Responsible Investment
Ten compelling takeaways from our Responsible Investment 2022 annual report
April 12, 2023
1. Investor demand and policy development signal strong growth prospects for Responsible Investment
In 2022, investors and regulators laid the foundation for future sustainability policy development. Here are some of the environmental, social, and governance (ESG) initiatives and regulatory changes that made history during that time.
January
The Canadian Securities Administrators (CSA) issues a Staff Notice to provide guidance on investment funds’ ESG disclosures.
March
The U.S. Securities and Exchange Commission (SEC) proposes a new rule that requires large U.S. companies to disclose “material” Scope 3 emissions, including audited Scope 1 and 2 emissions disclosures.
June
Global scrutiny of human rights prompts the development of draft modern slavery legislation in Canada.
July
The United Nations General Assembly votes to declare the ability to live in “a clean, healthy and sustainable environment” a human right for all*.
August
The U.S. Inflation Reduction Act of 2022 (IRA) is signed into law, marking the most significant legislation on climate action in U.S. history and initiating several directives to advance the development of the global clean energy industry.
December
Two delegates from our Responsible Investment team attend the UN Biodiversity Conference (COP15) in Montreal, Canada, where the landmark Kunming-Montreal Global Biodiversity Framework was adopted.
Read the full report
Download the pdf file to read our full Responsible Investment 2022 Annual Report
Building momentum in the RI sphere
Interest in Responsible investment is growing.
2. Amplifying engagement across Canada and abroad
We increased our engagement efforts from 1,300 activities in 2021 to 1,938 in 2022.This encompasses engagement conducted by both the Responsible Investment team at BMO GAM and the Responsible Engagement Overlay (reo®), a pooled engagement service with global reach. Together, we can amplify our impact on behalf of our clients.
Engagement activities | Companies engaged | Milestones achieved¶ |
|---|---|---|
1,938 | 848 | 282 |
Engagements - Environmental, Social, and Governance
3. Making our vote count toward real-world change
We strive to be as transparent as possible, which is why public details of all our voting activity, including the rationale for votes against management, are available on our Mutual Funds Proxy Voting Dashboard and Exchange Traded Funds Proxy Voting Dashboard.
Items voted | Items voted against management | Company meetings voted | Shareholder proposals supported |
|---|---|---|---|
65,688 | 22% | 6,441 | 60% |
Making progress on board diversity
In 2022, we withheld our support for 108 chairs of nominating committees for lack of board diversity (gender and/or ethnicity) in Canada. However, we were able to support over half of the 55 boards we withheld support from in 2021 because of improvements in board diversity.
Case Study: In May 2022, Northland Power announced that it amended its diversity policy to include a 2024 target for the recruitment and appointment of a board director who identifies as a member of one or more designated groups, including Indigenous peoples, persons with disabilities, persons belonging to visible minorities and members of the lesbian, gay, bisexual, transgender, queer or questioning and two-spirit (LGBTQ2S+) community. We had previously engaged with the company during the 2022 proxy voting season to discuss our expectations regarding diversity beyond gender.
4. Shaping national and global policy
In 2022, we saw a significant amount of regulatory and standards development that could influence companies and their investors for decades to come.
Through policy advocacy, we provide our investor perspective on proposed regulatory developments and industry standards to move the needle on sustainability practices across sectors and jurisdictions.
CSA Climate-related Disclosures | U.S. Department of Labor (DOL) Final Rule on Prudence and Loyalty | International Financial Reporting Standards (IFRS) Sustainability and Climate Disclosures |
|---|---|---|
We submitted a BMO GAM comment letter to the CSA’s proposals on mandating climate-related disclosures for corporate issuers, encouraging stronger alignment with the Task Force on Climate-related Financial Disclosures (TCFD) pillars and international standards. | We wrote to the U.S. DOL to express concerns about its Employee Retirement Income Security Act (ERISA) proposal. In late 2022, the DOL recognized that the exercise of voting and other shareholder rights connected to shares of stock are, in fact, fiduciary acts. | We promoted a double materiality approach in the development of International Sustainability Standards Board (ISSB) standards to align with disclosure information investors need to advance sustainability versus only managing financial risks related to ESG issues. |
A policy advocacy win
We were pleased when during COP15 in Montreal, the IFRS’ ISSB clearly articulated the relationship between sustainability matters and financial value creation, with the definition of sustainability including a company’s ability to manage its impacts on resources and relationships.
We believe this is a crucial development that can move corporate reporting on financially material sustainability issues beyond a risk-only based ESG lens towards a more holistic focus on long-term value creation and sustainable outcomes.
5. Leaving our mark on the industry
We believe, collaborating with other investors through joint initiatives, industry associations or collaborative engagements is key to accelerating positive change.
We became a lead engager for several Canadian investee companies through Climate Engagement Canada (CEC). We also joined collaborative engagements on Canadian companies through Farm Animal Investment Risk and Return (FAIRR) and the UN Principles for Responsible Investment’s Advance.
In doing so, we became the first Canadian asset management firm to formally support the Workforce Disclosure Initiative (WDI), which gathers workforce-related data from companies—making it consistent and comparable for investors.
6. Taking home the RIA leadership award for stewardship
BMO GAM was proud to be the Responsible Investment Association (RIA)’s 2022 Stewardship winner, being recognized for our comprehensive approach to advancing the energy transition in Canada.
7. Making strides in climate action
We consider the evaluation of climate risks to be an essential component of investor due diligence and our responsible investing strategy. This commitment is manifested through our Climate Action Approach.
Climate action-focused engagements | Companies engaged on climate action | Climate action-related milestones achieved |
|---|---|---|
998 | 538 | 111 |
As a founding signatory to the Net Zero Asset Managers (NZAM) initiative, BMO GAM has committed to working with our investee companies to achieve net-zero emissions across all our AUM by 2050 or sooner.
In 2022, a portion of our funds were managed in line with the attainment of net zero. This proportion of assets, totalling 11.7% of our total AUM and valued at US$12.5B (as of June 30, 2022), was selected from our actively managed equity and fixed income portfolios that could be assessed through the Paris Aligned Investor Initiative’s Net Zero Investment Framework methodology.
Read the full report
Download the pdf file to read our full Responsible Investment 2022 Annual Report
8. Gaining ground on social equality issues
We formulated and published our Social Equality Approach to outline how we view growing social inequality as a systemic risk that will jeopardize long-term value creation.
Social equality-focused engagements | Companies engaged on social equality | Social equality-related milestones achieved |
|---|---|---|
734 | 364 | 33 |
Respect and protect: The state of corporate human rights due diligence in Canada
Several macro-level forces were at work in 2022, increasing pressure on companies and investors to respect human rights.
In response, we undertook a deep-dive research project to better understand how large Canadian companies across major sectors are performing on human rights due diligence (HRDD). The report spanned six sectors and 29 companies, using two benchmark methodologies, including “Know the Chain” and “Corporate HR.”
Human Rights Report
Engaging with Indigenous thought leaders
Through our engagement with the Reconciliation and Responsible Investor Initiative, the First Nations Financial Management Board and BMO’s own Indigenous Advisory Council and Indigenous Banking Unit, we are developing best practice insights on working with investee companies to respect Indigenous rights and reconciliation. To help broaden market awareness, we produced a podcast with the First Nations Financial Management Board.
First Nations Financial Management Podcast
9. Building Our Library of ESG Knowledge
Over 2022, our thought leaders published 17 pieces aiming to share BMO GAM’s approach, research and insights with clients and the broader RI industry—at the same time, informing and prioritizing our work internally. Here is a selection of our thought leadership from the year.
"No one organization can become sustainable on its own. It’s very much an interconnected web, and by working together, we can develop effective solutions to complex issues."
10. Turning our depth of ESG expertise into real solutions
We have a dedicated range of BMO ESG ETFs and actively managed responsible investment branded funds designed for investors who wish to set the bar even higher for responsible investment.
Here’s what our investment teams were up to in 2022
Our investment teams consider material ESG and other factors in their decision-making for relevant mandates, supported by our RI team’s research, data curation and tools. Click on the tabs below to see specific examples of our diverse methods at work.
BMO Fixed Income | Investee company Manulife’s board revised its director tenure policy to include a limit of 12 years of board service, aligned with our good governance expectations. We believe this is the best practice in Canada and are pleased to see such progress, as we had proactively communicated our views on tenure. We are also encouraged by Manulife’s strengthening of board oversight on ESG matters. |
BMO Fundamental Equity | In partnership with reo®, a third-party engagement service provider, and the RI team, the Fundamental Equity team met with The Walt Disney Company to discuss diversity, equity and inclusion (DE&I) matters, encouraging them to set quantitative diversity targets and enhance reporting. The company has added DE&I as a performance metric in their executive compensation program. |
BMO Disciplined Equity | The Disciplined Equity and RI teams met Bombardier Recreational Products (BRP)’s general counsel to discuss their human rights practices after the Russian-Ukraine war and encouraged them to perform due diligence on suppliers. We gave BRP kudos for suspending exports to Russia and donating to Ukraine relief efforts while continuing to support local employees. |
BMO Exchange-Traded Funds | The BMO Clean Energy Index ETF (ticker: ZCLN) tracks the S&P Global Clean Energy Index providing exposure to up to 100 companies from around the world involved in clean energy-related businesses. This ETF also excludes controversial companies and applies a carbon intensity screen to remove the highest emitters. |
BMO Multi-Asset Solutions | The BMO Sustainable Bond Fund, which is a holding in the Sustainable Portfolios managed by MAST, invests in high-quality companies that demonstrate a commitment to ESG considerations. The UN SDGs serve as a useful reference for incorporating sustainability themes. We consider ESG, alongside other factors, throughout our entire investment process, backed by our robust credit research, with critical input from BMO GAM’s RI team. |
Insights
Sources
*Correia, Joel E. “The UN Just Declared a New Human Right.” The World Economic Forum, 9 Aug. 2022
†Bloomberg as cited in company blog, January 24, 2022.
‡“Global Sustainable Fund Flows: Q4 2022 in Review European investors show continued appetite for ESG products despite headwinds, while U.S. investors retreat.” Morningstar, 26 Jan. 2023, www.morningstar.com/lp/global-esg-flows
¶A milestone is considered when a company makes tangible improvements in its policies and practices that align with our voting and engagement activities.
Disclosures
This report is for information purposes. The information contained herein is not, and should not be construed as, investment, tax or legal advice to any party. Particular investments and/or trading strategies should be evaluated relative to the individual’s investment objectives and professional advice should be obtained with respect to any circumstance.
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