BMO Global Asset Management has today released its annual ESG Profile and Impact Reports for the BMO Global Responsible Equity and BMO Responsible Global Emerging Markets Equity strategies. Never more so than now have healthcare challenges been so apparent, and in this year’s reports BMO GAM provides further insights into investments addressing the rising demand and alleviating supply challenges of healthcare globally.
Across both Strategies, BMO GAM uses the UN Sustainable Development Goals (SDGs) as a framework to map impact, analysing how the sources of revenue for each investee company correspond to the 169 targets that underlie the UN SDGs.
While the Strategies seek to address the SDGs across the board, the analysis highlights an ongoing focus on SDG 3 – Good Health and Wellbeing, as well as investments supporting SDG 11 – Sustainable Cities and Communities, as the portfolios seek to support a long-term, sustainable recovery in the post-pandemic world.
Investing to support Sustainable Cities and Healthcare
SDG 3 has a significant weight in both Strategies, with holdings in several healthcare and pharmaceutical companies supporting the advancement of health and wellbeing, including goal 3.8 which sets an ambition of affordable healthcare for all. Holdings in the Responsible Global Equity Strategy include Thermo Fisher Scientific Inc., who provide essential diagnostics and treatment equipment, and CVS Health, which provides access to healthcare through its retail pharmacy stores and clinics.
Climate change is an ever-present challenge, and features across SDGs 6, 7, 11 and 13. Taking SDG 11 as an example, holdings in the Responsible Global Equity Strategy include Autodesk and Schneider Electric addressing sustainability within real estate, a sector which from construction to use contributes around 30% of global greenhouse gas emissions. Meanwhile the Responsible Global Emerging Markets Equity Strategy includes holdings such as China Resources Gas, which plays an important role in the energy transition in China, with a far lower environmental and social impact than coal, which remains China’s largest source of energy generation.
“The events of the last year have accelerated a broader understanding of just how unsustainable many aspects of modern life had become across developed and emerging markets – from the under investment in public health and disease prevention systems, to the growing social inequalities that the past few decades of economic growth have papered over. We believe there is a clear role to play for private capital in addressing such inconsistencies, through the responsible allocation of capital to those companies addressing or providing solutions that support the SDGs. We will continue to use the SDGs as a framework to ensure we are playing our part in the responsible allocation of capital to meet those goals.”Alice Evans, Managing Director, Co-Head of Responsible Investment at BMO GAM
The reports outline the full scope of impact achieved through each strategy, with highlights detailed below.
BMO Global Responsible Equity Strategy
In 2020, BMO GAM engaged with 33 companies in the Responsible Global Equity strategy, representing 65% of the strategy by value, with the aim of improving their management of ESG issues.
The Strategy saw 21 milestones achieved – instances of positive change following engagement – ranging across all environmental, social and governance (ESG) pillars. BMO GAM noted significant improvements in disclosure and reporting on ESG and climate change at many of the companies held. BMO GAM also called on companies to align their business strategies with the transition to net-zero global emissions by 2050.
Other highlights include:
- Opposed management on around 20% of resolutions – including opposing almost 50% of remuneration votes, due to concerns including poor alignment with company performance, excessive payouts and poor disclosure.
- Labour standards were an important focus for engagement in 2020. As well as continuing previous engagement on topics including modern slavery and living wages, BMO GAM also sought to address how companies were protecting their workforce during the COVID-19 pandemic.
- Reduced carbon intensity – The Responsible Global Equity strategy remains well below its benchmark in terms of portfolio-weighted carbon intensity. This measure of climate risk exposure has decreased 35% since BMO GAM started publishing data in 2015. 36% of companies in the strategy have committed to set targets in line with the Paris climate agreement through the Science-Based Targets Initiative (SBTI). Of these, eight have set approved targets, with six assessed as being compliant with a 1.5-degree global temperature pathway, including Accenture, CVS Health, Mastercard, Microsoft, SAP and Schneider Electric.
“Our Responsible Global Equity strategy, which is now well into its third decade, strives to play its part in mobilising private capital towards securing a more sustainable future for all. We are committed to our task. It is entirely valid to explore what kind of impact can be achieved by investing in listed equities, and our experience leaves us more convinced than ever that it is possible to deliver on our twin ambitions of generating attractive risk-adjusted investment returns and achieving positive non-financial impact.”Nick Henderson, Portfolio Manager of the BMO Responsible Global Equity Strategy
BMO Responsible Global Emerging Markets Equity Strategy
BMO GAM engaged with 31 companies in the Responsible Global Emerging Markets Equity strategy over the course of 2020, representing 87% of the portfolio by value. It voted at 64 out of 65 company meetings – voting against management on 13.4% of all resolutions, with capital issuances and director elections the issues of most frequent concern.
Engagement highlights include:
- 32% of engagement focused on corporate governance issues. This focused on addressing board composition and effectiveness to ensure effective oversight of companies’ material sustainability risks, opportunities and impacts and the way these are managed.
- 20% of engagement focused on labour standards. This centred on companies’ actions to minimise business disruptions during the pandemic and maintain good employee relations by protecting the physical health and safety of their workers and giving balanced attention to their mental and financial wellbeing.
The Responsible Global Emerging Markets Equity strategy also remains well below its benchmark in terms of portfolio-weighted carbon intensity, as a result of stringent screening processes as well as the much lower active weight in traditionally high carbon-emitting sectors, such as materials, energy and utilities.
“The heightened vulnerability of emerging markets to climate change requires companies to develop strategic responses to manage potential regulatory and physical impacts as well as meet evolving societal expectations. Our climate-related engagement has focused on emissions management and on management of climate risks in supply chains, to encourage companies to better account for overall climate risk.”Gokce Bulut, Lead Portfolio Manager for the Responsible Global Emerging Markets Equity Strategy
You can download a copy of the ESG Profile and Impact Report 2021 for the BMO Responsible Global Equity Strategy here and the BMO Responsible Global Emerging Markets Equities strategy here. A library of all impact reports can be found here.