Influencing for good: our approach to ESG engagement

Discover our approach to investor engagement in a drive to make finance a force for good.
November 2020

Risk Disclaimer

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.

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 consideration of environmental, social and governance (ESG) issues is an essential part of what it means to be a 21st century investor. We must now focus their attention on securing a sustainable future for our planet, as well as just securing strong financial performance.

An important way to drive positive change is through engaging companies to seek to improve standards of behaviour around ESG issues. Once a niche approach largely confined to faith and mission-orientated investors, engagement has evolved over the past few decades into a mainstream investor activity. The launch of the UN Principles for Responsible Investment (PRI) in 2006 was a pivotal moment for building momentum around investor engagement.

 

Engagement at BMO GAM

As pioneers in responsible investment, we have been at the forefront of engagement’s transformation. All our active investment teams integrate ESG considerations into their decision-making, with a focus on considered engagement and thoughtful proxy voting. Over the past two decades, we have engaged over 5,500 companies on ESG issues, and have recorded more than 3,700* instances of positive change.

We use the United Nations Sustainable Development Goals (SDGs) as a key reference point to try to measure the impact of our engagement. The SDGs comprise 17 goals and 169 underlying targets for achieving a more sustainable future by 2030. This includes addressing issues such as climate change, poverty and gender inequality. In 2019, 72% of our engagement was linked to the SDGs. The remaining 28% focused on corporate governance, which we view as an essential building block in creating a more sustainable economy.

 

What does good engagement look like?

Below are the five pillars we view as key to good engagement, and ultimately to making a real positive difference in the world around us:

Strategic – engaging to integrate ESG issues into business strategies

Comprehensive – engaging companies across different asset classes and geographies

Impactful – engaging to deliver positive outcomes

Bold – Backing up engagement with clear escalation strategies, and a willingness to use voting power if companies are unwilling to engage or their actions don’t match their words

Collaborative – working with other investors and wider stakeholders

 

The future of engagement

While we are proud of the impact of our engagements so far, we are well aware that there is still much to do if we want a chance of securing a sustainable future for us all. This decade is critical for achieving the SDGs, as well as the Paris Agreement goal of limiting global warming to well below 2°C. Below are some of the key shifts we expect to see in terms of engagement as investors strive towards these goals.

Measuring impact – a greater focus than ever before on performance being measured in terms of sustainability outcomes as well as financial returns.

Systemic change – a shift in perspective from seeing stewardship and engagement as individual relationships between investors and companies towards looking more holistically at our responsibilities for addressing systemic risks such as climate change, biodiversity and public health.

Global approach – Although engagement with companies in Asia and other emerging markets has expanded over the past decade, it has been almost exclusively led by developed-market investors, primarily in Europe and the US. We expect active ownership to feature more strongly in emerging markets this decade.

Climate action – there is particular urgency around addressing climate change. Achieving net zero carbon emissions by 2050 will not happen if it is left to governments alone – robust action by investors and corporates is essential. The relentless rise in greenhouse gas emissions must be reversed this decade.

The ‘S’ factor – social issues have been historically harder to define and quantify compared with environmental and governance issues. This decade, we expect investors and data providers to overcome challenges for better analysis and integration of social factors into engagement, while carefully balancing interconnections with ‘E’ and ‘G’ issues.

 

*all figures as at 31 December 2019.

We exist to convene, catalyse and empower change that sustains growth for good

 

Darryl White, Chief Executive Officer, BMO Financial Group

Risk Disclaimer

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.

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.

Webinar

Interested in our webinar on our 20 years of engagement?

Interested in learning more?

Subscribe to our Insights

Related articles

No posts matching your criteria