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CA-EN Advisors

10 Compelling Takeaways From Our Responsible Investment 2022 Annual Report

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1. Investor Demand and Policy Development Signal Strong Growth Prospects for Responsible Investment

In 2022, investors and regulators laid the foundation for future sustainability policy development. Here are some of the environmental, social, and governance (ESG) initiatives and regulatory changes that made history during that time.

January

The Canadian Securities Administrators (CSA) issues a Staff Notice to provide guidance on investment funds’ ESG disclosures.

March

The U.S. Securities and Exchange Commission (SEC) proposes a new rule that requires large U.S. companies to disclose “material” Scope 3 emissions, including audited Scope 1 and 2 emissions disclosures.

June

Global scrutiny of human rights prompts the development of draft modern slavery legislation in Canada.

July

The United Nations General Assembly votes to declare the ability to live in “a clean, healthy and sustainable environment” a human right for alli.

August

The U.S. Inflation Reduction Act of 2022 (IRA) is signed into law, marking the most significant legislation on climate action in U.S. history and initiating several directives to advance the development of the global clean energy industry.

December

Two delegates from our Responsible Investment team attend the UN Biodiversity Conference (COP15) in Montreal, Canada, where the landmark Kunming-Montreal Global Biodiversity Framework was adopted.

Read the full report

Download the pdf file to read our full Responsible Investment 2022 Annual Report

Building Momentum in the RI Sphere

Interest in Responsible investment is growing.

 

ESG Assets Under Management (AUM) Worldwide, 2018-2025 ($ trillions)

ESG assets under management

Global AUM for ESG products has continued its impressive growth trajectory, with assets valued at $41 trillion in 2022 and expected to rise to $50 trillion in 2025ii.

Canada Sustainable Fund Flows ($ billions)

Canada Sustainable Fund Flows

Globally, investment flowing into RI funds held up better than the broader market, and in Canada, remained positive throughout 2022iii.

2. Amplifying Engagement Across Canada and Abroad

We increased our engagement efforts from 1,300 activities in 2021 to 1,938 in 2022.

 

This encompasses engagement conducted by both the Responsible Investment team at BMO GAM and the Responsible Engagement Overlay (reo®), a pooled engagement service with global reach. Together, we can amplify our impact on behalf of our clients.

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1,938

engagement activities

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848

companies engaged

282

milestones achievediv

Engagements

Environmental, Social, and Governance

3. Making Our Vote Count Toward Real-World Change

We strive to be as transparent as possible, which is why public details of all our voting activity, including the rationale for votes against management, are available on our Mutual Funds Proxy Voting Dashboard and Exchange Traded Funds Proxy Voting Dashboard.

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65,688

items voted
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22%

of items voted against management

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6,441

company meetings voted

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60%

of shareholder proposals supported

Making Progress on Board Diversity

In 2022, we withheld our support for 108 chairs of nominating committees for lack of board diversity (gender and/or ethnicity) in Canada. However, we were able to support over half of the 55 boards we withheld support from in 2021 because of improvements in board diversity.

 

Case Study: In May 2022, Northland Power announced that it amended its diversity policy to include a 2024 target for the recruitment and appointment of a board director who identifies as a member of one or more designated groups, including Indigenous peoples, persons with disabilities, persons belonging to visible minorities and members of the lesbian, gay, bisexual, transgender, queer or questioning and two-spirit (LGBTQ2S+) community. We had previously engaged with the company during the 2022 proxy voting season to discuss our expectations regarding diversity beyond gender.

4. Shaping National and Global Policy

In 2022, we saw a significant amount of regulatory and standards development that could influence companies and their investors for decades to come.

Through policy advocacy, we provide our investor perspective on proposed regulatory developments and industry standards to move the needle on sustainability practices across sectors and jurisdictions.

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CSA Climate-related Disclosures

We submitted a BMO GAM comment letter to the CSA’s proposals on mandating climate-related disclosures for corporate issuers, encouraging stronger alignment with the Task Force on Climate-related Financial Disclosures (TCFD) pillars and international standards.

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U.S. Department of Labor (DOL) Final Rule on Prudence and Loyalty

We wrote to the U.S. DOL to express concerns about its Employee Retirement Income Security Act (ERISA) proposal. In late 2022, the DOL recognized that the exercise of voting and other shareholder rights connected to shares of stock are, in fact, fiduciary acts.

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International Financial Reporting Standards (IFRS) Sustainability and Climate Disclosures

We promoted a double materiality approach in the development of International Sustainability Standards Board (ISSB) standards to align with disclosure information investors need to advance sustainability versus only managing financial risks related to ESG issues.

5. Leaving Our Mark on the Industry

We believe, collaborating with other investors through joint initiatives, industry associations or collaborative engagements is key to accelerating positive change.

4

new initiatives joined

16

initiatives in total

31%

engagements done in collaboration

6. Taking Home the RIA Leadership Award for Stewardship

2022 RIA Leadership Award for Stewardship

BMO GAM was proud to be the Responsible Investment Association (RIA)’s 2022 Stewardship winner, being recognized for our comprehensive approach to advancing the energy transition in Canada.

7. Making Strides in Climate Action

We consider the evaluation of climate risks to be an essential component of investor due diligence and our responsible investing strategy. This commitment is manifested through our Climate Action Approach.

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998

climate action-focused engagements

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538

companies engaged on climate action

111

climate action-related milestones achieved

As a founding signatory to the Net Zero Asset Managers (NZAM) initiative, BMO GAM has committed to working with our investee companies to achieve net-zero emissions across all our AUM by 2050 or sooner.

 

In 2022, a portion of our funds were managed in line with the attainment of net zero. This proportion of assets, totalling 11.7% of our total AUM and valued at US$12.5B (as of June 30, 2022), was selected from our actively managed equity and fixed income portfolios that could be assessed through the Paris Aligned Investor Initiative’s Net Zero Investment Framework methodology.

Read the full report

Download the pdf file to read our full Responsible Investment 2022 Annual Report

8. Gaining Ground on Social Equality Issues

We formulated and published our Social Equality Approach to outline how we view growing social inequality as a systemic risk that will jeopardize long-term value creation.

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734

social equality-focused engagements

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364

companies engaged on social equality

33

social equality-related milestones achieved

Respect and Protect: The State of Corporate Human Rights Due Diligence in Canada
Engaging with Indigenous Thought Leaders

9. Building Our Library of ESG Knowledge

Over 2022, our thought leaders published 17 pieces aiming to share BMO GAM’s approach, research and insights with clients and the broader RI industry—at the same time, informing and prioritizing our work internally. Here is a selection of our thought leadership from the year.

10. Turning Our Depth of ESG Expertise into Real Solutions

We have a dedicated range of BMO ESG ETFs and actively managed responsible investment branded funds designed for investors who wish to set the bar even higher for responsible investment.

BMO MSCI ACWI Paris Aligned Climate Equity Index ETF (ZGRN)

BMO Clean Energy Index ETF (Ticker: ZCLN)

BMO Balanced ESG ETF (Ticker: ZESG)

BMO Sustainable Opportunities Canadian Equity Fund

BMO Sustainable Bond Fund

BMO Sustainable Portfolios

Here’s What Our Investment Teams Were Up to in 2022

Our investment teams consider material ESG and other factors in their decision-making for relevant mandates, supported by our RI team’s research, data curation and tools. Click on the tabs below to see specific examples of our diverse methods at work.

[i] Correia, Joel E. “The UN Just Declared a New Human Right.” The World Economic Forum, 9 Aug. 2022, https://www.weforum.org/agenda/2022/08/the-un-just-declared-a-universal-human-right-to-a-healthy-sustainable-environment-here-s-where-resolutions-like-this-can-lead/.

[ii] Bloomberg as cited in company blog, January 24, 2022.

[iii] “Global Sustainable Fund Flows: Q4 2022 in Review European investors show continued appetite for ESG products despite headwinds, while U.S. investors retreat.” Morningstar, 26 Jan. 2023, www.morningstar.com/lp/global-esg-flows.

[iv] A milestone is considered when a company makes tangible improvements in its policies and practices that align with our voting and engagement activities.

Disclosure

This report is for information purposes. The information contained herein is not, and should not be construed as, investment, tax or legal advice to any party. Particular investments and/or trading strategies should be evaluated relative to the individual’s investment objectives and professional advice should be obtained with respect to any circumstance.

 

Any statement that necessarily depends on future events may be a forward-looking statement. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Although such statements are based on assumptions that are believed to be reasonable, there can be no assurance that actual results will not differ materially from expectations. Investors are cautioned not to rely unduly on any forward-looking statements. In connection with any forward-looking statements, investors should carefully consider the areas of risk described in the most recent prospectus.

 

The viewpoints expressed by the Portfolio Manager represents their assessment of the markets at the time of publication. Those views are subject to change without notice at any time without any kind of notice. The information provided herein does not constitute a solicitation of an offer to buy, or an offer to sell securities nor should the information be relied upon as investment advice. Past performance is no guarantee of future results. This communication is intended for informational purposes only.

The portfolio holdings are subject to change without notice and only represent a small percentage of portfolio holdings. They are not recommendations to buy or sell any particular security.

 

The ETF referred to herein is not sponsored, endorsed, or promoted by MSCI or Bloomberg and they each bear no liability with respect to any such ETF or any index on which such ETF is based. The ETF’s prospectus contains a more detailed description of the limited relationship MSCI or Bloomberg have with the Manager and any related ETF. Commissions, management fees and expenses (if applicable) may be associated with investments in mutual funds and exchange traded funds (ETFs). Trailing commissions may be associated with investments in mutual funds. Please read the fund facts, ETF Facts or prospectus of the relevant mutual fund or ETF before investing. Mutual funds and ETFs are not guaranteed, their values change frequently and past performance may not be repeated.

 

For a summary of the risks of an investment in BMO Mutual Funds or BMO ETFs, please see the specific risks set out in the prospectus of the relevant mutual fund or ETF. BMO ETFs trade like stocks, fluctuate in market value and may trade at a discount to their net asset value, which may increase the risk of loss. Distributions are not guaranteed and are subject to change and/or elimination.

 

BMO Mutual Funds are managed by BMO Investments Inc., an investment fund manager and a separate legal entity from Bank of Montreal. BMO ETFs are managed by BMO Asset Management Inc., an investment fund manager and a portfolio manager and a separate legal entity from Bank of Montreal.

 

BMO Global Asset Management is a brand name under which BMO Asset Management Inc. and BMO Investments Inc. operate. Certain of the products and services offered under the brand name, BMO Global Asset Management, are designed specifically for various categories of investors in Canada and may not be available to all investors. Products and services are only offered to investors in Canada in accordance with applicable laws and regulatory requirements.®/™ Registered trademarks/trademark of Bank of Montreal, used under licence.

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