Risk disclaimers
Views and opinions have been arrived at by BMO Global Asset Management and should not be considered to be a recommendation or solicitation to buy or sell any companies that may be mentioned.
The information, opinions, estimates or forecasts contained in this document were obtained from sources reasonably believed to be reliable and are subject to change at any time.
To secure a sustainable future, we must take better care of our planet. We engage companies on environmental issues, including climate change, deforestation and plastic pollution – discover our engagement highlights from the final quarter of 2020.
Engagement update
In the world of banking, Q4 2020 was dominated by a handful of 2050 net-zero pledges and communication around respective implementation plans. Banks such as JPMorganChase, Morgan Stanley, HSBC and NatWest all announced net zero financed emissions plans and provided additional detail on their implementation during dedicated investor meetings. Barclays publicly outlined its progress in implementing the net zero commitment that shareholders had requested at its annual general meeting this past April.
An important element of a robust net-zero strategy is a well-anchored climate risk management system. To strengthen our own engagement efforts in this regard, we have joined a working group under the umbrella of the Institutional Investors Group on Climate Change (IIGCC) created to help align the banking sector with the goals of the Paris Agreement. We also teamed up with engagement consultants Asia Research and Engagement (ARE) and a small set of other investors to jointly reach out to the five biggest banks in China to enter a dialogue on climate risk and opportunities management, and related transparency.
Engagement collaboration
In Q4, the Cerrado Manifesto Statement of Support (SoS) group, of which BMO GAM is a leading investor, made a joint effort to re-energise engagement with a group of global soft commodities traders sourcing soy from the Cerrado region of Brazil. Joint letters were sent in October to affected companies to request the setting of time-bound deforestation and traceability targets, clear reporting on volumes of soy sourced from recently deforested land, and a clear and time-bound response to noncompliant suppliers.
While the traders’ responses varied in terms of addressing the key points, we were overall disappointed by the long timeframes and lack of time-bound targets for achieving a deforestation-free supply chain, and the absence of traceability and transparency metrics, especially for indirect suppliers. We also undersigned a second SoS letter to focus the traders’ attention on two key requests: commit to and announce a deforestation- and conversion-free (DCF) cut-off date for soy sourced directly or indirectly from within the Cerrado biome, and to adopt more robust traceability and transparency processes to ensure that the soy supply chain can be effectively monitored to combat deforestation.
At a glance
| SDG | Target | Sector | Theme | Issue | Response to our engagement |
|---|---|---|---|---|---|
13 – Climate action |
13.1 - Strengthen adaptive capacity to climate-related events |
Utilities |
Climate change |
Wildfire resilience |
Good |
The increasingly intense wildfires in the western United States in recent years have had devastating effects on human life, property and the environment. Electric utilities are in the front line, with some of the worst fires having been caused by sparks from electric grid infrastructure. For example, PG&E Corp. this year pleaded guilty to 84 counts of manslaughter resulting from the 2018 Camp Fire, which was triggered by its equipment.
We engaged Californian utilities PG&E, Southern California Edison (owned by Edison International) and San Diego Gas & Electric (owned by Sempra Energy) to understand their wildfire mitigation plans, including how they are assessing the increased potential severity of risk from climate change. All three companies are investing heavily in three key areas: grid hardening (upgrading power poles and lines); vegetation management around electricity infrastructure; and improved monitoring systems. Linked to monitoring, all have also adopted proactive power shutdowns at times of particularly high fire risk. This has been controversial, as residents have been left without power for prolonged periods of time. Our call with Sempra Energy revealed a proactive approach dating back well before the recent wildfires. The company hired a meteorologist in 2009, and now has a team which includes a former San Diego fire chief. It demonstrated its risk tool, and is also working with academics and Californian authorities on future climate modelling.
Companies across sectors which are subject to weather-related risks need to consider in a systematic way how these may evolve as climate change accelerates. Undertaking this analysis may mean hiring in expertise, or working with external experts, to understand how risks are likely to change, and the range of uncertainty around projections. Within the utilities sector, wildfire risk is likely to spread to areas which had not previously experienced it – the 2020 US wildfire season, for instance, affected the state of Oregon much more than in recent years. Historical risk is no longer a reliable guide to future risk, and companies like Sempra that recognise this early and invest now can improve their chances of avoiding much more costly consequences later. – Vicki Bakhshi, Director, Responsible Investment analyst
Interested in learning more? Download our Stewardship Report to discover more of our engagement and voting highlights during Q4 2020.
Risk disclaimers
Views and opinions have been arrived at by BMO Global Asset Management and should not be considered to be a recommendation or solicitation to buy or sell any companies that may be mentioned.
The information, opinions, estimates or forecasts contained in this document were obtained from sources reasonably believed to be reliable and are subject to change at any time.
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