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Responsible Investment Solutions For professional investors/qualified investors only BMO Sustainable Opportunities Global Equity Strategy ESG Profile and Impact Report 2021
The BMO Sustainable Opportunities Global Equity Strategy is part of a wider range of BMO sustainability-focused global equity products Investing with impact in mind which follow our Avoid – Invest – Improve framework In last year’s executive summary we acknowledged a turbulent global backdrop, one already threatened by the spectre of surging COVID-19 cases, but little did we imagine quite how far-reaching and disruptive this global pandemic would prove to be to the very fabric of our global community. The human toll has been shocking, the financial and mental impact immense, and the collective scars will take a very long time to heal. However, despite the debilitating strains of the past year, we stand by our conviction that we should be optimistic about the future, because we believe in the enduring ability and ingenuity of individuals, companies and society to come up with sustainable products and solutions to meet challenges and create opportunity from adversity. And there is no finer example of this than the fast-tracked, vaccine development programmes that are currently lighting the path out of Investment Philosophy this crisis. Moreover, the events of the last year have also accelerated a broader understanding of just how unsustainable many aspects of modern life had become – from the under-investment in public health and disease prevention systems, to the excessive degree of carbon-intensive global travel, to the growing social inequalities that the past few decades of Avoid Invest Improve economic growth have papered over. Prolonged periods of lockdown have presented an opportunity to pause, to reflect Exclusions Sustainability- Driving change and consider how to restart life in a better, more sustainable manner, and we will continue to use the Sustainable focused Development Goals (SDGs) as our north star for enabling this to happen. Our Sustainable Opportunities Global Equity Strategy strives to play its part in mobilising capital towards securing a more sustainable future for all. We are committed to our task. It is entirely valid to explore what kind of impact can be achieved Explicitly exclude Invest in companies Engage to encourage by investing in listed equities, and our experience leaves us more convinced than ever that it is possible to deliver on our companies based on providing sustainability companies to improve both twin ambitions of delivering attractive risk-adjusted investment returns and achieving positive non-financial impact. clearly defined product & solutions and/or companies their product and conduct, conduct ethical criteria making a positive including supporting the Following last year’s inaugural annual report, this year we are pleased to introduce our updated sustainability themes – contribution to society and/ ambitious UN Sustainable we have expanded to seven, from the previous six – and further granularity in how we assess each business within the or the environment Development Goals portfolio with respect to their contribution to driving a more sustainable future; our assessment of each company’s A.I.M. Furthermore, in the year that the U.K. finally plans to host the 2021 United Nations Climate Change Conference (COP26) BMO Responsible Global Equity we provide more granular insight around our approach to climate change reporting, including company-level data on net zero alignment, and what we think this means at a portfolio level. BMO Sustainable Opportunities Global Equity After what has been an extraordinary year, we hope that this report is an enjoyable, enlightening read, and continues to deepen your understanding of our Strategy. As ever, we welcome all feedback, and we thank you for the trust that you BMO SDG Engagement place in our Strategy and our team. Global Equity Nick Henderson & Sacha El Khoury Active ownership – engagement and voting ESG integration Impact reporting Nick Henderson Sacha El Khoury Director, Portfolio Manager, Director, Portfolio Manager, Global Equities Global Equities Key risks Screening out sectors or companies may result in less diversification and hence more volatility in investment values. 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. 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. BMO Sustainable Opportunities Global Equity Strategy ESG Profile and Impact Report 2021 3
Investing for a better future As in past reports, we have assessed the connection between our Strategy and the SDGs, based on an analysis of the main sources of revenue for each of the companies in the Strategy. Specifically, we measure how the individual sources of revenue Negative links for each company correspond to the 169 targets that underlie The products and services that the companies held in our Sustainable Opportunities Global Equity the goals – so that one company, depending on its mix of Our analysis also identifies some of our companies’ negative contributions to the Strategy provide can lead to positive impacts on the environment and/or society. We use the UN goods and services, may have links to more than one goal. SDGs. That is, those products or services The results of this analysis are summarised here, with a full Sustainable Development Goals (SDGs) as our starting point to map such impacts. breakdown of the Strategy and relevant SDG links provided in that companies in our Strategy offer which might hinder the achievement of some of the SDGs. the following pages. Whilst the Strategy screens remove many such Our analysis found that 95% of the activities of the companies companies (such as tobacco or weapons producers), we invest in are linked to one of the Sustainable Development we did still identify some negative links. Accounting Goals – a rise from 82% last year. for just over 1% of underlying company revenues, The strongest connections we have found remain with SDG3 these comprised the small amount of aviation – Good Health and Well-being, and SDG8 – Decent Work and exposure at Shimadzu Corp, business lines at Economic Growth. The Strategy has a number of healthcare chemicals firm Linde and quality assurance firm and pharmaceutical companies that support targets within Intertek which provide services to the energy sector, Strategy alignment with the SDGs 1 . 2% Cash 0.9% Positive 95.0% SDG3, including target 3.8, which sets an ambition of access to as well as the Energy division at Verisk Analytics. ive and underlying targets g at affordable healthcare for all. This division is progressively moving towards Ne .8% renewable energy data and advisory, but given a lack l2 Our investments in technology and industrial companies u t ra Cash of disclosure here, we assign a negative link to the Ne providing sustainability solutions align with target 8.2, entire division at this stage. which calls for technological innovation to support increased Neutral 9.1 13.2 2.1 productivity and economic growth. This includes companies Since our methodology is based on the analysis of 3.4 17.6 providing, for instance, testing and measurement services; revenue streams, it does not recognise all the ways 7.16 Tar Other 7.11 g et energy-efficient electronic components; and software designed that companies in the Strategy contribute to the SDGs. 1 lev .6 el: 12 to improve business efficiency. The Strategy has also seen an Companies also have an impact – either positive or 2. 5 % 2.8 0. % 8 0.4 % 0.9 % 2 % 2.5 .9 % increase in the alignment to SDG9 – Industry, Innovation and negative – on the SDGs through the way they treat 1 2.1 End hunger and ensure % Goa 3.1 l le Infrastructure, as we see ongoing requirement for improving their staff and wider stakeholders, and how they 3.8 .3 access to safe and nutritious ve 12 food; 3.4 Reduce mortality % l: building energy efficiency (target 9.4) and have therefore manage their own environmental footprint. We aim 8 9.c from non-communicable initiated positions in businesses such as Schneider Electric, as to capture this through the Strategy Metrics on Pages 5. diseases and promote well as continuing to invest in companies providing finance to 26-29, as well as through our engagement. 20. mental health; 3.8 Access 8 small and medium-sized enterprises, supporting target 9.3 on % to medicines and health-care; 3.9 Reduce improving access to finance for such companies, such as SVB 9.4 deaths and illnesses from Financial Group. pollution and BMO Sustainable 3.9 * 16.7 % contamination; 4.2 Ensure equal access to pre- Opportunities Global . 4 4. 2 2.0 % 3. 2% primary development and care; 4.4 Increase the Equity Strategy 6.4 * 4 9.3 number of technically and vocational trained individuals; 6.4 Increase Deeper assessment Positive 76% 5.6 % water-use efficiency to 7.1 9.1 address water scarcity; 7.1 Our SDG alignment charts show the connection between External Manager Not 7.2 Ensure universal access to Mapped Cash and 3% a fund and the SDGs and are based on an analysis of Sovereigns e iv at modern energy services; 7.2 t leve l: 2.1 * 3.3 3.4 g e Targ Ne Other Substantially increase the the sources of revenue for each company we invest in. 7.3 global share of renewable Specifically, we measure how the sources of revenue l lev el: 1% 3% 3 .2 .8 Goa 13 energy; 7.3 Double the global rate 10 % 16 % for each company correspond to the 169 targets that % 1 of improvement in energy 3 2. 5 % 2% 3.9* Neutral efficiency; 8.2 Achieve greater 0 underlie the goals. 4. 2 4 8.1 0% .4 6.4 productivity through innovation; 8.10 N e ut ra l 1 10 % 2% 2 Increase access to finance; 9.1 Develop The analysis does not capture all the ways the companies * 7.1 7.2 % resilient and sustainable infrastructure; 9.3 5% contribute to the SDGs and is not an indicator of conduct 3% Other 8.2 * 12.6 12 Increase access to finance for SME’s; 9.4 7.3 or how well the company is managing a certain issue, but 5% Upgrade and retrofit industries to increase .5 12 sustainability; 9.c Ensure universal and affordable an assessment of whether the product or service produced .3 4 % 8.10 *11 access to ICT; 12.3 Halve global food waste at the .5 1 22 % or provided contribute positively, neutrally or negatively to 1.2 11. 14 % production and consumer level; 12.5 Reduce waste 1* achieving the SDG targets. 9.c through prevention, reduction, recycling and reuse; 12.6 9.4 Encourage companies to adopt sustainable practices and enhance 9.3 8.2 ESG reporting; 13.2 Integrate climate change plans into policies and 9.1 * Aligning companies we invest in, and their strategies; 17.1 Allow developing countries to utilise domestic resources; 17.6 Enhance international cooperation and access to knowledge; 17.16 Leverage multi-stakeholder 1 underlying business segments, to an SDG partnerships to share resources. Aligning companies we invest in, and their Source: BMO Global Asset Management, as at 31st December 2020, designed for illustrative purposes, subject to change. Other = SDGs less than 2%, * = SDG targets within the denoted goal that are less than 0.3% 2 underlying business segments, to an SDG target 4 BMO Global Asset Management BMO Sustainable Opportunities Global Equity Strategy ESG Profile and Impact Report 2021 5
A robust and transparent framework to assess sustainability The sustainability A.I.M. of companies’ products and services: Additionality Intentionality Materiality The innovation provided The drive of the business Revenue linkage of the to address emerging and management team to company towards sustainability sustainability challenges. direct the company towards opportunities, thereby providing sustainability challenges. granularity as to the importance of sustainability to each investee company. Evolving best practice of sustainability • Additionality: To what extent is the company a • Materiality: How material are sustainability Each assessment is factored into our Sustainability assessment sustainability innovator, rather than a follower? Are the opportunities for the company? Here, we take the view Matrix (below) which directly affects each products and services truly innovative and making a real- that over 50% of revenues need to be positively aligned company's valuation. With increasing rhetoric from both the fund management world impact on society/environment? Here we focus on to long-term sustainability themes as proxied by the industry and within the investee corporate landscape and evidence the fund’s exposure through our view of SDGs or be on a pathway to doing so in 2-3 years. regarding sustainability, we look to stay true to what our high quality, wide moat businesses. investors expect of us; that we are clearly, deliberately Weight Environment Society Total Rationale and diligently investing in companies that are truly • Intentionality: How core is sustainability to the Additionality 40% 5% Neutral Neutral Neutral 0.0 0.0 delivering upon sustainability challenges. With that in company’s strategy and overall raison d’être? Here we Product / Intentionality 5% Neutral 0.0 mind, the A.I.M. framework was established to identify leverage our extensive engagement capability to assess "The A.I.M. framework was established Services Materiality YES - - - - - - companies that are making a real difference, where the company’s transparency and communication around to identify companies that are C o Suppliers 15% Neutral Neutral 0.0 sustainability is a focus area of the business, and where strategic goals, which will evidence the management n Employees 15% Neutral Neutral 0.0 it does make up a substantial part of the business, rather team and Board’s intentions in prioritising these issues/ making a real difference" d u t Willingness 20% Neutral Neutral 0.0 c to engage than being some case study or marketing exercise: opportunities. Nick Henderson, Director, Global Equities Total Score 100% 50% 6 BMO Global Asset Management BMO Sustainable Opportunities Global Equity Strategy ESG Profile and Impact Report 2021 7
Connect & protect Technological advances create huge opportunities to advance our collective connectivity, as well as bringing in a swath of technologies to progress social wellbeing, supply chain efficiencies and sustainable cities. We look for those companies that are promoting public ‘good’ and doing so in a safe, secure, and customer-centric way. The power of technology is phenomenal, touching almost all Businesses such as Keyence Corp and Crown Castle aspects of our lives. However, in order to drive improvements International embody this focus on delivering critical within society it must be used in the right way; with customers’ infrastructure upon which connectivity can be built; such as rights at the fore. Indeed, there are numerous examples of that to deliver safer, smarter factories, and providing cities the misuse of customer data, which can lead to both financial with mission-critical digital infrastructure. Motorola Solutions and reputational damage. Within our Sustainable Opportunities also provide critical systems combining resilient hardware and Sustainability Global Equity Strategy, we champion those companies that are software capabilities to ensure continuing high-quality services progressing connectivity, enabling a safer environment for us all, to first responders, such as communication equipment to fire but doing so in a way that benefits all stakeholders, not simply services and 21st century oversight capabilities to police dispatch leveraging customer data to enhance the bottom line. centres around the world. themes Company Company description SDG Alignment Number and subject of engagement(s) in 2020 Milestones Crown Castle Provider of critical telecommunications Target 9.1; Share of company revenue 100% 0 0 International Corp. infrastructure, from macro towers to local Provides digital infrastructure through the Real Estate small cells, enabling greater connectivity installation of fibre networks United States including 5G, IoT and connected vehicles Descartes Systems Provider of logistics technologies to enable Target 8.2; Share of company revenue 100% 2: Climate Change, 0 Group routing efficiencies, including reducing Backbone IT infrastructure for the logistics industry, Corporate Governance Information Technology emissions, as well as customs and enabling routing efficiencies and carbon reduction Canada regulatory compliance capabilities KEYENCE Corp. With a proven ability to remain highly Target 8.2; Share of company revenue 100% 0 0 Information Technology profitable even in a downturn, Keyence fits Supports economic efficiency by producing sensors, Japan into our Connect & protect theme in making lasers and measuring equipment to make production lines safer, and more efficient manufacturing and research processes more effective “The COVID-19 pandemic has Motorola Solutions Provider of mission critical Target 16.3; Share of company revenue 68% 0 Milestone – Significantly Information Technology telecommunication software and hardware increased dividend demonstrated that meaningful digital United States including allowing first responders more Providing police, fire, and healthcare oversight advances software to improve efficiency of first payout reliable and higher performing connectivity access is indispensable to global responder network resilience and prosperity.” Target 8.2; Share of company revenue 32% Providing emergency response teams and wider industry with robust reliable communication International Chamber of Commerce hardware Roper Technologies, Inc. Diversified technology business providing Target 8.2; Share of company revenue 42% 0 0 Industrials innovative engineering solutions ranging Enables greater economic productivity by providing United States from industrial (water efficiency) to communications and software solutions healthcare (diagnostics) end markets Target 9.1; Share of company revenue 48% Supports more resilient infrastructure by providing water meters and related technologies Where company revenues do not add to 100%, then there is no SDG link for the remainder of the business revenues. N/As equate to neutral alignment. 8 BMO Global Asset Management BMO Sustainable Opportunities Global Equity Strategy ESG Profile and Impact Report 2021 9
Digital empowerment The explosion of data in recent years has been nothing short of mind-blowing, especially when we consider that 90% of all data created was in the last 2 years alone. There is a huge opportunity for this data to be harnessed for good; better informing our climate change efforts, enabling better healthcare, and empowering smaller businesses, leading to broader competition and employment opportunities. Emerging technologies such as blockchain bring opportunities choice and better price to consumers. PayPal embodies the to aggregate vast data sets which offer improved insights promotion of SMEs, providing a platform upon which SMEs can into applications spanning ESG issues, from enabling a circular interact with millions of customers, and rely upon a safe, secure economy, to safer, more secure cross-border transactions, and reliable payment processing platform. and storing medical data. Central to this digital progress is The harnessing of data also has the power to create resilient the design and manufacture of low-power consumption, infrastructure and communities, as demonstrated by Verisk advanced semiconductors, such as those produced by Taiwan Analytics. They leverage huge proprietary data sets to better Semiconductor Manufacturing Company (TSMC), the world’s inform property and casualty insurers regarding climate-related leading chip foundry. risks amongst others, enabling insurers to cover uninsurable Similarly, we firmly believe in the power of small and medium- areas, providing financial inclusion and security that might sized enterprises (SMEs) to enhance competition to bring greater otherwise not have been possible. Company Company description SDG Alignment Number and subject of Milestones Company Company description SDG Alignment Number and subject of Milestones engagement(s) in 2020 engagement(s) in 2020 Mastercard Inc. Strong market position and brand strength; Target 8.2; Share of company revenue 100% 0 Milestone – Reduced Verisk Analytics Provider of data and consultancy Target 13.1; Share of company revenue 71% 0 0 Information Technology growth underpinned by accelerating cashless Supports economic efficiency through the provision external appointments of Information Technology services, providing P&C insurers with the Providing resilient infrastructure through the United States and mobile transactions. Provides access to of payment services overboarded director United States analytics to better insure against climate provision of analytical data sets allowing P&C finance for under-developed markets and related risks, allowing greater insurance insurers cover previously uninsurable areas on communities whilst also providing education coverage. Energy consultancy account of climate risk to boost financial literacy incrementally renewable focused Target 17.1; Share of company revenue 7% Microsoft Corp. Delivering enterprise level efficiency through Target 8.2; Share of company revenue 85% 3: Climate Change, Labour Milestone – Committed to Provides data sets to Financial services Information Technology Office 365 products, as well as IT flexibility Offers cloud computing storage enabling more Standards, Corporate be carbon negative by industry to meet regulatory requirements United States and emissions reduction through Azure energy efficiency in IT systems, and information Governance 2030 hosting. Also market leading commitments to and communications technology supporting Target 13.2; Share of company revenue 22% GHG reductions economic productivity Whilst the energy business (Wood Mackenzie) is increasingly renewables focused, PayPal Holdings, Inc. Leading provider of safe and secure payment Target 8.2; Share of company revenue 100% 1: Business Conduct, Labour Milestone – Improved granularity of materiality is not yet there, so Information Technology services as e-commerce accelerates. PayPal Supports economic efficiency through the provision Standards impact reporting we negatively align this segment on account United States also places a strong emphasis on financial of payment services of Oil & Gas exposure inclusion around the globe with a strong environmental commitment Wolters Kluwer N.V. Wolters Kluwer provide their clients in 6: Corporate Governance, 0 Target 4.4; Share of company revenue 69% Industrials the health, tax & accounting, Supports access to health, governmental Labour Standards, Public SAP SE Multi-national software provider enabling Target 8.2; Share of company revenue 100% 4: Labour Standards Netherlands governance, risk & compliance and legal and legal education through the Health Information Technology enterprise efficiency through ERP and CRM Produces a wide range of software solutions & regulatory with expert solutions and provision of consulting services and Germany capabilities, as well as improved IT mobility designed to support business efficiency productivity tools, which empower educational materials through cloud based applications customers to make better decisions Taiwan Semiconductor TSMC is the world's leading semiconductor 1: Corporate Governance Milestone – Announced when it matters most Target 17.1; Share of company revenue 31% Target 8.2; Share of company revenue 100% Manufacturing Co., Ltd. manufacturer. Its leading edge technology Supports greater energy efficiency in a wide range significant renewable Provides a range of tax and accounting Information Technology enables their clients to create innovative of technologies through the production of energy deal, Milestone service to help companies with compliance Taiwan products using more powerful processors semiconductors – Appointed new and regulatory requirements that consume less energy independent directors Where company revenues do not add to 100%, then there is no SDG link for the remainder of the business revenues. N/As equate to neutral alignment. Where company revenues do not add to 100%, then there is no SDG link for the remainder of the business revenues. N/As equate to neutral alignment. 10 BMO Global Asset Management BMO Sustainable Opportunities Global Equity Strategy ESG Profile and Impact Report 2021 11
Energy transition The energy transition is the pathway towards transforming the global energy sector from one dominated by fossil fuel-based systems of energy production and consumption – including oil, natural gas, and coal – to a system of zero-carbon and renewable energy sources, such as solar, wind and hydropower. A transformation is required across all types of energy use, not Whilst improving economics are helping the energy transition “Until we reach a carbon- just the more obvious areas like power generation. Transport is take place, until we reach a carbon-neutral electricity generation another key area, where the falling cost of rechargeable batteries system, it remains crucial to maximise opportunities to increase neutral electricity generation and the increasing cost competitiveness of electric vehicles energy efficiency whilst better managing energy demand. This system, it remains crucial to are driving up demand, and battery materials are an investible is an essential part of achieving the goals of the Paris climate area for us through companies such as Umicore. Equally, the agreement. There are a range of opportunities here, with maximise opportunities to shift towards sustainable mobility needs reliable charging one example being industrial gas companies, such as Linde, increase energy efficiency.” infrastructure, and Alfen Beheer are providing this backbone who play a crucial role in helping their industrial customers Jamie Jenkins, Managing Director, infrastructure in Europe. reduce emissions. Co-Head of Global Equities Company Company description SDG Alignment Number and subject of Milestones engagement(s) in 2020 Linde Plc High quality industrial gases business Target 9.4; Share of company revenue 83% 1: H uman Rights, Labour Milestone – Improved Materials operating in consolidated sector with strong Produces a range of industrial gases which are used Standards alignment of executive Britain moat. Provides gases allowing customers to to make industrial processes more efficient compensation reduce carbon emissions and has boosted hydrogen investments as part of its Target 9.1; Share of company revenue 10% decarbonisation focus Provides services to the energy and aerospace industries Orsted A/S A global renewable energy developer and Target 7.2; Share of company revenue 100% 0 0 Utilities power utility with a leading position in Enabling an increase in renewable energy within the Norway offshore wind farms, given its strong global energy mix through the construction and technical expertise and construction track maintenance of wind farms around the globe record Schneider Electric SE Schneider Electric is a global leader in Target 9.4; Share of company revenue 77% 1: Corporate Governance 0 Industrials energy management and automation Provides energy management products and services France solution, selling into end markets like that enable companies to improve their energy Buildings, Industrials, and Data Centers. efficiency They are at the heart of the transition to a more energy efficient world Target 8.2; Share of company revenue 23% Supports economic productivity through the provision of industrial automation and software solutions Umicore From manufacturing automotive catalysts Target 9.4; Share of company revenue 42% 2: C limate Change, 0 Materials that deliver emission reductions, to the Produces catalysts and filters to reduce local air Environmental Belgium complex recycling of precious metals and pollution from transportation, and electric vehicle Stewardship, Labour the chemistry behind cathode materials batteries which support the transition towards Standards required for EV batteries, Umicore is a electrified transport systems sustainability leader Target 12.5; Share of company revenue 58% Recycles precious metals, supporting a circular economy Where company revenues do not add to 100%, then there is no SDG link for the remainder of the business revenues. N/As equate to neutral alignment. 12 BMO Global Asset Management
Health & well-being Company Company description SDG Alignment Number and subject of engagement(s) in 2020 Milestones Humana, Inc. A leading United States health insurer Target 3.8; Share of company revenue 100% 0 0 Health Care providing senior citizens with quality Provides access to healthcare through its medical No one could have anticipated the scope and scale of impact caused by COVID-19. We appreciate, United States medical coverage, as well as various value-based care programmes to support insurance products now more than ever, the requirement for robust and efficient healthcare systems around the world. both mental and physical well-being Illumina, Inc. An innovative diagnostics equipment provider Target 3.8; Share of company revenue 100% 0 0 Materials focused in next generation sequencing of Supports access to healthcare through the United States DNA, enabling critical diagnoses of multiple development of novel sequencing technologies health conditions and illnesses International Flavors & Following the merger with Dow Dupont's Target 2.1; Share of company revenue 63% 1: Environmental 0 Fragrances, Inc. Nutrition & Biosciences business, IFF is now Delivers innovative ingredients formulations to Stewardship, Human Materials the largest specialist ingredient provider to enable better nutritional profiles Rights, Labour United States the food, beverage, home care and personal Standards, Public Health care end markets with unparalleled portfolio breadth Kerry Group Plc Kerry Group is a specialist ingredient Target 2.1; Share of company revenue 82% 4: Corporate Governance, Milestone – Improvement Consumer Staples provider to the food and beverage markets, Produces ingredients which contribute to the Environmental in health and safety Ireland where clients depend on their innovative provision of safe, nutritious food Stewardship, Labour practices, Milestone – With increased globalisation and urbanisation, communicable We invest in companies seeking to tackle these issues through solutions to drive better nutrition, clean up Standards, Public Health Improvements in water disease rates are increasing. Together with ageing a range of products and services. These include companies labels and lower their ingredients' management, Milestone demographics, rising obesity, and the increasing prevalence of innovating through next-generation sequencing equipment, and environmental footprint – Improvements in waste management and non-communicable diseases, the picture is clear: the demand those rolling-out coronavirus tests. They also include companies packaging, Milestone for healthcare is rising. However, the supply of healthcare working on healthcare data digitalisation; delivering key medical – Strengthened remains constrained, particularly in emerging markets. supplies to the world’s hospitals; providing dependable eye care; management of supply chain ESG risks According to the World Health Organization, as many as five innovating on next-generation DNA sequencing; and providing billion people will still lack access to healthcare in 2030 if health insurance for senior citizens. 2020 also saw many portfolio Mettler-Toledo Laboratory and industrial equipment driving Target 3.8; Share of company revenue 52% 2: Environmental Milestone – Announced International, Inc. better healthcare and enabling precision Helps access to safe and high-quality medicines Stewardship, Labour waste reduction targets current global trends persist1. companies, such as Thermo Fisher Scientific, providing critical Health Care manufacturing. Good sustainability Standards, Corporate through its laboratory testing services and COVID-19 supplies, such as reliable testing. United States practices, including a recent commitment to analytical instruments Governance reduce water intensity by 20%, and achieve zero waste to landfill Target 8.2; Share of company revenue 41% Contributes to economic efficiency through its range of testing products and services Company Company description SDG Alignment Number and subject of Milestones engagement(s) in 2020 Pigeon Corp. Leader in the manufacture of baby goods, Target 3.2; Share of company revenue 89% 0 0 Consumer Staples including high-value baby bottles. A key play Childcare equipment, enabling high quality new-born CSL Ltd. The science of CSL saves lives. They develop Target 3.3; Share of company revenue 14% 0 0 Japan on increased spend on infant health and care, reducing preventable deaths of new-borns Health Care and deliver innovative medicines that help Produces vaccines for influenza and other nutrition across emerging markets Australia people with serious and life-threatening communicable diseases Target 4.2; Share of company revenue 3% conditions live full lives, and protect Childcare support, helping new-born development communities around the world Target 3.4; Share of company revenue 86% Supports the treatment of non-communicable diseases Shimadzu Corp. Asia's leading scientific instruments player, Target 3.8; Share of company revenue 80% 1: Corporate Governance 0 through the development of a range of innovative Information Technology selling instruments used to test the safety Healthcare measuring and diagnostics equipment, biotheraphy treatments Japan of food, pharmaceutical and consumer driving high quality healthcare services staples products, as well as for testing air CVS Health Corp. An integrated health insurer, pharmacy Target 3.8; Share of company revenue 98% 0 0 and water purity and safety Target 9.1; Share of company revenue 11% Health Care benefit manager and retail pharmacy, Provides access to healthcare through its retail Scientific instruments provided to industrial sectors, United States providing services which are core to pharmacy stores and clinics enabling industrial efficiency day-to-day life for millions of Americans Fresenius SE & Co. KGaA A diversified healthcare services provider 4: Labour Standards Milestone – enhanced Target 13.2; Share of company revenue 8% Target 3.4; Share of company revenue 49% Aviation equipment segment negatively aligned Health Care focused on dialysis, hospital care and Provides products and services for patients with workforce data disclosure Germany generic intravenous medicines, delivering (WDI) given climate impact of the sector chronic kidney failure life-saving care to patients worldwide Thermo Fisher Global provider of high-quality, innovative Target 3.4; Share of company revenue 39% 0 0 Target 3.8; Share of company revenue 51% Scientific, Inc. life sciences equipment and services which Produces a range of products and services aimed at Supports access to healthcare through the provision of Health Care enhance accuracy and safety in clinical the treatment of noncommunicable diseases private hospital and care centres, pharmaceutical United States research, drug development, and products and service provision for healthcare providers diagnostics testing Target 3.8; Share of company revenue 61% Hoya Corp. Supporting the vision of people around the 3: C limate Change, 0 Supports access to healthcare via its range of Target 3.8; Share of company revenue 65% analytical and data tools Health Care world through production of eyeglass Provides access to healthcare through the production Corporate Governance, Japan lenses, contact lenses and intraocular lenses of eyeglass and lens products, and of medical Environmental used for cataract operations, combatting the endoscopes Stewardship, Human leading cause of blindness worldwide Rights, Labour Target 8.2; Share of company revenue 34% Standards, Public Health "Communicable disease rates are increasing which together with ageing demographics, rising obesity, Enables gains in economic productivity through technologies used in a range of digital products such and the increasing prevalence of non-communicable diseases mean the demand for healthcare is rising." as phones Sacha El Khoury, Director, Global Equities 1 Source: World Health Organization, Universal Health Coverage Monitoring Report, 22 September 2019. Where company revenues do not add to 100%, then there is no SDG link for the remainder of the business revenues. N/As equate to neutral alignment. Where company revenues do not add to 100%, then there is no SDG link for the remainder of the business revenues. N/As equate to neutral alignment. 14 BMO Global Asset Management BMO Sustainable Opportunities Global Equity Strategy ESG Profile and Impact Report 2021 15
Resource efficiency Resource efficiency is the art of using the Earth’s limited resources in a more sustainable way, whilst minimising the impact that we have on the environment – doing more with less. Resource inefficiency, as we all too aware, is distressingly common. Only half of the edible food we produce is ever actually eaten. as their factories and production plants, even as they produce Meanwhile, despite being the most abundant compound on environmental solutions as their core business. We have been the planet, one in nine people do not have access to clean, pleased to see some of our Strategy companies taking important safe water. steps to address this, such as paper packaging firm Smurfit Kappa Group, which has committed to set science-based targets Corporations can and must be at the forefront of driving a more for its greenhouse gas emissions. efficient use of natural resources, such as water and minerals. In our Sustainable Opportunities Global Equity Strategy, we are invested in some of the most innovative companies whose products and services are driving resource efficiency and encouraging companies to think about their role in the circular economy, such as Americold Realty Trust, whose temperature- controlled storage and distribution products help to cut food waste. The result is not only bringing about a more sustainable Corporations can and must be at the planet; it is also enabling businesses to be less wasteful and forefront of driving a more efficient use of more profitable. natural resources. Several of our investee companies have a relatively heavy environmental footprint in terms of their direct operations, such Nick Henderson, Director, Global Equities Company Company description SDG Alignment Number and subject of Milestones Company Company description SDG Alignment Number and subject of Milestones engagement(s) in 2020 engagement(s) in 2020 Americold Realty Largest listed cold and frozen food Target 12.3; Share of company revenue 99% 2: Climate Change, Corporate 0 Smurfit Kappa Group Plc Smurfit is exposed to a number of Target 12.5; Share of company revenue 100% 9: Climate Change, Corporate Milestone – Aligned Trust, Inc. storage and logistics firm, structured Provides cold storage and logistics Governance Materials megatrends, such as eCommerce, and is Provides environmentally sustainable Governance, Labour climate goals with SBTI, Real Estate as a REIT. Sustainability focused on infrastructure to help reduce food waste and Ireland leading the way in the shift from plastic paper-based packaging, reducing waste Standards Milestone – Departure of United States reducing global food waste and spoilage packaging to paper, with a generation overboarded director, switching facilities to use renewable management that is committed to Milestone – Improved power sustainability climate change management practices Intertek Group Plc Testing, inspection, certification and Target 12.6; Share of company revenue 83% 3: Corporate Governance, 0 Industrials assurance provider, enabling product Enables companies to better monitor and Labour Standards Xylem, Inc. Strong and diverse portfolio addressing Target 6.4; Share of company revenue 85% 3: Corporate Governance, 0 Britain and conduct supply chain compliance manage their sustainability impact with Industrials global water challenges, such as improving Enables greater water efficiency through its Environmental with safety, environmental and social services including sustainability analysis and United States water efficiency and accessibility in local comprehensive range of water solutions Stewardship, Labour requirements supply chain audits communities. Structural growth driven by Standards the need to address scarcity by delivering Target 9.4; Share of company revenue 15% Target 13.2; Share of company revenue 17% operational efficiencies Supports greater water resource Provides services to the energy resources efficiency by producing measurement and industry control systems Where company revenues do not add to 100%, then there is no SDG link for the remainder of the business revenues. N/As equate to neutral alignment. Where company revenues do not add to 100%, then there is no SDG link for the remainder of the business revenues. N/As equate to neutral alignment. 16 BMO Global Asset Management BMO Sustainable Opportunities Global Equity Strategy ESG Profile and Impact Report 2021 17
Sustainable cities A growing global population coupled with urban migration is putting cities under increasing stress, from social issues such as the provision of reliable healthcare and education, to environmental challenges like global warming. This creates compelling opportunities for companies who can address these challenges head on and create sustainable urban environments for humanity to thrive in. Cities account for less than 2% of the Earth’s surface, yet they more sustainable architecture. Equally, we need to move epitomise human progress and have been an enormously about cities more safely and with a lower carbon footprint. disproportionate growth engine, generating 85% of global Aptiv’s market-leading autonomous driving solutions for the GDP1. The world has seen mass urbanisation as people automotive industry and Shimano’s strong market position have steadily moved to cities in search of better economic in bicycle componentry puts them both in a great position to prospects and opportunities. With higher population density benefit from these underlying trends. and energy-hungry infrastructure, however, it has become clear that in order to tackle some of the world’s most pressing issues such as climate change, cities need to be an integral part of the conversation: according to the United Nations, they now account for 80% of energy consumption and 60% of greenhouse gas emissions. To meet the Paris Agreement goal of limiting global warming to below 2°C, all buildings must be In order to tackle some of the world’s most Company Company description SDG Alignment Number and subject of Milestones net zero carbon by 2050 – but less than 1% are today. pressing issues such as climate change, cities engagement(s) in 2020 That creates long-term opportunities for companies such as need to be an integral part of the conversation. Aptiv Plc With a mission of Safe, Green and 1: Corporate Governance Milestone – Reduced Target 8.2; Share of company revenue 28% Autodesk, whose Smart Cities solutions are enabling the use Consumer Discretionary Connected, Aptiv provide sustainable Supports economic productivity through the provision external appointments of of real-time data to enhance the liveability of cities through Sacha El Khoury, Director, Global Equities Ireland mobility solutions globally including of safety systems overboarded director, automated driving hardware and Milestone – Published first software, as well as EV architecture Target 9.4; Share of company revenue 72% standalone sustainability Manufactures a range of vehicle powertrain solutions report which can help improve transport energy efficiency Company Company description SDG Alignment Number and subject of Milestones Autodesk, Inc. Autodesk is a global leader in 0 0 Target 8.2; Share of company revenue 93% engagement(s) in 2020 Information Technology software to improve efficiency in Provides architects with the technological tools United States the Architectural, Engineering, to improve energy and material efficiency Acuity Brands, Inc. Distributor of energy efficient indoor and Target 7.3; Share of company revenue 100% 3: Labour Standards, Milestone – Improved Construction, Manufacturing and within real estate Industrials outdoor lighting and control systems Supports improvements in energy efficiency by Corporate Governance independence of the Media industries. The growing move United States delivering energy savings through higher providing efficient lighting solutions board and key committee, to digital solutions should drive efficiencies, longer source life and smaller Milestone – Improved demand form factors alignment of executive compensation Bright Horizons Family Provider of high quality, trusted Target 4.2; Share of company revenue 96% 0 0 Solutions childcare and early learning Providing early education and childcare services Alfen Beheer B.V. With Dutch roots going back more than 80 Target 9.4; Share of company revenue 100% 0 0 Consumer Discretionary centres, enabling both improved Industrials years, Alfen Beheer is a key enabler of the ensuring quality childhood development and Providing grid infrastructure essential for the building United States infant education and learning, and Netherlands energy transition towards a smart grid, and pre-primary education of the EV charging network, retrofitting transportation providing parents with a key driver of the adoption of Electric networks for a more sustainable future infrastructure enabling their return Vehicles (EVs) as the largest pan European Target 4.6; Share of company revenue 4% to work Providing additional educational services as required provider of EV charging points Shimano, Inc. World leader in gears and brakes Target 3.4; Share of company revenue 80% 0 0 Consumer Discretionary for bicycles, with expert Produces bicycle components, contributing to Japan metal-working skills, supporting good health and the reduction in non- sustainable cities and mobility, communicable diseases and facilitating healthy lifestyles 1 The New Climate Economy, Seizing the Global Opportunity, 2015. Where company revenues do not add to 100%, then there is no SDG link for the remainder of the business revenues. N/As equate to neutral alignment. 18 BMO Global Asset Management BMO Sustainable Opportunities Global Equity Strategy ESG Profile and Impact Report 2021 19
“There's no government in the world that has enough in their budgets to be able to provide what we need to make the [net zero] transition. Ultimately, how governments, international financial institutions and private providers of capital work together is really going to determine the outcome of this challenge.” John Kerry, US Special Presidential Envoy for Climate Sustainable finance Company Company description SDG Alignment Number and subject of engagement(s) in 2020 Milestones HDFC Bank Ltd. High quality Indian bank with strong Target 9.3; Share of company revenue 22% 1: Climate Change, Corporate 0 Financials market position; addressing the Promotes socioeconomic growth by enabling Governance The financial sector is uniquely positioned to adapt and promote innovation to address global India almost 190mn unbanked adults in access to financial services for small, medium India, providing financial education and large enterprises, including sustainability challenges — including climate change, population growth and resource scarcity. The along the way affordable credit provision of training to improve financial literacy can not only serve to improve standards of personal Target 8.10; Share of company revenue 40% Promotes access to financial services for all finances, but also has an important role in addressing the needs of the most vulnerable in society, through its retail banking operations, including a particular focus on rural customers including closing the gender gap and lifting people out of the poverty trap. Intercontinental One of the world's leading financial Target 17.6; Share of company revenue 41% 0 0 Exchange, Inc. exchanges allowing efficient capital Provides data and technology services Financials raising and risk management for that support international United States global businesses. Has been at information-sharing forefront of development of environmental markets Target 17.16; Share of company revenue 59% Facilitates the sharing of financial knowledge and information through the operation of exchanges Prudential Plc Provision of health and savings Target 8.10; Share of company revenue 99% 2: Labour Standards 0 By integrating sustainability into their business strategies and and opportunities and maintain their social license to operate. Financials products to increasingly affluent Provides access to financial services through its Britain Asian market, but one with less range of insurance and savings products, decision-making, financial institutions can play a significant We are particularly interested in financial inclusion for our social security programmes offering including in emerging markets role in promoting activities that support goals such as Strategy. Over 1.5 billion people and countless businesses remain protection to meet requirements of financial inclusion, environmental stewardship and respect for excluded from traditional banking systems, particularly across the growing middle classes human rights. Importantly, financial institutions also have a emerging markets. By increasing efforts to reach the unbanked SVB Financial Group Specialist lender to the innovation Target 9.3; Share of company revenue 75% 0 0 significant role to play in accelerating the transition to a low and underbanked, the finance sector can help eliminate poverty, Financials economy is the key attraction whilst Promotes socioeconomic growth by enabling United States the company's impressive track access to financial services for small, medium carbon economy. create jobs and promote gender equality. Access to finance is core record on delivering growth without and large enterprises to the business strategy of HDFC Bank in India, which provides meaningful loan losses speaks to its We aim to invest in financial institutions that have strong financial services and free lessons in basic financial literacy to underwriting and relationship management skills sustainability and governance practices to manage ESG risks millions of individuals, including in remote rural communities. Where company revenues do not add to 100%, then there is no SDG link for the remainder of the business revenues. N/As equate to neutral alignment. Where company revenues do not add to 100%, then there is no SDG link for the remainder of the business revenues. N/As equate to neutral alignment. 20 BMO Global Asset Management BMO Sustainable Opportunities Global Equity Strategy ESG Profile and Impact Report 2021 21
Measuring real-world impact Expectations of companies’ measurement and reporting on the environmental and social impacts of their businesses continues to grow. While significant progress has been made, challenges remain. Impact metrics differ from other ESG performance indicators marginalised groups, low-income countries); the contribution mainly because they are built to track the outcomes that their actions have beyond what would have happened anyway; a company’s operations, products or services have for the and, where they are forecasting future impacts, the risk that environment or on the lives of stakeholders, such as workers, these may not materialise as planned. suppliers, and customers. In practice, many companies focus We fully acknowledge the significant challenges companies on their own actions as a proxy for impact (e.g. 5,000 new face when trying to develop environmental or social impact microloans disbursed), rather than diving deeper and using metrics that they can effectively track and measure. We have metrics to demonstrate these actions have had a positive effect been engaging with companies in the Strategy to discuss these (e.g. new microloans improved borrowers’ income by x%). challenges and offer our support in identifying best practice. Ideally, impact metrics should also address the multiple Examples in 2020 included a discussion with Schneider Electric dimensions of impact, as set out by the Impact Management on its sustainability KPIs (Key Performance Indicators), and how Project. We would like companies to consider not just what type these relate to the SDGs; and with Xylem’s CEO and CFO on the of impact they have but also how much; who is affected (e.g. company’s Access to Water goals. We have selected some examples from companies in the Strategy that report impact-related outputs or outcomes to illustrate some of the different metrics being used. 100 million units of medicine 211,000 fewer days 1.3 million tonnes “Companies should consider of carbon removal contracted for in administered to patients with bleeding as hospital inpatients and 8.6% 2020, and $1 billion allocated to climate what type of impact they have. disorders in 48 countries1 fewer visits to the emergency room, when comparing Humana’s Medicare innovation, including new carbon They should also assess how CSL removal techniques Advantage members to those using much and who is affected.” alternative services Microsoft Humana Vicki Bakhshi, Director, Responsible Investment 15 million Covid-19 tests 1st hydrogen station 11,700 jobs created administered to customers Built the world’s 1st hydrogen station for through loans to 11,094 women totalling CVS Health fuel cell-powered passenger trains $124 million by Grameen America’s San Linde Francisco Bay Area offices since 2012 SVB Financial Group 12,900,000 people 475,000 farmers 20 million Covid-19 test kits reached through the bank’s financial in East Africa registered for Mastercard Developed production capacity for over 20 literacy programme2 Farmer Network, which digitalises million Covid-19 test kits per week HDFC Bank marketplaces, payments, and other Thermo Fisher Scientific transactions for farmers 1 Units donated in 2019 2 During 2019-20 Mastercard 22 BMO Global Asset Management
Climate change 2020 Performance Our Sustainable Opportunities Global Equity Strategy remains As investor focus shifts towards net zero alignment, well below its benchmark in terms of portfolio-weighted increased attention is being paid to measuring and carbon intensity. As the chart shows, this measure of climate monitoring metrics which capture portfolio ‘ownership’ risk exposure was 93 tCO2e/USD million sales at the end of of investee company emissions. This year, therefore, we Tackling the climate crisis is one of the great challenges of our modern age. We fully support the Paris 2020, 33% below the Strategy's benchmark and over 20% lower also report the portfolio carbon footprint, which is based climate agreement, and the objective of limiting the global temperature rise to 1.5 degrees celcius. Our than the figure at end 2019. The largest contributor by far to on a calculation of the Strategy’s share of each company’s portfolio carbon intensity remains industrial gases company emissions (so, for instance, if we own 1% of a company, Strategy seeks both to invest in climate solutions, and to ensure that the companies we invest in are Linde, which by itself accounts for over half of portfolio carbon we ‘own’ 1% of that company’s emissions). This is then managing their own emissions in line with a net zero future. intensity. The company has set emissions intensity targets, and normalised by the fund size. At the end of 2020, this was has committed to setting a science-based target. We will be 24.3 tCO2e/$m invested, compared with 64.1 tCO2e/$m engaging during 2021 on its climate strategy, with a focus on invested for the benchmark. alignment with global net zero emissions. Scope 1 + 2 weighted average carbon intensity (tCO2e/USD million sales) 200 Our approach We have a comprehensive approach to climate change of an innovative new Climate Institute. Specific actions 150 171 for our Sustainable Opportunities Global Equity Strategy, supporting BMO GAM’s goals have included: which includes full integration of climate-related risks 139 • Continuing to contribute to industry standards through our and opportunities into valuations, a proactive search for 100 118 work on the Net Zero Investment Framework, which will an investment in companies providing both adaptation 93 form the basis for our approach and mitigation solutions to climate change, and ongoing 50 collaborative engagement. • Discussing progress with our Responsible Investment 31 Dec 2019 31 Dec 2020 Advisory Council, including newly-appointed December 2020 saw an important further development, as member Dr Ben Caldecott, a climate expert from the BMO Global Asset Management committed to an ambition BMO Sustainable Opportunities Global Equity Strategy Benchmark University of Oxford of reaching net zero emissions by 2050 or sooner across all assets under management, as a founder member of the Net • Establishing guiding principles for our approach to net zero. Source: Impact Cubed Zero Asset Managers Initiative. In March 2021, our parent company BMO Financial Group announced a net zero climate We are working on implementation details during the course ambition for the whole organisation, including the creation of 2021. Net zero alignment How our portfolio companies are We will lay out details in due course of our full net 10% of revenues at our investee zero alignment approach, which will incorporate both supporting emissions reductions by their customers portfolio-level targets and analysis of underlying investee companies are taxonomy-aligned, over companies’ alignment. double the benchmark figure. Several of our portfolio companies now estimate ‘avoided emissions’. This 552,000 tonnes 100 million tonnes 15 of our investee companies, making up 25% of the portfolio and 68% of portfolio-weighted carbon intensity, Alignment with the EU Taxonomy refers to emissions savings enabled by of CO2 savings in 2020 enabled in CO2 savings enabled by Linde have committed to set targets in line with the Paris their products or services, compared through telematics and logistics products, including gases for efficient climate agreement through the Science-based Targets As well as the SDG mapping featured earlier in this report, to a baseline where these products or routing efficiencies, saving 727m double glazing, and oxygen for more Initiative (SBTI). Of these, 11 have already set approved we have also looked this year at the portfolio alignment services did not exist. litres of fuel efficient steelmaking targets, with 7 assessed as being compliant with a to the EU Taxonomy, a classification system which aims to Descartes Systems Group Linde 1.5 degree global temperature pathway – CVS Health, define environmentally sustainable economic activities. So Estimation techniques for this measure Mastercard, Microsoft, Orsted, PayPal, SAP and far the Taxonomy only applies to a subset of sustainability are still emerging1, and it is important Schneider Electric. solutions, focused on climate mitigation and adaptation. that companies do not ‘net off’ these 13.1 million tonnes 134 million tonnes theoretical emissions savings against The Transition Pathway Initiative and Climate Action 100+ According to our data provider MSCI ESG, 10% of revenues their actual greenhouse gas emissions. (CA100+) Benchmark give a fuller analysis of company at our investee companies are taxonomy-aligned – over However, the data gives an important of CO2 avoided by replacing fossil-fuel of CO2 savings enabled through net zero alignment, which also takes into account factors double the benchmark figure (4.7%). This includes revenues insight into the scale of emissions energy production with renewable customer use of EcoStruxure’s such as governance, strategy and lobbying. However, due from many of our solutions providers such as Acuity savings that are being generated by energy production installation energy management systems to our limited exposure to high emitters, this Strategy Brands, Schneider Electric, Thermo Fisher Scientific the solutions provided by companies in Orsted Schneider Electric currently has zero exposure to such companies. and Umicore. our fund. See, for instance, ‘Estimating and reporting the comparative emissions impacts of products’ – World Resources Institute (2019) 1 24 BMO Global Asset Management BMO Sustainable Opportunities Global Equity Strategy ESG Profile and Impact Report 2021 25
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