Global Equities

Strategy ESG metrics

BMO Responsible Global Equity Strategy ESG Profile and Impact Report 2020
August 2020

Global Equities Team

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Risk Disclaimer

The value of investments and any income derived from them can go down as well as up as a result of market or currency movements and investors may not get back the original amount invested.

Investing in emerging markets is generally considered to involve more risk than developed markets.

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 stocks or products that may be mentioned.

We seek to measure how our Strategy performs on key ESG metrics so that we can address the risks, capitalise on opportunities, and promote change as an actively engaged investor. This year we have selected climate change, water consumption and gender diversity as topics of relevance to many of the companies in the strategy.

Carbon footprint

SDG - 13 Climate action


Our approach

We have a comprehensive climate change policy for the Responsible Global Equity Strategy, which includes full divestment from companies with fossil fuel reserves, investment in solutions and engagement.

2019 saw BMO publish its framework for climate change engagement, where we clearly set out our expectation that companies should aim to align their businesses with the Paris climate agreement, as well as the practical steps we recommend companies take to achieve this.

We are committed to disclosure, and again this year publish our Strategy weighted carbon intensity, in line with the recommendations of the Task Force on Climate-related Financial Disclosures.

 

2019 performance

The Strategy-weighted carbon intensity (Scope 1 and 2 emissions) declined by 14.4% year on year, falling from 118 tons CO2 e/$1m sales to 101 tons CO2 e/$1m sales, and remains well below the MSCI World benchmark figure, which itself declined by 11.5%, largely due to the stronger performance of lower-emissions sectors such as technology, giving them a higher weight in the index. This metric does not capture all aspects of climate risk, but it does provide an indication of the sensitivity of our investee companies to changes in emissions regulation, as well as a way to identify potential outliers.

Risk Disclaimer

The value of investments and any income derived from them can go down as well as up as a result of market or currency movements and investors may not get back the original amount invested.

Investing in emerging markets is generally considered to involve more risk than developed markets.

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 stocks or products that may be mentioned.

The main reason for the difference between the strategy and benchmark remains sector allocation, with significant underweights to the energy-intensive energy and utilities sectors in particular. This is due to the ethical screens of the strategy, as well as the focus on positive sustainability themes. Chemicals company Linde remains one of the most significant contributors to the strategy’s overall carbon footprint. However, the company received a 3 (out of 4) rating for its climate strategy by the Transition Pathway Initiative in 2019, and in early 2020 announced a further, ambitious set of new climate policies including a commitment to spend at least $1bn in decarbonisation projects by 2038 and lower emissions intensity by 35% over the same period.

Strategy-weighted carbon intensity (Tons CO2 eq/sales $m)

Strategy-weighted carbon intensity (Tons CO2 eq/sales $m)

Source: MSCI ESG and Bloomberg

Water

SDG - 6 Clean water and sanitation


Our approach

We see investment water footprinting as a useful method to help us identify areas of water risk in our Strategy and manage those risks accordingly. The water usage metric that we disclose in this report is one of the tools we use to flag potential risks. To improve our understanding of the materiality of water to the strategy, we also assess water risk by industry and by geography. Ultimately, we aim to have a good picture of where key risks lie to focus on specific industries and companies for further water risk research and engagement.

 

2019 performance

As in previous years, the weighted average water use is significantly below the benchmark. Low exposure to water intensive industries such as extractives and electric utilities is the main reason for this.

By far the largest contributor remains Suez, whose water processing activities involve a high water input, but whose aim is to enable its customers to use natural resources efficiently. Chemicals firm Linde also has a significant water footprint due to the nature of its production processes, but has water management plans in place at all high water-use sites in water-scarce areas. Linde’s product range also includes various gases and technologies which are used to improve water quality, and the company has an objective to enable 250 million people to access safe drinking water.

Total Water Use ‘000 cubic meters

Total Water Use ‘000 cubic meters

Source: MSCI ESG and Bloomberg

Gender diversity

SDG - 5 Gender Equality -


Our approach

We recognise the value that diversity in the boardroom and senior management can bring to an organisation. A relevant and suitably diverse mix of skills and perspectives helps enhance long-term performance and value creation. We, therefore, monitor the level of gender diversity at the board, management and all levels in our Strategy companies. 

2019 performance

Many markets are seeing progress on gender equality in boards due to regulatory measures and investor pressure, but change is much slower at the senior executive level. Here we give metrics at both levels.

The strategy remains slightly better than benchmark on both metrics, but we still see significant scope for improvement. Dutch publisher Wolters Kluwer remains a leader in terms of both board and senior executives. We focused our diversity engagement this year particularly on German companies, which have lagged other markets in making progress. We engaged companies in the strategy including leaders in the market such as SAP, which in 2019 offered equal parental pay to male and female employees; alongside others such as Fresenius SE which have some female representation at board level, but less diversity amongst senior executives.

Gender representation

Gender representation

Source: MSCI ESG and Bloomberg

    Sustainable Investment Awards 2020 Winner ESG research of the year - fixed income

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