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In December 2020, BMO Global Asset Management committed to an ambition of reaching net zero emissions by 2050 or sooner across all assets under management, as a signatory to the Net Zero Asset Managers Initiative.
During 2021 we have been working on implementing this commitment by developing a methodology, and identifying an initial set of funds which will be managed using net zero investing principles. Early in the process we identified three principles to guide our approach to net zero, these values have helped with some of the choices we have made along the way.
1. Focus on real world emissions reductions
We know that we can cut a portfolio’s carbon intensity dramatically, just by selling companies in highly energy intensive sectors like electric utilities and industrials, and replacing these with companies in lower-emissions industries. But such portfolio changes alone make little difference in the real world. Our ambition is to use the power of our engagement, working in collaboration with other investors, to influence companies to take action – and as their emissions fall, so too will the carbon content of our investment portfolios. However, engagement can’t be open-ended. If companies fail to respond, and remain fundamentally misaligned with a low-carbon future, we will need to re-consider our investments in them.
2. Work in partnership with clients
As asset managers, our fundamental responsibility is to meet our clients’ current and future investment needs. We believe that net-zero investing is supportive of the responsibility – but we also understand that many of our clients still have many questions about what this means, and we need to be mindful of the existing mandates we have with them. Our aim is to work in partnership with our clients, providing education on what the low-carbon transition means when applied to portfolios. In practice, this means we may be able to move some of our assets to a net zero-aligned pathway earlier than others – which is why we will set an interim AUM target, with the intention that this will ratchet up over time.
3. Transparency
The risks of ‘net zero-washing’ are real. Methodologies on net zero investing are still emerging, and disclosure by corporates is patchy, despite the progress made since the publication of the Task Force on Climate-related Financial Disclosures recommendations. However, the urgency of the issue is too great to wait until we have all the building blocks fully in place. In this context, it is important that we are straight with our clients and wider stakeholders about limitations in our approach, including gaps in data or methodology. We will seek to avoid ‘black box’ approaches, or simple metrics which could obscure a more complex reality.
Methodological framework
Defining a ‘net zero aligned’ investment portfolio is no straightforward task. To guide our implementation, we are looking to the Net Zero Investment Framework, developed by the
Paris Aligned Investment Initiative, with input from BMO GAM. This is a comprehensive
framework, covering governance, target-setting, methodologies for specific asset classes, and policy and stakeholder engagement.
Risk warnings
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.
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.
Interested in learning more? Download our methodology paper to discover our net zero approach.
Risk warnings
The value of investments and any income derived from them can go down as well as up and investors may not get back the original amount invested.
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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