Risk management matters
History provides stark examples of what can happen when businesses fail to consider and prioritise ESG issues – consider the 2010 BP Deepwater Horizon disaster, where cost-cutting and poor safety systems contributed to the death of 11 workers and the biggest marine oil spill in history. BP’s share price lost 50% in the immediate aftermath and total costs to the company were around US$62 billion. Avoiding companies that lack ESG credentials can therefore play an important role in protecting investment performance by limiting the risks derived from less responsible businesses.
Opportunities are waiting
The sustainability challenges we face can seem daunting, from limiting global warming to removing plastic from our oceans. However, they provide opportunities for investors as businesses search for solutions. Xylem, held in the BMO Responsible Global Equity Strategy, is a leading global water technology company at the forefront of addressing SDG Goal 6 – ensuring the availability and sustainable management of water and sanitation for all. Billions of people lack access to safe drinking water, while floods and droughts are increasing worldwide. Among its services, Xylem offers dewatering and data metering services. It is a high-quality business with strong margins, an example of the kind of company that can sit well in a responsible portfolio.
Active ownership and engagement
It’s important to remember that responsible investment is so much more than financial performance – its core purpose of ‘doing good’ must prevail. Managers should use their influence as stewards of capital to encourage positive change at companies through constructive dialogue and voting, helping
to ensure that positive ESG momentum is maintained and ultimately driving towards a more responsible world.
Competency means competition – sense-checking credentials
Responsible investment is evolving into the mainstream, creating competition as managers develop their ESG practices and product ranges. The quantity and quality of information varies, with some products being repackaged as responsible – so-called ‘greenwashing’.
At BMO Global Asset Management, we believe responsible investment is a mindset, hardwired into our investment activities. It sits at the centre of everything we do. From the launch of Europe’s first ethically screened fund in 1984 and our position as a founding signatory on the UN Principles of Responsible Investment, today we offer a comprehensive suite of ESG specialist funds and services, supported by our highly experienced 17-strong responsible engagement team. Active ownership is the cornerstone of our responsible investment approach: in 2019 alone, we had over 1,500 engagements with 765 companies.