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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.

Our engagement approach varies by company and the ESG-related issues at hand, ranging from ongoing, constructive dialogue to dedicated site visits.

Hoya Corp                               Hoya Corp


Modern slavery is a potential risk for all companies, but those with supply chains in high-risk countries need to be particularly careful to implement robust systems to avoid abuse.

Background: Electro-optics, eyeglass lens and medical devices manufacturer Hoya is headquartered in Japan, and has production facilities in countries including Thailand and the Philippines, where the risks of modern slavery practices such as forced labour are high. Our engagement seeks to ensure that the company has sufficient oversight of these specific risks, as well as applying adequate overall supply chain oversight.

Engagement approach: We engaged with Hoya on multiple ESG issues during 2019, including in-person meetings in the UK and Japan. Amongst other actions we included the company in a wider outreach to companies with potentially high exposure to modern slavery. The company sent a detailed response to our questions, providing information about how its Supplier Code of Conduct is used both to train staff internally and as a contractual requirement for new suppliers.

Following up on this, we had a call where we went into more detail on Hoya’s strategy in emerging markets, both in terms of its supply chain as well as its end markets. The company sees growth opportunities in markets such as China for its products. We also discussed its most recent factory in Vietnam, which is an attractive country for manufacturing due to its cost advantages, but which comes with heightened risks.

We were reassured to hear that the company employs staff directly in Vietnam rather than outsourcing, and that audits are in place; but we recommended it takes further steps to manage risk in Vietnam and elsewhere, in areas including the payment of recruitment fees or the surrender of identification documents by employees. We also called for stronger disclosure on this issue, and highlighted in particular the recommendations of NGO KnowTheChain, which had ranked Hoya 30th out of 40 companies in its benchmarking report due to a relative lack of detail in its modern slavery statement.

Outlook: In a market which is generally lagging other developed markets in its approach to sustainability, Hoya stands out as a company which was very responsive, with several engagements over the course of 2019. We have been pleased to see the company put in place a new ESG Committee, and we expect new sustainability goals to be published soon. On the key issue of modern slavery, we see the company’s approach as robust, though there remains some room for improvement particularly around disclosure.

In a market which is generally lagging other developed markets in its approach to sustainability, Hoya stands out as a company which has been very responsive.

Smurfit Kappa Group                   Smurfit Kappa Group


Paper-based packaging has the potential to be an alternative to plastics – but comes with sustainability risks of its own, including raw material sourcing, energy intensity and water use.

Background: Smurfit Kappa is a specialist in paper-based packaging. Examples of its products include cardboard packaging for postal deliveries, industrial packaging, and food packaging. We wanted to engage the company to check that the claimed sustainability benefits compared with plastics were genuine, and that potentially problematic issues such as water use were being addressed.

Engagement approach: We had separate meetings with both the CEO and CFO in 2019, and in both cases used the opportunity to ask about water management. We were pleased to hear that the company recognises the importance of a proactive approach on water, including investing in wastewater treatment plants at some mills.

We also raised some wider sustainability issues, including encouraging greater disclosure on workforce management policies and performance.

Outlook: We were reassured to hear that water management is a priority at senior executive level, as evidenced by the quality of engagement responses from both the CEO and CFO. In late 2019, we were pleased to see the company named a founding member of a new industry alliance, 4evergreen, to boost the contribution of paperbased packaging in a circular and sustainable economy. More recently the company committed itself to set a science-based climate target. This positive momentum on ESG issues is encouraging.

 

QIAGEN                                                QIAGEN


Cutting-edge medical diagnostic technologies can be prohibitively expensive for lower-income countries. We encourage companies to explore a range of solutions that can provide affordable access to all who need it.

Background: QIAGEN specialises in molecular testing procedures designed to accurately diagnose a range of diseases, such as tuberculosis (TB). Our engagement sought to understand how the company is making these available in emerging markets.

Engagement approach: We met with QIAGEN’s Chief Financial Officer and had an in-depth discussion on the company’s emerging market strategy. We learned that it is pursuing a two-tier strategy in TB testing, with a base-level solution specifically designed for lower-income countries alongside its standard model for developed markets. It is also collaborating with the Gates Foundation in this area. Another area of focus is cervical cancer, currently one of the most preventable cancers. QIAGEN works with the Gates Foundation to provide tests for high-risk human papillomavirus (HPV), the primary cause of cervical cancer, in countries with limited healthcare resources in Africa, Asia and Latin America.

We also discussed some of the practical issues the company is working to overcome, such as a lack of refrigeration facilities in some lower-income countries, which has led to work on chemicals which can be stored in ambient temperatures.

Outlook: We were pleased to see the company give a comprehensive response to the access issue, which should make it well-placed to benefit from the long-term growth trend in healthcare spending in emerging markets, as well as supporting target 3.8 on universal access to healthcare.

We were pleased to see the company give a comprehensive response to the access issue, which should make it well-placed to benefit from the long-term growth trend in healthcare spending in emerging markets.

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

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.

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