulatory authorities, all managers of investment funds that are structured as limited partnerships should include a discussion of this issue as a risk factor in prospectuses.


National Instrument 81-102 Investment Funds
Part 2 Investments
Section 2.9.1

Aggregate Exposure to Borrowing, Short Selling and Specified Derivatives

(1) An alternative mutual fund or non-redeemable investment fund’s aggregate exposure to cash borrowing, short selling and specified derivatives transactions must not exceed 300% of the fund’s net asset value.

(2) For the purposes of subsection (1), an alternative mutual fund or non-redeemable investment fund’s aggregate exposure is the sum of the following:

(a) the aggregate value of the alternative mutual fund’s or non-redeemable investment fund’s outstanding indebtedness under any borrowing agreements to which subsection 2.6(2) applies;

(b) the aggregate market value of all securities sold short by the alternative mutual fund or non-redeemable investment fund as permitted by section 2.6.1;

(c) the aggregate notional amount of the alternative mutual fund’s or non-redeemable investment fund’s specified derivatives positions, minus the aggregate notional amount of the specified derivative positions that are hedging transactions.

(3) For the purposes of this section, the alternative mutual fund or non-redeemable investment fund must include in its calculation its proportionate share of the assets of any underlying investment fund for which a similar calculation is required.

(4) An alternative mutual fund or non-redeemable investment fund must determine its aggregate exposure in accordance with subsection (2) as of the close of business of each day on which it calculates a net asset value.

(5) If the alternative mutual fund’s or non-redeemable investment fund’s aggregate exposure as determined in accordance with subsection (2) exceeds 300% of its net asset value, the alternative mutual fund or non-redeemable investment fund must, as quickly as is commercially reasonable, take all necessary steps to reduce the aggregate exposure to 300% of its net asset value or less.


National Instrument 81-107 Independent Review Committee for Investment Funds
Part 4 Functions of independent review committee
Section 4.4

Reporting to securityholders

(1) An independent review committee must prepare, for each financial year of the investment fund and no later than the date the investment fund files its annual financial statements, a report to securityholders of the investment fund that describes the independent review committee and its activities for the financial year and includes

(a) the name of each member of the independent review committee at the date of the report, with

(i) the member’s length of service on the independent review committee;

(ii) the name of any other fund family on whose independent review committee the member serves; and

(iii) if applicable, a description of any relationship that may cause a reasonable person to question the member’s independence and the basis upon which the independent review committee determined that the member is independent;

(b) the percentage of securities of each class or series of voting or equity securities beneficially owned, directly or indirectly, in aggregate, by all the members of the independent review committee of the investment fund

(i) in the investment fund if the aggregate level of ownership exceeds 10 percent;

(ii) in the manager; or

(iii) in any person or company that provides services to the investment fund or the manager;

(c) the identity of the Chair of the independent review committee;

(d) any changes in the composition or membership of the independent review committee during the period;

(e) the aggregate compensation paid to the independent review committee and any indemnities paid to members of the independent review committee by the investment fund during the period;

(f) a description of the process and criteria used by the independent review committee to determine the appropriate level of compensation of its members and any instance when, in setting the compensation and expenses of its members, the independent review committee did not follow the recommendation of the manager, including

(i) a summary of the manager’s recommendation; and

(ii) the independent review committee’s reasons for not following the recommendation;

(g) if known, a description of each instance when the manager acted in a conflict of interest matter referred to the independent review committee for which the independent review committee did not give a positive recommendation, including

(i) a summary of the recommendation; and

(ii) if known, the manager’s reasons for proceeding without following the recommendation of the independent review committee and the result of proceeding;

(h) if known, a description of each instance when the manager acted in a conflict of interest matter but did not meet a condition imposed by the independent review committee in its recommendation or approval, including

(i) the nature of the condition;

(ii) if known, the manager’s reasons for not meeting the condition; and

(iii) whether the independent review committee is of the view that the manager has taken, or proposes to take, appropriate action to deal with the matter; and

(i) a brief summary of any recommendations and approvals the manager relied upon during the period.

(2) The report required under subsection (1) must as soon as practicable

(a) be sent by the investment fund, without charge, to a securityholder of the investment fund, upon the securityholder’s request;

(b) be made available and prominently displayed by the manager on the investment fund’s, investment fund family’s or manager’s website, if it has a website;

(c) be filed by the investment fund with the securities regulatory authority or regulator; and (d) be delivered by the independent review committee to the manager.

Commentary

1. The report to be filed with the securities regulatory authorities should be filed on the SEDAR group profile number of the investment fund as a continuous disclosure document. The CSA expect that the investment fund will pay any reasonable costs associated with the filing of the report.

2. It is expected the report will be displayed in an easily visible location on the home page of the website of the investment fund, the investment fund family or the manager, as applicable. The CSA expect the report to remain on the website at least until the posting of the next report.

3. The disclosure required in subparagraph (1)(a)(iii) is expected to be provided only in instances where a member could reasonably be perceived to not be ‘independent’ under this Instrument.


Exemptive Relief Orders

Form 41-101F2 Information Required in an Investment Fund Prospectus
General Instructions

General Instruction (8)

Where the term “investment fund” is used, it may be necessary, in order to meet the requirement for full, true and plain disclosure of all material facts, to also include disclosure with respect to the investment fund’s investees. If it is more likely than not that a person or company will become an investee, it may be necessary to also include disclosure with respect to the person or company. For this purpose, investees include entities that are consolidated, proportionately consolidated, or accounted for using the equity method.


National Instrument 81-106 Investment Fund Continuous Disclosure
Part 3 Financial Disclosure Requirements
Section 3.11

Scholarship Plans

(1) In addition to the requirements of this Part, an investment fund that is a scholarship plan must disclose, as of the end of its most recently completed financial year, a separate statement or schedule to the financial statements that provides

(a) a summary of education savings plans and units outstanding by year of eligibility, including

(i) disclosure of the number of units by year of eligibility for the opening units, units purchased, units forfeited and the ending units,

(ii) disclosure of the principal amounts and the accumulated income per year of eligibility, and their total balances, and

(iii) a reconciliation of the total balances of the principal amounts and the accumulated income in the statement or schedule to the statement of financial position of the scholarship plan;

(b) the total number of units outstanding; and

(c) a statement of scholarship awards paid to beneficiaries, and a reconciliation of the amount of scholarship awards paid with the statement of comprehensive income.

(2) Despite sections 3.1 and 3.2, an investment fund that is a scholarship plan may omit the “total equity per security or net assets attributable to securityholders per security” and “increase or decrease in total equity from operations per security, or in net assets attributable to securityholders from operations, excluding distributions, per security” line items from its financial statements.


National Instrument 81-102 Investment Funds
Part 15 Sales Communications and Prohibited Representations
Section 15.4

Required Disclosure and Warnings in Sales Communications

(1) A written sales communication must

(a) bear the name of the dealer that distributed the sales communication; and

(b) if the sales communication is not an advertisement, contain the date of first publication of the sales communication.

(2) A sales communication that includes a rate of return or a mathematical table illustrating the potential effect of a compound rate of return must contain a statement in substantially the following words:

“[The rate of return or mathematical table shown] is used only to illustrate the effects of the compound growth rate and is not intended to reflect future values of [the investment fund or asset allocation service] or returns on investment [in the investment fund or from the use of the asset allocation service].”.

(3) A sales communication, other than a report to securityholders, of a mutual fund that is not a money market fund and that does not contain performance data must contain a warning in substantially the following words:

“Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.”.

(3.1) A sales communication, other than a report to securityholders, of a non-redeemable investment fund that does not contain performance data must contain a warning in substantially the following words:

[If the securities of the non-redeemable investment fund are listed or quoted on an exchange or other market, state the following:]

“You will usually pay brokerage fees to your dealer if you purchase or sell [units or shares] of the investment fund on [state the exchange or other market on which the securities of the investment fund are listed or quoted]. If the [units or shares] are purchased or sold on [state the exchange or other market], investors may pay more than the current net asset value when buying [units or shares] of the investment fund and may receive less than the current net asset value when selling them.”

[State the following in all cases:]

“There are ongoing fees and expenses associated with owning [units or shares] of an investment fund. An investment fund must prepare disclosure documents that contain key information about the fund. You can find more detailed information about the fund in these documents. Investment funds are not guaranteed, their values change frequently and past performance may not be repeated.”.

(4) A sales communication, other than a report to securityholders, of a money market fund that does not contain performance data must contain a warning in substantially the following words:

“Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual fund securities are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer. There can be no assurances that the fund will be able to maintain its net asset value per security at a constant amount or that the full amount of your investment in the fund will be returned to you. Past performance may not be repeated.”.

(5) A sales communication for an asset allocation service that does not contain performance data must contain a warning in substantially the following words:

“Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments and the use of an asset allocation service. Please read the prospectus of the mutual funds in which investment may be made under the asset allocation service before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.”.

(6) A sales communication, other than a report to securityholders, of a mutual fund that is not a money market fund and that contains performance data must contain a warning in substantially the following words:

“Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. The indicated rate[s] of return is [are] the historical annual compounded total return[s] including changes in [share or unit] value and reinvestment of all [dividends or distributions] and does [do] not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.”.

(6.1) A sales communication, other than a report to securityholders, of a non-redeemable investment fund that contains performance data must contain a warning in substantially the following words:

[If the securities of the non-redeemable investment fund are listed or quoted on an exchange or other market, state the following:]

“You will usually pay brokerage fees to your dealer if you purchase or sell [units or shares] of the investment fund on [state the exchange or other market on which the securities of the investment fund are listed or quoted]. If the [units or shares] are purchased or sold on [state the exchange or other market], investors may pay more than the current net asset value when buying [units or shares] of the investment fund and may receive less than the current net asset value when selling them.”

[State the following in all cases:]

“There are ongoing fees and expenses associated with owning [units or shares] of an investment fund. An investment fund must prepare disclosure documents that contain key information about the fund. You can find more detailed information about the fund in these documents. The indicated rate[s] of return is [are] the historical annual compounded total return[s] including changes in [share or unit] value and reinvestment of all [dividends or distributions] and does [do] not take into account

[state the following, as applicable:]

[certain fees such as redemption fees or optional charges or]

income taxes payable by any securityholder that would have reduced returns. Investment funds are not guaranteed, their values change frequently and past performance may not be repeated.”.

(7) A sales communication, other than a report to securityholders, of a money market fund that contains performance data must contain

(a) a warning in substantially the following words:

“Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. The performance data provided assumes reinvestment of distributions only and does not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns. Mutual fund securities are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer. There can be no assurances that the fund will be able to maintain its net asset value per security at a constant amount or that the full amount of your investment in the fund will be returned to you. Past performance may not be repeated.”; and

(b) a statement in substantially the following words, immediately following the performance data:

“This is an annualized historical yield based on the seven day period ended on [date] [annualized in the case of effective yield by compounding the seven day return] and does not represent an actual one year return.”.

(8) A sales communication for an asset allocation service that contains performance data must contain a warning in substantially the following words:

“Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments and the use of an asset allocation service. Please read the prospectus of the mutual funds in which investment may be made under the asset allocation service before investing. The indicated rate[s] of return is [are] the historical annual compounded total return[s] assuming the investment strategy recommended by the asset allocation service is used and after deduction of the fees and charges in respect of the service. The return[s] is [are] based on the historical annual compounded total returns of the participating funds including changes in [share] [unit] value and reinvestment of all [dividends or distributions] and does [do] not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder in respect of a participating fund that would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.”.

(9) A sales communication distributed after the issue of a receipt for a preliminary prospectus of the mutual fund described in the sales communication but before the issue of a receipt for its prospectus must contain a warning in substantially the following words:

“A preliminary prospectus relating to the fund has been filed with certain Canadian securities commissions or similar authorities. You cannot buy [units] [shares] of the fund until the relevant securities commissions or similar authorities issue receipts for the prospectus of the fund.”.

(10) A sales communication for an investment fund or asset allocation service that purports to arrange a guarantee or insurance in order to protect all or some of the principal amount of an investment in the investment fund or asset allocation service must

(a) identify the person or company providing the guarantee or insurance;

(b) provide the material terms of the guarantee or insurance, including the maturity date of the guarantee or insurance;

(c) if applicable, state that the guarantee or insurance does not apply to the amount of any redemptions before the maturity date of the guarantee or before the death of the securityholder and that redemptions before that date would be based on the net asset value per security of the investment fund at the time; and

(d) modify any other disclosure required by this section appropriately.

(11) The warnings referred to in this section must be communicated in a manner that a reasonable person would consider clear and easily understood at the same time as, and through the medium by which, the related sales communication is communicated.