Climate Change: BMO Global Asset Management Approach - March 2020 - Responsible Investment Solutions For professional and/or qualified investors only
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Responsible Investment Solutions For professional and/ or qualified investors only Climate Change: BMO Global Asset Management Approach March 2020
1. Governance 4
Contents 2. Strategy 5
3. Risk Management 6
4. Metrics and Targets 8
2 BMO Global Asset ManagementBMO Global Asset Management is the brand name for various affiliated entities of BMO Financial Group
that provide investment management services across Asia, Canada, the U.S. and EMEA.
BMO Global Asset Management (BMO GAM) considers climate in January 2018, and this commitment covers all business
change to be one of the defining issues of our generation, entities, including BMO GAM.
and fully supports the goal of the Paris agreement to keep
the increase in global average temperature to well below BMO FG publicly reports on its environmental and social
2°C above pre-industrial levels, and to pursue efforts to limit performance and targets in its annual Sustainability
the increase to 1.5°C. As a supporter of the United Nations Report and Public Accountability Statement (PAS)1.
Sustainable Development Goals (UN SDGs), we recognise that In 2019 this included a stand-alone Climate Change
tackling climate change is also an essential foundation for Report detailing BMO FG’s approach to climate-
achieving these, particularly SDG Goal 13 on Climate Action. related risks and opportunities in line with the TCFD
recommendations2. BMO FG also reports to the Carbon
We recognise that we can play an important role in supporting Disclosure Project.
the transition to a lower carbon global economy, and that
climate change presents both risks and opportunities that can This statement sets out our approach, based on the
affect our business. BMO Financial Group (BMO FG) – comprising structure recommended by the TCFD. It focuses on BMO
the Bank of Montreal and its subsidiaries – became a supporter GAM’s policies and practices, referencing our parent
of the Task Force on Climate-related Financial Disclosures (TCFD) company where relevant.
1
https://corporate-responsibility.bmo.com/wp-content/uploads/2020/01/BMO-2019-Sustainability-Report-PAS-2.pdf
2
https://corporate-responsibility.bmo.com/wp-content/uploads/2019/12/BMO-2019-Climate-Report-Dec2019.pdf
Climate Change: BMO Global Asset Management Approach 31. Governance
This section explains the governance within BMO FG and BMO BMO FG’s Sustainability Council, established in 2008, is
GAM with regards to climate related risks and opportunities. chaired by BMO’s General Counsel and comprises senior
leaders from business and corporate support areas across
BMO Financial Group the organisation. The Sustainability Council meets quarterly
and acts as a support and advisory body to oversee the
Board-level oversight of sustainability, including climate change,
implementation of BMO FG’s sustainability strategy and
is embedded within the charter of the Audit and Conduct Review
discuss topics including climate change risks, opportunities
Committee (ACRC) of BMO FG’s Board of Directors. The CEO has
and disclosure. A member of BMO GAM’s Responsible
delegated responsibility for climate change to BMO’s General
Investment Team is on the Sustainability Council.
Counsel, a member of the BMO Executive Committee, reporting
directly to the CEO. In 2018, BMO FG developed and delivered
BMO Global Asset Management
online climate change risk and disclosure training for its Board
of Directors, and made it available to all current and new Board Within BMO GAM, responsibility for oversight of the firm’s
members. In 2019, this training was updated and rolled out to the responsible investment strategy lies with the Global
Boards of Directors of all of BMO FG’s subsidiaries, and was also Investment Committee (GIC), the members of which include
provided to the London Risk Management Committee. our Global Chief Investment Officer (CIO), CIO North America
and other senior investment representatives from across BMO
BMO FG has also appointed a Chief Sustainability Officer (CSO), GAM representing our respective regulated entities.
who reports to the Corporate Secretary and General Counsel.
The GIC approves all responsible investment policy
The CSO is responsible for the development and execution of
statements including this TCFD statement.
sustainability strategy, including internal advisory, stakeholder
engagement and disclosure. This mandate includes producing and Our Responsible Investment team includes several experts
publishing BMO FG’s annual Sustainability Report and other related on climate change and climate-related issues. This team
public disclosures, as well as monitoring climate-related issues is responsible for day to day monitoring and expertise on
and developing strategies to manage the risks and opportunities climate issues, which is shared throughout BMO GAM through
associated with climate change across the organisation. formal training and informal dialogue.
4 BMO Global Asset Management2. Strategy
Our corporate purpose is to Boldly Grow the Good in business investments, which include two dedicated mandates for
and life. We believe that profit and progress go hand in hand, institutional investors.
and we seek to pursue our growth opportunities by balancing
• Implementing a comprehensive engagement and
risk and opportunity to create value that is shared with the
proxy voting approach aimed at encouraging investee
world around us.
companies to address climate risks (further detail
below).
BMO GAM has a 35-year history of working on responsible
investment and was a founding signatory of the UN Principles • Supporting public policy statements on climate change,
for Responsible Investment. Stewardship and the identification including the Global Investor Statement to Governments
of financially material environmental, social and governance on Climate Change
(ESG) issues forms an integral part of our investment processes.
• Taking a transparent approach, including the publication
We apply a tailored approach to ESG integration by investment
of portfolio-weighted carbon intensity data for selected
strategy and asset class, to ensure that the additional analysis
fund strategies.
is relevant and meaningful to each investment process. We
also offer specialist responsible investment strategies, where
Scenario Analysis
sustainability considerations or impact investing form a formal
part of the mandate. Assets under management in these funds BMO GAM co-chaired a working group set up by the
are £4.2 bn3. Institutional Investors Group on Climate Change (IIGCC) to
develop investor guidance on scenario analysis; authored
BMO GAM has engaged on the topic of climate change for over the final report ‘Navigating scenario analysis: A guide for
a decade, calling on governments and regulators to put policies institutional investors’4, published in 2018; and has spoken
in place for an orderly transition to a low-carbon economy, at a number of workshops on the topic.
and asking companies to implement strategies to incorporate
climate risk into their business planning. Companies that are BMO GAM team members from our Solutions and
proactive in recognising the transition, and providing solutions, Fiduciary teams are also now co-chairing an investor
should see their business grow as actions are taken to achieve working group on Paris alignment in strategic
the goals of the Paris agreement. asset allocation.
BMO GAM has taken a range of measures to address climate During 2019, BMO GAM’s Responsible Investment team,
risk and provide solutions to clients. These include: Investment Risk Oversight team, Fiduciary and Solutions
teams and Fundamental Equity and Credit teams have
• Integrating ESG factors, including climate change, into the
been working together to consider options to embed
investment analysis process (further detail below).
scenario risk analysis into investment processes. We have
• Offering investment products that allow investors to direct been considering approaches both to stress-test portfolios
capital towards climate solutions and/or avoid carbon- from a top-down perspective, alongside more sector-
intensive investments. These include the Responsible Funds specific and company-specific scenario methodologies for
range, which have screens applied including the exclusion of teams conducting fundamental company analysis.
all companies with fossil fuel reserves; Climate Opportunity
Partners private equity fund, which is entirely invested Work is ongoing and we hope to be able to disclose more
in clean tech and green infrastructure; and green bond information on outcomes in 2020.
3
As at 31 September 2019
4
https://www.iigcc.org/resource/navigating-climate-scenario-analysis-a-guide-for-institutional-investors/
Climate Change: BMO Global Asset Management Approach 53. Risk Management
This section describes how BMO GAM assesses and mitigates Our climate change engagement programme objectives and
climate-related risks. activities are set out in ‘Climate Change Engagement: A framework
for the future’7. In this document we set out the trajectory we
ESG Integration expect companies to follow, starting with basic awareness of
the issue, through active emissions management, to a strategic
BMO GAM has built an ESG Risk Tool, which is available to fund
approach, and ultimately alignment with the Paris climate goals.
managers invested in relevant asset classes (listed equities and
Please refer to the next page for details on this. These objectives
credit). This tool takes MSCI ESG data as its starting point but
are closely aligned with other initiatives including the Climate
significantly re-calibrates it to better reflect the views of RI team
Action 100+ initiative and Transition Pathway Initiative.
sector experts on which issues are most material across different
sectors. Selected higher-risk companies are identified by our
Our Engagement Framework also sets out some sector-specific
fund managers and analysed individually by members of the
recommendations in key industries such as oil & gas, utilities
Responsible Investment team, and allocated in-house ESG scores
and transportation. For instance, we are calling on electric utility
which override the default scores.
companies to phase out unabated coal-fired power by 2030 for
developed countries, and 2050 for developing countries.
The risk tool provides an estimate of companies’ carbon intensity
versus sector peers, and flags those that are significantly over
Since the Paris Agreement was adopted on 12 December
the sector average.
2015, we have conducted 1,075 engagement activities with
629 companies on climate change. Tracking the results of our
This data is combined with proprietary information, including our
engagement, we have identified 236 milestones or instances
engagement and voting, to produce quarterly portfolio-specific
of change following engagement.
reports for fund managers. These reports include a carbon
footprint analysis, which provides an overall portfolio-weighted
We have used both one-to-one and collaborative approaches,
carbon intensity. The reports also provide details on the
with the Climate Action 100+ initiative being a core part of
contribution of sector and stock selection factors to the footprint,
our approach. BMO GAM has been an active participant in
and indicate the companies with the highest carbon intensity
Climate Action 100+ since the start, acting as co-lead in six
versus peers. These reports can then be used by fund managers
company engagements, and participating in engagements
to identify potentially high-risk companies for deeper analysis.
with a further 17 companies in different sectors and regions.
Fund managers within other asset classes also incorporate
However, there are many important companies and sectors
material climate risks and opportunities using methodologies
that are not part of this initiative, so our direct engagement
tailored to each asset class.
remains important. For instance, in 2019, we engaged banks
in Southeast Asia on their climate-related lending policies and
Some investment teams also seek opportunities to invest in
initiated a dialogue with the marine transportation sector.
companies that can contribute to solutions, either as part of
the low-carbon energy transition or in addressing the physical
Climate change and wider ESG issues are also considered
impacts of climate change. Examples in our fundamental equity
when we make decisions on proxy voting. Our Corporate
strategies have included water solutions companies, electric
Governance Guidelines set out our expectations on board-
vehicle suppliers and renewable energy developers. In fixed
level governance on climate risk, including our view that
income we have significant green bonds investments, both
boards should to be able to articulate how remuneration
as a component part of wider strategies and as stand-alone
structures and lobbying activities support their declared
specialist mandates.
climate strategies. We have generally taken a supportive
stance on shareholder resolutions calling for stronger strategy
Investor Engagement
and disclosure on climate change. In addition, our Guidelines
Our engagement programme covers our global BMO GAM listed also state that where companies in high-impact sectors fail
equity and fixed income assets5, and is also made available to to provide investment-relevant climate disclosure, we may
third-party clients through the Responsible Engagement Overlay vote against management resolutions, such as the report and
(reo®) service, with assets under advice of £165bn6. accounts or election of directors.
5
Some exceptions apply including Pyrford which runs its own ESG engagement programme
6
As at 31 December 2019
7
https://www.bmogam.com/gb-en/institutional/wp-content/uploads/2019/10/climate-change_esg-viewpoint.pdf
6 BMO Global Asset ManagementFigure 1: Our engagement expectations
Basic awareness Active emissions Strategic approach Alignment
management
Integration of climate
change risks and
Recognition of issue opportunities into
Actions to reduce business strategy Alignment with Paris
Measurement and emissions agreement
disclosure of emissions Consideration of supply
chain and products and
services
Recognise the materiality Set emissions targets Develop strategy at Board Set Paris-aligned science-
of climate risk in public level based targets across the
Take steps to cut emissions;
reporting value chain
monitor and report outcomes Align climate performance
Measure and report Scope 1 with executive pay Demonstrate how business
and 2 emissions strategy is Paris-aligned,
Analyse and disclose risks
for instance via capital
in line with TCFD, including
expenditure, asset mix and
scenario analysis
R&D
Assess resilience to physical
climate risks
Include product and supply
chain (Scope 3) emissions in
strategy and reporting
Identify opportunities
Join progressive industry
groups; avoid negative
lobbying
TCFD = Task Force on Climate-related Financial Disclosures
Climate Change: BMO Global Asset Management Approach 74. Metrics and Targets As stated above, BMO Global Asset Management produces internal carbon footprint reports for a number of its funds in both equity and fixed income. We have so far disclosed this within impact reports for our Responsible Global Equity, Responsible Emerging Market Equity and Responsible Euro Bond funds, and plan to roll out disclosure across a larger number of funds in future. Our operational emissions are disclosed for BMO Financial Group as a whole in our annual reporting and our CDP response. Since 2010, BMO Financial Group has maintained a carbon-neutral status, based on a three-pronged strategy of promoting energy efficiency and limiting emissions; purchasing energy from renewable sources; and purchasing high-quality offsets. BMO Financial Group has a goal of achieving a 15% reduction in absolute greenhouse gas emissions by 2021 relative to a fiscal 2016 baseline and is investigating setting science-based reduction targets in the future. 8 BMO Global Asset Management
Contact us
Institutional business:
+44 (0)20 7011 4444
institutional.enquiries@bmogam.com
bmogam.com
Telephone calls may be recorded.
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