Investing to a higher standard pays off

Jennifer So

Associate Portfolio Manager, Senior Associate, Fundamental Canadian Equities


As part of a broader commitment to innovation and “boldly growing the good,” associate portfolio manager Jennifer So makes the case for new all-in-one solutions that are designed to outperform on dual fronts: performance and personal values.  

ESG issues transform investment landscape

With the first half of 2020 behind us, most of the world has come to terms with the new normal. For the average individual, the shift to quarantines and face masks has challenged the status quo in more ways than we can imagine. For investors, the year’s events have only reinforced the idea of doing good, while also doing well – a concept that has been ingrained across our business for more than two decades.

Our first responsible investing strategy launched 35 years ago, long before the industry learned that environmental, social and governance (ESG) factors can have a material impact on investment performance. Conventional wisdom held that ESG issues were secondary, or even contrary, to strategic growth initiatives. We continually challenged those ideas, in the belief that our responsibility to grow capital and income is intertwined with the opportunity to build a more sustainable future. And, in recent years, industry trends have shifted in our direction. 

Take, for example, the new “Top Trends in Wealth Management” report, which confirms that more than a quarter of the world’s high net worth (HNW) individuals are interested in responsible investing (RI).1 The research suggests that an overwhelming number plan to allocate over 40% of their portfolios based on environmental, social and governance (ESG) considerations. Closer to home, we’re seeing similar trends, as wealthy Canadians increasingly ask for more RI options. A recent survey of over 1,000 local investors showed that a staggering 79% want their Financial Advisors to inform them about RI funds – yet only 23% received such advice.2

Besides the growing interest in RI, Canada’s wealth management market is looking at a $1 trillion opportunity in terms of assets being passed down from one generation to the next. While the benefactors are expected to be Baby Boomers for the most part, the pool will also include Millennials, who are leading the march toward sustainability.3

Taken together, these trend lines demonstrate the potential for RI to transform and enhance the investment landscape across the near to mid-term. As Victor Hugo puts it so eloquently, “Nothing is more powerful than an idea whose time has come.”

Doing right is indisputably rewarding

It is important to strike a balance when it comes to responsible investing, ensuring the choice of assets align with your clients’ values. The new, carefully constructed BMO Sustainable Portfolios seek to put Advisors at ease in this respect.

First and foremost, this suite of managed solutions takes a globally diversified, multi-asset approach – which means it offers all-in-one platforms that you can apply across all client types. Secondly, every single holding within the BMO Sustainable Portfolios falls under the responsible investing umbrella, ensuring your clients are able to align their investment dollars with their personal values, without compromising on either.

Investors gain access to the full spectrum of RI selection processes, including negative exclusions, positive screening and thematic considerations. A good example of the latter is the BMO Women in Leadership Fund, which focuses on companies with strong gender diversity at the C-suite level. Building on that platform, our Sustainable Opportunities Funds assess the impact companies have on sustainability issues. Both integrate the effect of ESG factors on their value creation. Ultimately, the key question we’re trying to ask – and answer – is: what are the most financially material ESG issues that could influence a company’s ability to deliver shareholder returns?

Six different responsible investment market approaches

Integration Negative Exclusion Positive Inclusion Thematic Impact Philanthropy

Integrating material ESG risks into analysis, portfolio construction and stewardship

Excluding companies from the portfolio on the basis of their products or behaviour

Selecting companies with positive ESG attributes

Focusing on companies offering sustainability solutions

Targeting both a financial and social/environmental return

Delivering non-financial outcomes as a primary goal

Source: BMO Global Asset Management.

Importantly, ESG-focused investing has been sidelined for years by what many in the industry perceive to be a performance penalty, despite results to the contrary. Case in point: a Harvard Business School study evidenced a clear correlation between high ESG considerations and equally impressive financial performance.4 This is due in large part to the inherent quality tilt in RI funds.  As an example, the BMO Sustainable Opportunities Global Equities Fund, has produced a better risk-return profile across both bull and bear markets.  

The BMO Sustainable Portfolios are held to a higher standard. That is, any company that is considered or classified as an ESG “laggard” is not included in this platform. As a result, not only is the average ESG score of the portfolio high, but there are no individual holdings with a subpar rating hidden in the mix. This approach builds on, and adds, a new layer of valuation to BMO Global Asset Management’s proprietary “Five Lenses” investment framework.

These newest managed solutions offer peace of mind in that there is no compromise on returns. The biggest advantage here is that Advisors can ensure lower risk and volatility across their client portfolios, while still providing robust performance.

A 30-year ESG legacy, topped by active ownership and proxy voting

Despite growing awareness and engagement in Canada, few fund manufacturers can attest to having more than three decades of experience in responsible investing. The BMO Sustainable Portfolios takes full advantage of this legacy, and is supported by a 19-member team of experts – the largest in the world – who know every corner of the ESG universe. It goes without saying that when it comes to RI as a managed solution, experience is critical.

Our strategy also thrives on diversity, combining both in-house and third-party building blocks to construct portfolios that meet your clients’ needs. Across the market, multi-asset solutions typically provide access to in-house products only. By contrast, our approach makes it possible to widen the net in terms of fund options and go beyond the limitations of products that adhere to just one aspect of ESG integration – weighting not just environmental and social factors that tend to be commonplace, but governance issues as well, which have lately received renewed interest from the pandemic.

Pillars of responsible investment

Active ownership is exercising your stewardship responsibilities through engagement and voting to influence change


  • Encouraging companies to address material ESG issues, to reduce risk and support long-term performance


ESG Engagement Themes

  • Environmental Standards
  • Business Conduct
  • Human Rights
  • Labour Standards
  • Public Health
  • Corporate Governance
  • Climate Change


Proxy Voting

  • Exercising the right to vote on resolutions at company shareholder meetings

Source: BMO Global Asset Management

Perhaps the most striking feature that distinguishes the BMO Sustainable Portfolios from other one-ticket solutions is our focus on active ownership, which includes engagement and proxy voting. BMO Global Asset Management’s RI team regularly engages with the management across underlying holdings, conducting extensive research to measure and assign best practices on critical sustainability issues.

The engagement framework is not limited by borders, or local policies. For instance, even if Canada has not focused on a new standard, which another country has successfully adopted, our RI team would consider embracing the guideline into its Canadian holdings regardless. A good example is a new audit or independence and rotation measure. In effect, if a business has been audited by the same accountants for several years, then we would vote against this firm and ask for the relationship to be put out to tender.

Similarly, two years ago, to encourage Board refreshment, the RI team changed the definition of an independent director. If an individual has been on the board for 13 years or more, they can continue to hold their board position, but would no longer be considered an independent member and would not be permitted to join committees that require complete independence, such as the audit committee.

Over and above, the BMO Sustainable Portfolios offer the benefits of active management, ESG expertise and education, wherein our RI team operates side-by-side to improve every holding. Amid the current economic situation, the need for greater checks and balances – coupled with a rigorous assessment of material risks – will likely place a greater emphasis on the long-term perspective, made possible through responsible investing.

Starting down the ESG path

Lack of awareness, as it happens, is the reason many Advisors miss the opportunity to bring their clients into the RI camp. This goes both ways, in terms of Advisors knowing what is out there and what counts, and then transferring that knowledge to investors.


The next generation is a critical starting point, as they will increasingly have the power to sway investment decisions. In fact, a 2019 study of HNW individuals found that 95% of millennials were interested in sustainable investing.5 The inclination towards RI appears to have increased several-fold amidst the pandemic, with social and governance issues igniting a tinderbox of emotions and reaction within the younger population.


The time is now to ask your clients the right questions: Have you considered any responsible investing products? Is it important to you? Are you concerned about handing down a portfolio that matters to the next generation? Also check in with your own practice: Do I feel confident discussing an RI product? Where can I find the best resources and attain credible information? Can I ease the burden of portfolio management by choosing a platform with pre-existing strong RI standards? With the right blend of knowledge, experience and a proven track-record of returns, chances are that your clients will get on board sooner, and with greater interest, than you would imagine.

To help your clients set their responsible investing goals, visit our new interactive tool, MyESG™. This easy-to-use platform not only helps investors recognize their long-term financial priorities; it also aids in understanding how to build a portfolio with environmental, social and governance considerations, making it possible to invest for performance and purpose. 


1 Top Trends in Wealth Management: 2020 by Capgemini.

2 2019 RIA Investor Opinion Survey.

3 Toronto-based research firm Strategic Insight projects that approximately $1 trillion in personal wealth will be transferred from one generation to the next in Canada between 2016 and 2026, with roughly 70% of that in the form of financial assets.

4 Khan, Mozaffar N., George Serafeim, and Aaron Yoon. “Corporate Sustainability: First Evidence on Materiality.” Harvard Business School Working Paper, No. 15-073, March 2015.

5 Morgan Stanley, “Sustainable Signals: Individual Investor Interest Driven by Impact, Conviction and Choice,” 2019.


BMO Global Asset Management is a brand name that comprises BMO Asset Management Inc., BMO Investments Inc., BMO Asset Management Corp., BMO Asset Management Limited and BMO’s specialized investment management firms.

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 simplified prospectus.

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

Commissions, trailing commissions (if applicable), management fees and expenses all may be associated with mutual fund investments. Please read the fund facts or prospectus before investing. BMO Money Market Fund is not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer. There can be no assurances that the Fund will be able to maintain its net asset value per security at a constant amount or that the full amount of your investment in the fund will be returned to you. Past performance may not be repeated.

BMO Mutual Funds are managed by BMO Investments Inc., which is an investment fund manager and a separate legal entity from Bank of Montreal.

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