Adam: In the context of fixed income, there have been a lot of issuers realizing that there’s now an active bid for green and sustainable bonds, so there is an incentive for companies to label their debt that way. We have to acknowledge that money is fungible, so if a company issues a bond, it may in one pocket be achieving something sustainable while not adhering to ESG principles in another pocket. There isn’t really consensus on green bonds yet. There is nuance that has to be applied, and really examining the issuers and the bond – and not just accepting what they say at face value – is key, in the same way we wouldn’t accept financial projections without doing our own homework.
Jennifer: I think greenwashing has definitely impacted our conversations in the Canadian equity market. Institutional investors are digging deeper to understand processes and to weed out those managers who are using a green spin for marketing purposes. It’s really important to look under the hood, and how managers define ESG integration. What exactly does it mean? I think if you’re only looking at ESG, and not at the investment characteristics, whether it’s from a fundamental, or disciplined equity, or factor-based lens, it’s doing a disservice because ESG is one input into the investment decision.
David: I agree – on the one hand, asset owners are wanting to understand how we achieve ESG investing, but I actually think we see it even more on the consultant side. Many have recently said they’re going to include a formal ESG rating framework, where they rate managers according to their team, process, performance, vehicle lineup, pricing and all these different dimensions. Anecdotally, they’re also asking, “How do you integrate ESG?” What data sources are you using?” “How does it affect your buy/sell decisions?” We’re also receiving requests to talk through our fundamental hypothesis as to why a company with a good ESG rating should outperform the rest of the market. They want to hear our thinking behind why we think it makes sense.
Angus: In the context of real estate, it’s about looking forward and understanding that when you’re building assets, do you have the metrics in place to capture performance? It’s not just paying lip service – it’s thinking about what will be important in the future and ensuring your assets are on the right path to engineering, procurement and construction (EPC) strategies. And not just that, but within the context of a zero carbon strategy, how can you assess your approach to ensure you are in line with the strategic objective? We align to real estate industry association requirements and have received independent awards for the standards of disclosure met, which is crucial to providing investors with the confidence they deserve. This philosophy of building the good and the accountability it comes with is ingrained in BMO’s culture of honesty and integrity. It’s a natural fit with our bottom-up approach at BMO Real Estate Partners.
Adam: Absolutely. There’s no question that ESG is a hot topic, and what that means is that many are newcomers to the party, and whether it’s outright greenwashing, or adding one to two people and calling it a capability, that’s not equal to the depth of RI work BMO GAM has accomplished and our 30 plus-year legacy. Similar to what we think about broader credit markets, if you don’t do it with the right depth, talent and fundamental processes, you’re not going to get the results that you want.