Here’s an overview of a recent enforcement action filed by the Ontario Securities Commission:

• Purpose Investments Inc. (Purpose) is a registered investment fund manager based in Toronto, Ontario. During the period September 2019 to March 2023 (the Material Time), Purpose made sales communications which falsely stated or suggested that: (a) Purpose considered ESG factors when making investment decisions for most or all of the investment funds it managed; (b) Purpose embedded ESG principles across its entire investment process; (c) in making investment decisions, Purpose applied ESG data effectively and in a nuanced way across the full range of industry sectors; and (d) Purpose embedded ESG factors at the foundation of how it built products or invested, and ESG was a core, key, fundamental and/or meaningful consideration for all of the funds managed by Purpose.

• In reality, Purpose did not consider ESG in making investment decisions for many of the funds it managed. Purpose did not implement any formal policy and did not have documented procedures relating to the consideration of ESG by its portfolio management team for funds managed by Purpose; instead, consideration of ESG at Purpose during the Material Time was ad hoc. Until at least the fall of 2020, there were also significant gaps in the amount and quality of ESG data accessible by Purpose personnel. Prior to April 2022, prospectuses filed by Purpose for its investment funds generally did not refer to ESG as a part of the investment objectives or investment strategies of those funds.

The OSC lists seventeen different classes of order that it seeks from the capital markets tribunal (maybe that’s a tad too long a list for maximum punchiness) including that Purpose and its Chair/CEO have their registration or recognition under Ontario securities law be suspended or restricted or made conditional for a specified period, or outright terminated; that they resign any positions held as officer or director and/or be prohibited from taking on new ones; and that they pay an administrative penalty of “not more than $5 million for each failure to comply with Ontario securities law.” The Globe and Mail provided the following:

• …in an interview, (founder Som Seif) dismissed the allegations as “nonsense.”
• “This has nothing to do with an enforcement matter,” he said. “It is a political matter. They are trying to find a greenwashing case to go after and they are targeting Purpose.”
• “We aren’t going to settle and agree to things we didn’t do,” Mr. Seif said. “You settle when you’re guilty of something.”
• In 2019, Purpose became one of Canada’s first large money managers to start incorporating ESG factors into its investment decisions. At the time, Mr. Seif said Purpose was taking a different approach from traditional ESG funds that screen out certain companies for not meeting certain ethical or environmental standards.
• Purpose, Mr. Seif said, could still invest in anything it felt would generate a good return, even if that meant a particular fund would receive a lower ESG score.
• “ESG was a factor that we considered in our investment processes, but just like pension plans and investment managers everywhere, we can still own Suncor or coal companies if that is the right investment for the client,” he said.
• “Our ambition was a corporate philosophy that ESG was something we had the vision to start to incorporate into our investment strategies, but we were never articulating or communicating that we were an ESG company.”
• The OSC is trying to argue that Purpose was not doing ESG “and I think that is not correct,” he said.
• Mr. Seif said the OSC took the unusual step of naming him personally in its enforcement action in order to force a settlement.
• “Corporations settle all the time because they are either guilty of something or they want it to get past them, and my view was this is too important and I need to say this is not an acceptable behaviour,” he said. “If I settle that, I am creating a precedent for the industry that is awful for everybody else.”
• “I am, frankly, so disappointed in the OSC,” Mr. Seif said.

It’s an intriguing case, seemingly turning in part on the extent and nature of evidence required to support a claim to be “considering” something; that is, whether it’s reasonable to make such a claim even if (it seems) there’s not too much sign of such consideration in the documented process or the end result. I suppose that in everyday language, if I assert that I considered (say) the teachings of Confucius in writing this post, it’s hard for someone to assert that I didn’t, if I can at least vaguely attest to what those teachings comprise. If on the other hand it can be credibly demonstrated (as it could be) that I don’t know the first thing about Confucius, then even such a generalized claim might be hard to sustain, and my motives for making it inherently suspect. One hopes the evidentiary standards in the world of securities law are a bit more rigorous than in that example, and yet the lines might be frustratingly hard to draw…

The opinions expressed are solely those of the author.