Ontario regulator’s ESG action chills Canadian innovation, says Purpose’s Som Seif

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Photo by Peter J. Thompson /Financial PostSom Seif, the finance entrepreneur at the centre of a high-profile enforcement case by Canada’s top securities watchdog, said the decision to go after him and his firm is putting a chill on innovation in the country.THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLYSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.SUBSCRIBE TO UNLOCK MORE ARTICLESSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.REGISTER / SIGN IN TO UNLOCK MORE ARTICLESCreate an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.THIS ARTICLE IS FREE TO READ REGISTER TO UNLOCK.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountLast year, the Ontario Securities Commission alleged that Toronto-based Purpose Investments Inc. made false or misleading statements about its use of environmental, social and governance factors in investment decisions. The regulator says the firm, which manages $33 billion, marketed and sold some funds as ESG-friendly when they were not.This advertisement has not loaded yet, but your article continues below.The commission is also pursuing Seif, Purpose’s founder and chief executive, saying he failed to stop the claims. At the extreme end of penalties, Seif could be banned from being a senior executive in Ontario’s investment industry.Canada's best source for investing news, analysis and insight.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Investor will soon be in your inbox.We encountered an issue signing you up. Please try againSo on Friday, Seif did something unusual — making closing arguments in his own defence rather than relying solely on his lawyers, and trying to frame the case against him as one that may cause greater economic harm.Both Seif and his company have argued that they were taking an innovative approach to ESG before specific regulatory guidelines were put in place.“When leadership is judged years later by the standards that did not exist at the time, it sends a powerful and negative message. To innovators, it says, ‘Wait.’ To leaders, it says, ‘Don’t be too ambitious,’” Seif said as part of an eight-minute statement Friday, the hearing’s final day.Tim Moseley, who chaired the panel of the Capital Markets Tribunal, the body that’s hearing the case, called Seif’s decision to make his own closing argument “unprecedented.”The proceedings come at a moment when Canada is pushing to attract more international capital. Prime Minister Mark Carney invited the heads of many of the world’s top investment firms and banks to Toronto last week for the Canada Investment Summit. He’s changing the corporate tax system and adopting faster regulatory reviews, with the aim of luring investors into projects that can create a wealthier and more innovative economy.This advertisement has not loaded yet, but your article continues below.For its part, the OSC has stated throughout the proceedings that the case is mainly about one thing — improper marketing from a fund manager that inflated its ESG claims to appeal to retail investors who care about equality and the environment.Less than 35 per cent of Purpose’s assets in 2019 fell into the ESG category, the OSC alleges, despite the company saying it was 75 per cent.“It is really just a classic case of false and misleading advertising,” Alvin Qian, a lawyer for the OSC, said earlier in tribunal hearings that stretched 20 days of testimony over five months and included thousands of files.The proceedings were at times contentious, with a particularly testy exchange between Seif and Qian taking place in July as to whether a former Purpose employee correctly understood the definition of ESG.But there were also moments of levity, such as when the parties commiserated about the weak air conditioning and joked about starting a crowdfunding campaign to install new furniture in the hearing room. At another point, Seif said two concepts were “diabolically” instead of “diametrically” opposed. When his lawyer brought it up the next day, Seif quipped that he’d spent the night worrying about his mistake.This advertisement has not loaded yet.This advertisement has not loaded yet, but your article continues below.ESG relevanceThe OSC has taken pains to state that its case is not about greenwashing or ESG.“Ultimately, this is a case about investor protection,” Qian said Friday in his closing arguments, noting that investors may have seen the ESG claims as bringing value and improving their returns. The OSC’s filings did not allege any investor losses.The proceedings are wrapping up at a time when financial regulators and investors worldwide are pulling back on ESG efforts. The trend was accelerated by last year’s return to power of U.S. President Donald Trump, who vocally supports fossil-fuel-intensive industries and is opposed to diversity and inclusion initiatives.Resource-extractive industries are also enjoying a resurgence in Canada, as Carney strips back barriers to oil and gas and mining development.Seif seemed to point to this dynamic in his statement on Friday when arguing that the OSC’s resources would have been better spent elsewhere.“For all Canadians,” he said, the case “tests their confidence that their regulator is focused on the priorities that matter most.”The Capital Markets Tribunal will announce its decision in the coming months.This advertisement has not loaded yet.Notice for the Postmedia NetworkThis website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more about cookies here. By continuing to use our site, you agree to our Terms of Use and Privacy Policy.