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s the world tries to 'build back better' after the pandemic, investors, asset managers and regulators are renewing their focus on responsible investing.
But the global sustainability challenges are increasingly urgent and demand a response that is authentic, effective and well targeted in terms of addressing the key social and environmental issues.
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In this Spotlight, Claudia Wearmouth, Co-Head, and Vicki Bakhshi, Director, of BMO’s Responsible Investment team – one of the industry’s largest and longest established – describe how they are prioritising engagement in areas such as net zero target setting, coal financing, social justice and antimicrobial resistance, as well as how they are designing deeper, more forward-looking analyses of companies’ sustainability.
“Economic turmoil and social upheaval have put the sustainability challenge at the heart of the global agenda”
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Capital is at risk and investors may not get back the amount originally invested. The funds mentioned are either sub funds of BMO Investment Funds (UK) ICVC, BMO Investment Funds (UK) ICVC V, both open ended investment companies (OEIC), registered in the UK and authorised by the Financial Conduct Authority (FCA); or BMO Investments (Lux) I Fund, a société d'investissement à capital variable (SICAV), registered in Luxembourg and authorised by the Commission de Surveillance du Secteur Financier (CSSF). English language copies of the Funds' Prospectus and English language copies of the key investor information document (KIID) can be obtained from BMO Global Asset Management, Exchange House, Primrose Street, London EC2A 2NY, telephone: Client Services on 0044 (0)20 7011 4444, email: client. service@bmogam.com or electronically at www.bmogam.com. Please read the Prospectus before taking any investment decision. The information provided in the marketing material does not constitute, and should not be construed as, investment advice or a recommendation to buy, sell or otherwise transact in the Funds. ©2021 BMO Global Asset Management. BMO Global Asset Management is a registered trading name for various affiliated entities of BMO Global Asset Management (EMEA) that provide investment management services, institutional client services and securities products. Financial promotions are issued for marketing and information purposes; in the United Kingdom by BMO Asset Management Limited, which is authorised and regulated by the Financial Conduct Authority; in the EU by BMO Asset Management Netherlands B.V., which is regulated by the Dutch Authority for the Financial Markets (AFM); and in Switzerland by BMO Global Asset Management (Swiss) GmbH, acting as representative office of BMO Asset Management Limited. These entities are all wholly owned subsidiaries of Columbia Threadneedle Investments UK International Limited, whose direct parent is Ameriprise Inc., a company incorporated in the United States. They were formerly part of BMO Financial Group and are currently using the “BMO” mark under licence.
They are joined by Jamie Jenkins, Co-Head of Global Equities, who explains how BMO’s investment teams benefit from working with the Responsible Investment team – and describes the sustainability megatrends that inform his thinking.
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Capital is at risk and investors may not get back the amount originally invested. The funds mentioned are either sub funds of BMO Investment Funds (UK) ICVC, BMO Investment Funds (UK) ICVC V, both open ended investment companies (OEIC), registered in the UK and authorised by the Financial Conduct Authority (FCA); or BMO Investments (Lux) I Fund, a société d'investissement à capital variable (SICAV), registered in Luxembourg and authorised by the Commission de Surveillance du Secteur Financier (CSSF). English language copies of the Funds' Prospectus and English language copies of the key investor information document (KIID) can be obtained from BMO Global Asset Management, Exchange House, Primrose Street, London EC2A 2NY, telephone: Client Services on 0044 (0)20 7011 4444, email: client. service@bmogam.com or electronically at www.bmogam.com. Please read the Prospectus before taking any investment decision. The information provided in the marketing material does not constitute, and should not be construed as, investment advice or a recommendation to buy, sell or otherwise transact in the Funds. ©2021 BMO Global Asset Management. Financial promotions are issued for marketing and information purposes; in the United Kingdom by BMO Asset Management Limited, which is authorised and regulated by the Financial Conduct Authority. Telephone calls may be recorded.
s the world tries to 'build back better' after the pandemic, investors, asset managers and regulators are renewing their
focus on responsible investing. But the global sustainability challenges are increasingly urgent and demand a response that is authentic, effective and well targeted in terms of addressing the key social and environmental issues.
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“There’s also now a push factor from regulation, especially in Europe and the UK,” says Vicki Bakhshi, Director, Responsible Investment team, “and increasing acceptance that Environmental, Social and Governance (ESG) factors can have a financially material impact on both investment risk and investment opportunity.”
agenda,” says Claudia Wearmouth, Co-Head, Responsible Investment team, “and investors are taking a key role in driving this forward.”
ver the last year, the pandemic has helped transform the role of responsible investing from supporting actor to full-blown superstar. “Economic turmoil and social upheaval have put the sustainability challenge at the heart of the global
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“What we really want to know is whether companies are on an upward or downward ESG trajectory”
BMO’s Claudia Wearmouth and Vicki Bakhshi on how to move the dial on the world’s most urgent challenges
“We were one of the founder members of the Net Zero Asset Managers' initiative, which now has commitments from investors with $37 trillion in assets under management. I'm co-chairing the implementation working group for the net zero investment framework. Targeting net zero greenhouse gas emissions by 2050 or sooner is critical, but there's a lot of scepticism about how the industry is setting out this long-term vision and a real risk of ‘net zero washing’. So, we’re working with other investors to pin down that net zero methodology and to make sure commitments are meaningful and really bite.”
Net zero washing – Time to clean up?
However, investing must evolve even faster if it is to meet the scale of the challenges facing the world. BMO’s commitment to responsible investing – it launched one of the first retail ethical funds in Europe in 1984 and has an over-20 strong Responsible Investment team – means Claudia, Vicki and their team are keen to find the most effective ways to support real change.
One challenge is picking the right battles. “In the summer of each year we gather ideas from the team, our clients, our engagement service and our Responsible Investment Advisory Council (RIAC) – an external panel of sustainability experts – about what our engagement and policy priorities should be for the coming year,” says Vicki. “RIAC is continually scanning the horizon for issues,” says Claudia, “and we say to clients: You're buying into a responsible investing approach that is continuing to evolve so tell us what you care about and what you think.”
Picking priorities
Not every eye-catching issue can make it onto their priority list. “We need to figure out if we can actually do anything about it,” says Vicki. “For example, what would an engagement project look like? Is it already being done by others, or is this something where we can move the dial?”
(2) Read more about BMO’s involvement in this initiative
Vicki Bakhshi’s view
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For 2021, BMO has chosen to highlight the three themes of net zero emissions and climate change, inequality and social justice, and biodiversity, but the team needed to focus their approach. “For instance, within climate change, this year we picked phasing coal out of global power generation as one of the most urgent issues,” says Vicki. “We've been engaging not just with the developed economy giants, which get lots of investor attention, but with companies in India and China, where engaging is a tougher job but where you can potentially move the dial much more.”
Three themes
“In the banking sector,” she says, “we are now engaging with companies who are financing fossil fuels rather than just those producing them, and we are also working hard on the Net Zero Asset Managers' initiative.” (see box - Net Zero Washing)
The team have been engaging with companies about inequality for years, says Claudia, on issues such as the living wage, gender equality, access to finance and healthcare. So, for 2021 they developed a special focus on social justice including encouraging companies to improve how they manage racial and ethnic diversity. “We’re also doing a lot of work on enhancing human rights processes across industries, especially in the energy sector,” she says.
In addition to their 2021 themes, the team continue to work on issues that are less on the public radar. “For a couple of years now we've been working on antimicrobial resistance (AMR),” says Vicki “which is potentially as big a public health issue as Covid, though for the moment a slow boiling rather than acute emergency.” (see box - AMR as an Engagement Issue)
Mighty microbes
One of the key reasons for picking AMR was that the team felt it was something that companies could do something about but might not be prioritising. “Success often comes from pushing things up the agenda, to senior management and board level, and forcing them to confront it, rather than from telling them something shiny and new about the world that they didn't realise before,” says Vicki.
“But you also want a tangible commitment and a target date – not just warm words. So with something like AMR, we want a policy change, such as phasing out the routine use of antibiotics, and a target year for that to happen,” she says.
“The root cause of antimicrobial resistance (AMR), in which microorganisms evolve to survive the antimicrobial agents available to our health systems, has a lot to do with the food chain: the routine use of antibiotics in livestock and the leakage of antibiotics into the water we drink. The biggest lever we have to hand is that food retailers have a lot of sway over their suppliers. Some companies are doing a good job, for example, by working towards the use of antibiotics only for the treatment of disease, rather than routinely giving them to all the animals. Others are less active. So, a lot of our work is trying to force quicker decisions, shame companies that are lagging their peers, publish research about the issue, and collaborate with the amazing NGOs who are working on this global challenge.”
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(3) Read more about this initiative
AMR as an engagement issue
That kind of close engagement across many key issues helps BMO track how a company’s ESG risks are evolving, says Claudia. “We have toolkits and dashboards so our portfolio managers can see very clearly where different ESG risks are, based on materiality and controversies, and where we have engaged with companies within their portfolio and whether the company has taken on board those recommendations.”
Tracking trajectories
Vicki says the ever-increasing ESG data available from third parties also helps them to flag up issues and increases coverage across BMO’s extensive portfolios. “But as soon as you dig into that data,” she says, “you realise it may be based on a fairly simple methodology and quite limited company disclosures.”
“On climate change, for example, the key top-down numbers – such as the portfolio carbon footprint – are telling you what your companies were emitting roughly a year ago in terms of their direct fossil fuel emissions and electricity use.”
So, on this and other key ESG issues, says Vicki: “We’re trying to move away from simple metrics towards a deeper, more forward-looking analysis. What we really want to know is whether companies are on an upward or downward ESG trajectory.”
Deeper dive
But deeper, forward-looking analyses demand more qualitative judgements, “and they bring in a whole other layer of data because then you've got to look at the company level and potentially bring in data from engagements,” says Vicki, “such as considering whether a given target is properly linked to executive pay.”
That takes expert resources and experience. “It seems that everyone in the investment industry is now saying that they are building a large responsible investing team,” says Claudia, “but we've had a large team for 20 years. Engagement is the cornerstone of our efforts and our long heritage in this makes a massive difference in terms of our experience and our access to companies, even if we don't have a large holding within a company.”
The resources available to the team are no accident, says Claudia. They are there because BMO’s approach to responsible investing is backed up and invested in by senior management. “The approach we developed for years within the Responsible Investment team has started to rocket out across the whole business,” she says.
Holistic heritage
This has brought unexpected benefits – “we're finding graduates want to join us because they know we care about responsible investing,” she says – as well as an increasingly holistic approach. “It isn't just the Responsible Investment team any more,” says Claudia, “instead responsible investing now touches every BMO team from compliance, to legal, to marketing, to client teams – the whole business understands its importance.”
What exactly do responsible investment teams do?
First, we develop thought leadership on specific issues such as biodiversity and drive our responsible investment agenda in terms of public policy, working with regulators, and working with stock exchanges. That’s important because, for example, if you can change the minimum stock exchange listing requirements, you immediately raise the game across a whole market.
Second, our active ownership component includes the engagement and voting that we do for our holdings. We also produce industry sector reports, e.g., on the most material issues facing the pharmaceuticals sector, and give our fund managers example questions they should be asking those companies. It's not just my team doing the engagement: portfolio managers are doing it for themselves. Then there is our external Responsible Engagement Overlay service (reo®), whereby other investors such as pension funds mandate us to engage and vote on their behalf, even though we don't manage their money. That’s a massive endorsement of our active ownership capability.
Third, there is ESG integration, for example, the tools we provide to all our portfolio managers to help enhance their investment process. So every investment team has an ESG component and we help support that for example by running tool kits and monthly seminars, or having joint meetings with our portfolio managers. Here, we work alongside the portfolio managers saying what we think is not good enough, and whether we need to escalate our approach.
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Fourth, we carry out tasks for our dedicated responsible and sustainable funds and solutions, such as screening companies against detailed sets of product and conduct criteria to see if they are investible by the fund. My team works separately from the fund managers when conducting this screening as that's an important way to maintain the integrity of those funds.
Claudia Wearmouth says that BMO’s approach to responsible investment rests on four pillars:
Sources.
(1) Source: netzeroassetmanagers.org
Sophisticated investors, especially pension funds, are already putting more emphasis on detailed reporting of ESG and sustainability metrics and showing more interest in fully sustainable funds over pure ESG integration models, and Anderson expects this trend to grow.
Reporting demand and expectations will increase
Anderson expects ESG data availability in fixed income to improve over time, with stricter standards and definitions being introduced. However, he warns against over-reliance on industry ratings and “badges”, which are in danger of being a simple box-ticking exercise.
ESG data will improve
While the US has traditionally lagged behind Europe in ESG and sustainable investing, Anderson sees this changing and believes the change could be “huge”. A big driver for this has been the election of Joe Biden as US President, who has already signalled his commitment to the ESG agenda by rejoining the Paris Agreement.
ESG investing will take off in the US
The green bond market reported annual growth of 49% in 2019, and Anderson expects this trend to continue as demand for green, sustainable and social bonds grows. However, he highlights that in his view the regulation and monitoring of this space so far has been inadequate, while the low levels of yield these bonds tend to offer often fail to make them an attractive investment at this stage.
Expect to see more green and social bonds
ver the last year, the pandemic has helped transform the role of responsible investing from supporting actor to full-blown
superstar. “Economic turmoil and social upheaval have put the sustainability challenge at the heart of the global agenda,” says Claudia Wearmouth, Co-Head, Responsible Investment team, “and investors are taking a key role in driving this forward.”
One challenge is picking the right battles. “In the summer of each year we gather ideas from the team, our clients, our engagement service and our Responsible Investment Advisory Council (RIAC) – an external panel of sustainability experts – about what our engagement and policy priorities should be for the coming year,” says Vicki. “RIAC is continually scanning the horizon for issues,” says Claudia, and we say to clients: You're buying into a responsible investing approach that is continuing to evolve so tell us what you care about and what you think.”
Not every eye-catching issue can make it onto their priority list. “We need to figure out if can we actually do anything about it,” says Vicki. “For example, what would an engagement project look like? Is it already being done by others, or is this something where we can move the dial?”
In addition to their 2021 themes, the team continue to work on issues that are less on the public radar. “For a couple of years now we've been working on anti-microbial resistance (AMR),” says Vicki “which is potentially as big a public health issue as Covid, though for the moment a slow boiling rather than acute emergency.” (see box - AMR as an Engagement Issue)
“The root cause of antimicrobial resistance (AMR), in which microorganisms evolve to survive the antimicrobial agents available to our health systems, has a lot to do with the food chain: the routine use of antibiotics in livestock and the leakage of antibiotics into the water we drink. The biggest lever we have to hand is that food retailers have a lot of sway over their suppliers.
Some companies are doing a good job, for example, by working towards the use of antibiotics only for the treatment of disease, rather than routinely giving them to all the animals. Others are less active. So, a lot of our work is trying to force quicker decisions, shame companies that are lagging their peers, publish research about the issue, and collaborate with the amazing NGOs who are working on this global challenge.”
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winning ranges for our clients. Our range covers themes and priorities across asset classes and regions, multi-asset solutions and reo®, our Responsible Engagement Overlay service.
t BMO Global Asset Management, we have always believed that responsible investing is just good investing. We launched our first ethically screened fund over 35 years ago. Since then, we have been innovating to create award
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BMO Sustainable Universal MAP range. With OCFs capped at 0.39%, our sustainability-orientated active multi-asset funds are ideal for the growing number of individuals that, alongside meeting their financial goals, want to make a positive impact on the world through their investment decisions.
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Since 1984 we have been innovating award-winning strategies that embrace different investment themes and priorities, covering a range of asset classes and regions, including multi-asset solutions. For every responsible investment fund, we publish an annual impact report which communicates with investors on the progress we are making and measures the impact we have through the companies we invest in and the way we act as investors.
Capital is at risk and investors may not get back the amount originally invested.
A best-ideas portfolio of global equities focused around sustainability-orientated themes. Overlaid with focused active ownership activities, the fund’s ambition is to drive positive impact as well as investment performance.
BMO Responsible Global Equity Fund
Jamie Jenkins
Managing Director and Co-Head of Global Equities
A 30-50 stock portfolio of global equities focused on high quality and attractively valued companies operating within defined sustainability-orientated themes. We’re active owners, engaging with businesses held to drive improvement around ESG related practices.
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Biased towards small and medium sized companies, the fund blends growth and income-orientated opportunities identified through a bottom-up approach, emphasising defined quality characteristics, valuation discipline and long-term thinking.
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At BMO Global Asset Management, we have developed a clear framework to demonstrate the ESG credentials of multiple funds across different asset classes. This allows us to support investors by demonstrating how these funds meet our three-pillar philosophy of Avoid, Invest and Improve.
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Certain industries or securities excluded from the investible universe based on products and services or business conduct
Active ownership activities conducted post investment to drive positive change in the management of ESG issues
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Our Responsible Investment team consists of over 20 members with a collective experience of over 275 years, as well as dedicated fund management teams for each of our strategies. In addition to our internal teams, our Responsible Investment Advisory Council (RIAC) consists of five external sustainability experts who help us maintain the integrity of the standards by which the responsible funds are run, providing advice on ethical and sustainability criteria.
Meet the team
Jamie Jenkins Managing Director, Co-Head of Global Equities
Jamie is Co-Head of the Global Equities team, Lead Portfolio Manager of the BMO Responsible Global Equity Fund and Lead Portfolio Manager of BMO SDG Global Equity Fund. Jamie joined the firm in 2000. Prior to joining the firm, Jamie worked at Hill Samuel Asset Management as a Japanese Equities Fund Manager. He holds an MA in History from the University of Edinburgh, has IMC and IIMR qualifications and is a member of the CFA Society of the UK.
Vicki Bakhshi Director, Responsible Investment
Vicki is a responsible investment specialist at BMO Global Asset Management. Her focus is on advising the firm on climate change and impact investing strategies. She also engages with investee companies in the utilities sector, encouraging best practice in sustainability and governance issues. Prior to working at BMO, she spent five years in the UK government, including as Prime Minister Tony Blair’s policy adviser on climate change.
Claudia Wearmouth Managing Director, Co-Head, Responsible Investment
Claudia is Managing Director and Co-Head of the Responsible Investment team. She joined the firm in 2007 and leads the Responsible Investment team’s ESG research for BMO Global Asset Management’s screened funds, including our Responsible fund range that includes both equity and fixed income investments. In addition, Claudia plays a leading role in managing key reo® client relationships. Claudia previously spent five years at a start-up charity called New Philanthropy Capital.
BMO’s long heritage in responsible and sustainable investing
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(2) As at 31 December 2020.
(1) As at 31 December 2020. Figures subject to rounding.
(3) Milestones recorded in ESG practices as at 31 December 2020.
BMO Global Asset Management’s voting, engagement and public policy work is conducted independently of the wider BMO Financial Group. Positions taken by BMO Global Asset Management may not be representative of the views of the BMO Financial Group as a whole or of the other lines of business within it.
ethically screened fund over 35 years ago. Since then, we have been innovating to create award winning ranges for our clients. Our range covers themes and priorities across asset classes and regions, multi-asset solutions and reo®, our Responsible Engagement Overlay service.
t BMO Global Asset Management, we have always believed that responsible investing is just good investing. We launched our first
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Jamie Jenkins, Co-Head of Global Equities, on whether responsible investing is changing gear following the pandemic
There’s now an even greater appetite to reconsider where we've been going astray as a global society, focus on socio-economic imbalances and ensure a more sustainable future for all. One positive consequence is the accelerated adoption of responsible investing. People are now on board with the idea – long central to our approach – that it is possible to deliver a compelling investment return while also being aware of the non-financial impacts.
What are the key trends emerging in the post-pandemic environment?
But there’s a land grab going on in terms of firms repositioning themselves as responsible investors. Europe – in many ways the global centre of responsible investing – is using new legislation to guard against greenwashing and to push back on the tidal wave of traditional assets recloaking themselves as responsible.
At BMO, we've been investing responsibly for over 35 years, so we have heritage and credibility. Our clients know where we've come from and where we're trying to go to. I think a trio of characteristics sets the market leaders apart from the fast followers: heritage, authenticity of approach and innovation.
Where do you see yourselves in that ‘battle for authenticity’?
Innovation is important because responsible investment is perennially being redefined, for example, in terms of the most important themes. We are redefining it ourselves and we also need to respond to, and sometimes ride out, the industry trends as well.
ESG integration is here to stay. There is an inherent logic for integrating these issues thoughtfully into all fundamental analysis, whatever your asset.
Could ESG integration turn out to be a fad?
I suspect by the end of the decade, a lot of the new labels on products will have dropped away. I might even just be running a plain old global equities fund again.
However, that fund will still be trying to deliver a better risk-adjusted return through ESG integration because we believe it offers a deeper, more granular analysis of the risk and opportunities that confront every company.
“Very early on in the idea generation process we will reach out to one of the Responsible Investment team members, the sector specialist typically, and sense-check our thoughts. If the company is not already acceptable, we will push it into the Responsible Investment team’s ESG screening process. Typically, we’ll set the screening in motion some months ahead of when we might need those ideas, so as not to create a bottleneck. If things continue to look interesting, we begin to work with the analyst on the Responsible Investment team to consider more deeply the company’s ESG risks and opportunities, to see if we've missed anything. We hold research meetings every week and they will come in to provide that different perspective and to answer questions from colleagues. Throughout this process, we're thinking: How might we engage with this company after we’ve invested? How might we improve this business? Are there specific ESG areas to engage around? So the whole process, from idea generation to engagement, really leverages the Responsible Investment team’s judgment, ideas and skills.”
How do BMO’s investment and responsible investment teams work together?
Jamie Jenkin’s perspective
Well, if we take our long-established flagship fund, the BMO Responsible Global Equity Fund, we can tilt, probably with the one exception of energy, to be overweight or underweight in any sector we choose. That allows us to exploit long-term sustainability megatrends and themes.
We’ve set the fund up around seven sustainability themes, including a recent split of the technological innovation theme into two themes of ‘connect and protect’, and ‘digital empowerment’.
ESG as a potential risk mitigant is increasingly well understood but how might ESG help on the opportunities side?
Then we have energy transition, health and well-being, resource efficiency, sustainable cities and sustainable finance. We're looking for businesses that have a transformative impact on addressing some of these major social and environmental themes and challenges.
“We are often asked, can you disaggregate the impact of ESG on a company? The answer is no – it’s all so intrinsically linked”
The benefit of having a responsible mindset is that it plugs you into the long-term sustainability challenges. It leads you to identify the solutions providers: the companies that are tremendously well-positioned over not just years but potentially decades.
Our whole mindset is long term, for example in building strong partnerships with the companies we invest in and through using our engagement-driven active ownership approach to accelerate improvements within their business. To put this in perspective around 60% of the flagship fund’s investee companies have been present for more than five years, and around 30% have been present for more than 10 years.
Doesn’t that oblige you to take a very long-term approach?
A particularly interesting one that you won't always encounter in other responsible and sustainable funds is sustainable finance. Green investors can find this a difficult area to get comfortable about. But our approach is that sensible, plain vanilla financial products are simply essential for a sustainable future – and there are some interesting companies doing super things.
One of our bigger financial holdings is an Indian bank that we think is one of the most digitally focused banks in Southeast Asia. There are around 190m unbanked people within the Indian economy,¹ yet these days if you have a mobile phone, you can have a bank account. So, this is about financial inclusion.
Could you tell us about a specific megatrend that is attracting your capital?
But the scale of unmet demand also offers a potentially huge runway for growth, and the bank’s digital focus could help them surf on the digital wave which the pandemic has just accelerated. Meanwhile, the bank also has a very progressive agenda in terms of promoting women's rights and women's economic participation, which is a chronic issue in India.
That's the way we think about all of our responsible investments. The sustainability narrative is woven into the fabric of each company.
We are often asked, can you disaggregate the impact of ESG on a company? The answer is no – it’s all so intrinsically linked.
So, the scale of the social or environmental problem might itself be an indicator of long-term growth?
We believe there has been bubble formation within a couple of areas. One is technology, which has had a tremendous run. We think now is the time to be highly stock-specific around technology exposure.
Within the green energy and green technology space, there has also been a desire to funnel money into a small selection of names. That led, arguably, to overvaluation which has kept us cautious on that sub-sector, but this also presented us with time to conduct further research into the area, and since the turn of 2021 opportunities are presenting themselves again.
You’re no longer alone in looking for responsible growth – could green bubbles be forming?
On the other hand, the pandemic gave us the opportunity to buy some companies that had previously been a bit expensive for our tastes. When the market sold off in the first quarter of 2020, we pounced on a couple of names we think have long-run potential, including an advanced genomics business.
“Given the UK’s hosting of COP26 – the UN’s major climate change conference – in November 2021, we’re spending a lot of time talking with the Responsible Investment team about climate change and ocean health. That includes the many negative impacts on oceans but also the potential positive impacts from the speed with which oceans can regenerate if you put the right policies in place. For example, mangroves and ocean vegetation can potentially absorb far more carbon than land-based vegetation, which is leading us to explore a bunch of ideas that may, eventually, percolate across our funds.”
Watching for the next wave
Jamie Jenkins on generating new thematic ideas
The BMO Responsible Global Equity Fund has a particularly comprehensive set of screens. We think about that in terms of both product-based screens and conduct-based screens. Each company has to make it through both sets of screens to come into our acceptable universe.
The product-based screens address what I suppose are quite conventional ethical areas such as tobacco and weapons, to name only a couple. The conduct screens are where we assess how the company behaves across various environmental, social and governance issues. On the environmental side that’s things like the environmental management protocols of the business; on the social side, issues like animal welfare, health and safety, human rights, and labour standards; and in governance an assessment of business ethics.
That’s the positive side of responsible investing but I guess the flagship fund also has negative screens?
ESG data has improved vastly over the last 5-10 years but it still needs a lot of interrogation and interpretation. So, the backbone of our proposition in the responsible investing space – and I think this is the aspect that really differentiates us – is our investment teams’ partnership with our over-20 strong team of responsible investing experts.
In the investment team, we consider ourselves to be specialist global ESG managers with a solid appreciation of what's going to be acceptable or unacceptable in our world. But we also draw on the Responsible Investment team’s expertise throughout the investment process, from idea generation to engagement strategy, and work with them closely on a day-to-day basis (see box, above).
Is your assessment of a company driven largely by ESG data or human judgment?
One of the unintended consequences of working remotely and video calling over the last year is that our digital interactions have been excellent and very frequent – it’s made dropping into each other's meetings culturally acceptable in a way that I think will really help us going forward.
(1) World Bank Group, The Global Findex Database 2017, p.35
“An important building block of our approach to responsible investing is to move the needle forward around ESG reporting. About five years ago, we sat back and thought: ‘We are asking our companies to be increasingly transparent, so isn’t it incumbent on us to be more transparent with our investors?’ That led us to develop ESG Profile and Impact reports for the BMO Responsible Global Equity Fund. Impact reports are now part and parcel of many funds, but five years ago they were cutting edge. To produce them we work very closely with the Responsible Investment team. They are not designed to be intimidating documents but to bring responsible investing into the light and offer insights on key themes and case studies. We sense that people want to be more engaged with how their money is working for them, both as investors and as members of society.”
BMO’s Responsible reporting
To produce them we work very closely with the Responsible Investment team. They are not designed to be intimidating documents but to bring responsible investing into the light and offer insights on key themes and case studies. We sense that people want to be more engaged with how their money is working for them, both as investors and as members of society.”
That led us to develop ESG Profile and Impact reports for the BMO Responsible Global Equity Fund. Impact reports are now part and parcel of many funds, but five years ago they were cutting edge.
“An important building block of our approach to responsible investing is to move the needle forward around ESG reporting. About five years ago, we sat back and thought: ‘We are asking our companies to be increasingly transparent, so isn’t it incumbent on us to be more transparent with our investors?’
