Stewardship in 2021

940

companies engaged by our Responsible Investment team

 

85%

of engagement aligned to the Sustainable Development Goals

 

388

instances of positive change at companies as a result of our engagement

Disclaimers

All data and information as at 31 December 2021. All data
and information refers to activities conducted by BMO GAM’s Responsible Investment team during 2021, who work with investment teams to bring expert knowledge and coherence to our stewardship programme, and support investment teams to integrate ESG considerations into their decision-making. 

On 8th November 2021, Ameriprise Financial’s acquisition of BMO’s EMEA Asset Management business, including BMO GAM Asia Limited, (BMO GAM (EMEA)), completed. BMO GAM (EMEA) is now a part of Columbia Threadneedle Investments, the global asset management business of Ameriprise Financial. Therefore, for the period 8th November 2021 – 31st December 2021, BMO GAM (EMEA) should be treated as a wholly owned subsidiary of Columbia Threadneedle Investments, whose direct parent is Ameriprise Financial Inc. The information on this site refers to BMO GAM activity only and remains separate to that of Columbia Threadneedle Investments.

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.

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.

Our net zero commitment

In December 2020, BMO GAM (EMEA) became a founder signatory to the Net Zero Asset Managers Initiative. This committed us to reach net zero emissions by 2050 or sooner across all assets under management. During 2021 we developed an implementation methodology, with an initial focus on equities and fixed income, based on the Net Zero Investment Framework (NZIF) and drawing on a range of data sources. The methodology emphasises the importance of stewardship in implementing our goals, and where possible achieving portfolio emissions cuts through the decarbonisation efforts of our investee companies, rather than reallocating capital to lower-emissions sectors. We also published a methodology for real estate, and contributed to industry best practice by co-chairing the Implementation Working Group for the NZIF, and participating in a working group on private equity.

 

We announced that funds representing 12% of total BMO GAM (EMEA)’s assets under management would be applying our methodology, accounting for 50% of our active equity business. During 2022, in collaboration with Columbia Threadneedle Investments, which has also become a signatory, we will seek to further expand to more funds and asset classes.

electric car on a charge station charging-

Engagement

E
0%
S
0%
G
0%
Climate change
0%
Environmental stewardship
0%
Labour standards
0%
Public health
0%
Business conduct
0%
Human rights
0%
Corporate governance
0%

Our climate change engagement focused on areas such as coal phase-out, energy efficiency and managing climate-related risks in the finance sector. We also began engagement on biodiversity loss, exploring companies’ related governance, strategy and targets.

 

Labour standards were a key focus area as we continued efforts to engage on living wage in the retail and garment sectors.

 

We continued to drive fair and appropriate management compensation through the Covid-19 pandemic. Workplace diversity beyond gender was also a focus area of engagement.

 

SDG

20% of our engagement linked to SDG 12: Responsible consumption and production, as we demanded better reporting, transparency and disclosure on ESG issues. 


17% of our engagement linked to SDG 13: Climate action, where we focused on driving companies to improve climate integration, such as climate strategies and net zero commitments.


13% of our engagement linked to SDG 8: Decent work and economic growth, as we engaged companies to reference the elimination or prohibition on forced and child labour within policy frameworks and improve modern slavery reporting.

SDG icon 13- Climate action

Climate change 

Our engagement with Royal Dutch Shell on energy transition.

In 2021, Royal Dutch Shell was one of the first companies in the energy sector to allow shareholders a vote on its strategy that explains how the company intends to transition in line with the Paris Agreement.

 

We engaged Shell both individually and collaboratively to understand the impact of the climate change strategy on the medium- and long-term course of the company. We also asked for clarity on how the capital expenditure plan aligns with the medium- and long-term targets, and for signposts that help assess the intermediate actions. Ultimately, we voted against Shell’s energy transition strategy.

 

The trajectory and instruments used to achieve the required reductions do not provide sufficient certainty about alignment of the strategy with the ultimate goal of the Paris Agreement. We are also concerned that a large majority of Shell’s decarbonisation is planned to take place after 2030, yet the plan provides limited indicators that the required acceleration of decarbonisation will take place. In addition, Shell’s plan has a strong focus on natural carbon sinks and carbon capture and storage.

 

Although Shell is open to dialogue and has demonstrated tangible improvements, there remains significant room for improvement in tackling decarbonisation. We will continue to engage the company to drive the required changes. 

SDG icon 5 - Gender equality

Labour standards

Our engagement with Ubisoft on diversity and discrimination.

Last year, several senior Ubisoft employees were accused of misconduct. Reports indicated a culture where long-tenured employees with links to the founders were not held accountable, and an HR department that ignored complaints. Speaking to the company, they detailed plans to conduct a third-party review of all claims and the HR function, how they survey staff and the planned introduction of new diversity and cultural leadership roles. We encouraged the company to provide regular updates to investors and emphasised the need for the independent board members to oversee reforms.


We were updated as those who were accused were fired and new cultural oversight roles were appointed. Nearly one year on, we discussed progress with the CFO. The company had recruited a new Chief People Officer, who now sits on the Executive Committee, a Diversity Officer and a Head of Workplace Culture. The HR department reporting structure has been reformed, with an externally hosted anonymous complaint mechanism introduced. Finally, on-going anti-harassment training will be provided to all staff and a new code of conduct will soon be released.


We welcome the company’s progress. We pushed them to disclose progress metrics, but they cautioned that as a video game company, they must be careful about what to disclose publicly and how they are interpreted by end users, which we appreciate.

SDG icon 3 - Good health and wellbeing

Public Health

Our engagement with Johnson & Johnson on access to healthcare.

In recent years, J&J has suffered financial and reputational damage from high-profile incidents, such as lawsuits related to talcum powder and opioids. To restore trust, the company has increased transparency on these other material ESG issues, and the frequency of its dialogue with investors.


Leveraging J&J’s increased openness, we have had 12 engagements with the company since January 2019, both individually and collaboratively, on key topics such as access to medicine. We note that J&J ranked third in the 2021 Access to Medicine Index, partly thanks to its large R&D pipeline, with multiple projects targeting public health needs in developing markets. We have asked the company to consider establishing access plans for all of its late-stage R&D projects, and in a meeting in March 2021 we discussed the impact of Covid-19 on its HIV initiatives in Africa.


The company’s strengthened approach to risk management in conjunction with an ambitious and clearly articulated access to medicine strategy should help it to decrease the frequency of litigation and improve its reputation. 


As J&J ramps up its Covid-19 vaccine rollout, we plan to continue regular engagement with the company, because further scandals could fuel public distrust and vaccine hesitancy.

E
0%
S
0%
G
0%
Climate change
0%
Environmental stewardship
0%
Labour standards
0%
Public health
0%
Business conduct
0%
Human rights
0%
Corporate governance
0%

Our climate change engagement focused on areas such as coal phase-out, energy efficiency and managing climate-related risks in the finance sector. We also began engagement on biodiversity loss, exploring companies’ related governance, strategy and targets.

 

Labour standards were a key focus area as we continued efforts to engage on living wage in the retail and garment sectors.

 

We continued to drive fair and appropriate management compensation through the Covid-19 pandemic. Workplace diversity beyond gender was also a focus area of engagement.

 

SDG

20% of our engagement linked to SDG 12: Responsible consumption and production, as we demanded better reporting, transparency and disclosure on ESG issues. 


17% of our engagement linked to SDG 13: Climate action, where we focused on driving companies to improve climate integration, such as climate strategies and net zero commitments.


13% of our engagement linked to SDG 8: Decent work and economic growth, as we engaged companies to reference the elimination or prohibition on forced and child labour within policy frameworks and improve modern slavery reporting.

SDG icon 13- Climate action

Climate change 

Our engagement with Royal Dutch Shell on energy transition.

In 2021, Royal Dutch Shell was one of the first companies in the energy sector to allow shareholders a vote on its strategy that explains how the company intends to transition in line with the Paris Agreement.

 

We engaged Shell both individually and collaboratively to understand the impact of the climate change strategy on the medium- and long-term course of the company. We also asked for clarity on how the capital expenditure plan aligns with the medium- and long-term targets, and for signposts that help assess the intermediate actions. Ultimately, we voted against Shell’s energy transition strategy.

 

The trajectory and instruments used to achieve the required reductions do not provide sufficient certainty about alignment of the strategy with the ultimate goal of the Paris Agreement. We are also concerned that a large majority of Shell’s decarbonisation is planned to take place after 2030, yet the plan provides limited indicators that the required acceleration of decarbonisation will take place. In addition, Shell’s plan has a strong focus on natural carbon sinks and carbon capture and storage.

 

Although Shell is open to dialogue and has demonstrated tangible improvements, there remains significant room for improvement in tackling decarbonisation. We will continue to engage the company to drive the required changes. 

SDG icon 5 - Gender equality

Labour standards

Our engagement with Ubisoft on diversity and discrimination.

Last year, several senior Ubisoft employees were accused of misconduct. Reports indicated a culture where long-tenured employees with links to the founders were not held accountable, and an HR department that ignored complaints. Speaking to the company, they detailed plans to conduct a third-party review of all claims and the HR function, how they survey staff and the planned introduction of new diversity and cultural leadership roles. We encouraged the company to provide regular updates to investors and emphasised the need for the independent board members to oversee reforms.


We were updated as those who were accused were fired and new cultural oversight roles were appointed. Nearly one year on, we discussed progress with the CFO. The company had recruited a new Chief People Officer, who now sits on the Executive Committee, a Diversity Officer and a Head of Workplace Culture. The HR department reporting structure has been reformed, with an externally hosted anonymous complaint mechanism introduced. Finally, on-going anti-harassment training will be provided to all staff and a new code of conduct will soon be released.


We welcome the company’s progress. We pushed them to disclose progress metrics, but they cautioned that as a video game company, they must be careful about what to disclose publicly and how they are interpreted by end users, which we appreciate.

SDG icon 3 - Good health and wellbeing

Public Health

Our engagement with Johnson & Johnson on access to healthcare.

In recent years, J&J has suffered financial and reputational damage from high-profile incidents, such as lawsuits related to talcum powder and opioids. To restore trust, the company has increased transparency on these other material ESG issues, and the frequency of its dialogue with investors.


Leveraging J&J’s increased openness, we have had 12 engagements with the company since January 2019, both individually and collaboratively, on key topics such as access to medicine. We note that J&J ranked third in the 2021 Access to Medicine Index, partly thanks to its large R&D pipeline, with multiple projects targeting public health needs in developing markets. We have asked the company to consider establishing access plans for all of its late-stage R&D projects, and in a meeting in March 2021 we discussed the impact of Covid-19 on its HIV initiatives in Africa.


The company’s strengthened approach to risk management in conjunction with an ambitious and clearly articulated access to medicine strategy should help it to decrease the frequency of litigation and improve its reputation. 


As J&J ramps up its Covid-19 vaccine rollout, we plan to continue regular engagement with the company, because further scandals could fuel public distrust and vaccine hesitancy.

Voting 

How we voted in 2021:

125,146

resolutions voted

12,416

company meetings voted

23%

of all votes were against management

Milestones

We record milestones where companies make tangible improvement in their policies and practices in alignment with our engagement and voting asks. We rank these milestones as one, two or three stars to reflect the significance of the change for the company, the market and/or our engagement objectives.  

388 milestones in 2021:

Milestones linked to corporate governance
0%
Milestones linked to climate change
0%
Milestones linked to labour standards
0%

Milestone examples 

Climate change
HSBC committed to phase out financing of coal-fired power and thermal coal mining in the EU and OECD by 2030 and other regions by 2040. We have engaged the bank on a stronger coal exit strategy for a while, individually and collaboratively with other investors, to strengthen overall climate risk management efforts. We always argued that such an exit should include underwriting, which the bank has confirmed, too. It is a strong commitment from a global bank with a significant Asian footprint.
Deforestation
Brazilian company JBS is the largest meat processor in the world. In 2021, it announced that it would move up its target to eliminate illegal deforestation in its supply chain to 2025, shortening the original timeframe by five years. The commitment requires monitoring of direct and indirect suppliers in the fragmented beef supply chain, something the company aims to achieve through blockchain technology. While legal deforestation remains a key challenge to environmental impact, this is a very positive step that raises the bar for other meat producers in the region.
Public health
Pfizer partnered with an independent social enterprise to provide equitable access to cancer treatments in over 60 developing countries. Developing countries bear c. 60% of the world’s cancer burden and account for c. 70% of cancer deaths. The partnership enables governments and NGOs to work towards improving the quality and quantity of treatments and increase budgets for care and treatment. We have repeatedly engaged Pfizer on access to medicine.
Climate change
HSBC committed to phase out financing of coal-fired power and thermal coal mining in the EU and OECD by 2030 and other regions by 2040. We have engaged the bank on a stronger coal exit strategy for a while, individually and collaboratively with other investors, to strengthen overall climate risk management efforts. We always argued that such an exit should include underwriting, which the bank has confirmed, too. It is a strong commitment from a global bank with a significant Asian footprint.
Deforestation
Brazilian company JBS is the largest meat processor in the world. In 2021, it announced that it would move up its target to eliminate illegal deforestation in its supply chain to 2025, shortening the original timeframe by five years. The commitment requires monitoring of direct and indirect suppliers in the fragmented beef supply chain, something the company aims to achieve through blockchain technology. While legal deforestation remains a key challenge to environmental impact, this is a very positive step that raises the bar for other meat producers in the region.
Public health
Pfizer partnered with an independent social enterprise to provide equitable access to cancer treatments in over 60 developing countries. Developing countries bear c. 60% of the world’s cancer burden and account for c. 70% of cancer deaths. The partnership enables governments and NGOs to work towards improving the quality and quantity of treatments and increase budgets for care and treatment. We have repeatedly engaged Pfizer on access to medicine.

Themes

SDG biodiversity

Biodiversity 

We engaged companies to explore biodiversity-related impacts and dependencies. We also engaged on governance and perceived materiality of biodiversity to understand how companies incorporate current environmental initiatives under a biodiversity umbrella. We developed a proxy voting policy focusing on companies with high exposure to biodiversity impacts but lacking adequate disclosure.

 

We joined the Investor Policy Dialogue on Deforestation, which focuses on sovereign engagement in Brazil and Indonesia. Ahead of the second part of COP15 this spring, we signed a letter calling for an ambitious global framework on biodiversity. We also signed letters to both EU and UK authorities, urging agricultural policies to be designed to restore biodiversity and address climate change. We are active members of the PRI Sustainable Commodities Practitioners’ Group and collaborate with other investors under the FAIRR Sustainable Proteins initiatives.

 

In our publications, we reflected on the impact of pesticides on pollinators and progress towards more nature-positive farming practices. We have written about what investors can do to tackle plastic pollution, through influencing companies to reduce waste and adopt circular practices. To support companies battling a plethora of national regulations, we supported a call for a UN treaty on plastic pollution.

 

2022 is promising to deliver significant developments in this area, including the global biodiversity framework from COP15, increased attention by regulators including central banks reporting on biodiversity and financial stability, additional nature-related guidance, and the first version of the TNFD reporting framework. We look forward to playing an active role in the stakeholder community to further leverage our biodiversity engagement and wider environmental stewardship theme.

SDG icon 13- Climate action

Climate change 

Climate change was our overriding engagement priority in 2021, in the expectation that the run-up to COP26 would prove a critical window of time to press companies to align their business strategies with a net zero future. This proved to be the case, with investor pressure combined with public and political momentum leading to a rapid growth in the number of companies making net zero commitments. By the time of the Glasgow Summit, over 3000 companies had such commitments in place.

 

Our engagement ranged across sectors and regions, covering not only fossil fuel firms but also energy consumers, such as industrials and automotives, as well as the finance sector. With long-term net zero commitments becoming more common, our focus was on implementation – turning these aspirations into concrete business strategies.

 

In line with best practice standards, particularly the Climate Action 100+ benchmark, we have called for companies to take actions in these areas:

 

  • Targets: Net zero emissions ambition, and shorter-term interim targets consistent with a 1.5 degree trajectory
  • Strategy: Credible implementation plan for these targets, including alignment of capital allocation plans
  • Lobbying: Alignment of climate lobbying activities with net zero goals
  • Governance: Integration of climate goals into governance structure and executive pay
  • Disclosure: Reporting in line with the Task Force on Climate-related Financial Disclosures (TCFD)
SDG diversity

Diversity 

Our work on diversity was substantially extended in 2021. We joined the US 30% Coalition, as well as the newly founded 30% Club in France, and continued work with the Interfaith Center on Corporate Sustainability (ICCR) on racial equity. We also enhanced our voting policy on diversity aspects. We will vote against the chair of their nomination committee or the chair of their board if companies fail to meet our expectations on ethnic diversity of at least one board member at the largest companies in the US, UK and Canada, unless mitigating factors are present. These countries where selected given advanced societal, regulatory and investor expectations. Our expectations for gender diversity changed in Canada, and we are expecting for TSX companies to have no less than 30% female representation (previously 25%), and will otherwise vote against the Chair of the Board’s Nomination Committee.

 

Engagement-wise, next to leading on names that are covered by the 30% Clubs in the UK and France, and the 30% Coalition in the US, we launched a dedicated mDAX engagement with more than 50 German companies on executive board and senior leadership diversity, policies and implementation programmes to enhance workforce diversity, as well as relevant disclosure around these measures, including gender and ethnic pay gaps.

SDG icon 13- Climate action

Climate change 

Climate change was our overriding engagement priority in 2021, in the expectation that the run-up to COP26 would prove a critical window of time to press companies to align their business strategies with a net zero future. This proved to be the case, with investor pressure combined with public and political momentum leading to a rapid growth in the number of companies making net zero commitments. By the time of the Glasgow Summit, over 3000 companies had such commitments in place.

 

Our engagement ranged across sectors and regions, covering not only fossil fuel firms but also energy consumers, such as industrials and automotives, as well as the finance sector. With long-term net zero commitments becoming more common, our focus was on implementation – turning these aspirations into concrete business strategies.

 

In line with best practice standards, particularly the Climate Action 100+ benchmark, we have called for companies to take actions in these areas:

 

  • Targets: Net zero emissions ambition, and shorter-term interim targets consistent with a 1.5 degree trajectory
  • Strategy: Credible implementation plan for these targets, including alignment of capital allocation plans
  • Lobbying: Alignment of climate lobbying activities with net zero goals
  • Governance: Integration of climate goals into governance structure and executive pay
  • Disclosure: Reporting in line with the Task Force on Climate-related Financial Disclosures (TCFD)
SDG biodiversity

Biodiversity 

We engaged companies to explore biodiversity-related impacts and dependencies. We also engaged on governance and perceived materiality of biodiversity to understand how companies incorporate current environmental initiatives under a biodiversity umbrella. We developed a proxy voting policy focusing on companies with high exposure to biodiversity impacts but lacking adequate disclosure.

 

We joined the Investor Policy Dialogue on Deforestation, which focuses on sovereign engagement in Brazil and Indonesia. Ahead of the second part of COP15 this spring, we signed a letter calling for an ambitious global framework on biodiversity. We also signed letters to both EU and UK authorities, urging agricultural policies to be designed to restore biodiversity and address climate change. We are active members of the PRI Sustainable Commodities Practitioners’ Group and collaborate with other investors under the FAIRR Sustainable Proteins initiatives.

 

In our publications, we reflected on the impact of pesticides on pollinators and progress towards more nature-positive farming practices. We have written about what investors can do to tackle plastic pollution, through influencing companies to reduce waste and adopt circular practices. To support companies battling a plethora of national regulations, we supported a call for a UN treaty on plastic pollution.

 

2022 is promising to deliver significant developments in this area, including the global biodiversity framework from COP15, increased attention by regulators including central banks reporting on biodiversity and financial stability, additional nature-related guidance, and the first version of the TNFD reporting framework. We look forward to playing an active role in the stakeholder community to further leverage our biodiversity engagement and wider environmental stewardship theme.

SDG diversity

Diversity 

Our work on diversity was substantially extended in 2021. We joined the US 30% Coalition, as well as the newly founded 30% Club in France, and continued work with the Interfaith Center on Corporate Sustainability (ICCR) on racial equity. We also enhanced our voting policy on diversity aspects. We will vote against the chair of their nomination committee or the chair of their board if companies fail to meet our expectations on ethnic diversity of at least one board member at the largest companies in the US, UK and Canada, unless mitigating factors are present. These countries where selected given advanced societal, regulatory and investor expectations. Our expectations for gender diversity changed in Canada, and we are expecting for TSX companies to have no less than 30% female representation (previously 25%), and will otherwise vote against the Chair of the Board’s Nomination Committee.

 

Engagement-wise, next to leading on names that are covered by the 30% Clubs in the UK and France, and the 30% Coalition in the US, we launched a dedicated mDAX engagement with more than 50 German companies on executive board and senior leadership diversity, policies and implementation programmes to enhance workforce diversity, as well as relevant disclosure around these measures, including gender and ethnic pay gaps.

Insights

 

In 2021, our Responsible Investment team and other investment desks produced a wealth of ESG content, from in-depth viewpoints linked to our engagement projects to introductory articles that provide an overview of key ESG issues.

 

COP26 – Reflections from Glasgow

Members of our Responsible Investment team were in Glasgow to contribute to the investor voice at COP26. Did the climate summit deliver on its promise?

The role of migrant workers in supply chains

Recruiting international migrants can result in exploitation and human rights abuses. Discover our related engagement and recommendations for how companies can mitigate risks.

Engaging companies on biodiversity

Human activity is driving biodiversity loss. Discover how companies measure and manage their related impact, and how evolving regulation could reverse the trend.

2022

The prevalence of extreme weather events, including forest fires and flash floods, over the past year – combined with the ongoing disruptions caused by the pandemic – have made us even more convinced of the need to act in the interests of the planet and its future.

 

With this and our continued belief in active ownership in mind, we’ve fine-tuned our approach for the year ahead. We will continue to engage with companies across the broad range of topics material to their business strategy, but our central focus will be the key environmental issues of combating climate change and protecting biodiversity.

 

We will also continue to focus on the area of executive pay, specifically around the incorporation of environmental, social and governance (ESG) risk metrics, and we will impress on companies the importance of their human rights obligations.