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Making a positive impact: ESG Profile and Impact Report 2018 – Climate Change

Our carbon footprint is 43% below the MSCI World benchmark.

We have developed a comprehensive strategy on this issue for our Responsible Strategies range, from avoiding companies with fossil fuel reserves, to investment in solutions, engagement, and disclosure to our investors.

The transition to a low-carbon economy is one of the greatest challenges – and opportunities – of our time. The BMO Responsible Strategies are committed to making a contribution, and in May 2017 we published a new, ambitious policy approach. Our policy has five key elements, all of which we believe are essential components of an overall strategy:

  • Divestment from companies with fossil fuel reserves
  • Case by case assessment of the adequacy of climate change strategies in other key high-emissions sectors including utilities, transportation and industrials
  • Investment in solutions, including companies operating in clean energy and resource efficiency, as well as the banks financing these activities
  • Engagement, where our focus is on encouraging companies to develop transition planning and scenario analysis to ensure they are robust to a range of future energy scenarios
  • Transparency, through publishing our methodology and carbon footprint, in line with the recommendations of the Taskforce on Climate-related Financial Disclosures

Our Responsible Global Equity Strategy has not held any investments in companies with fossil fuel reserves since February 2016.

“Understanding the climate risks in our investment strategies is important – but so is capitalising on the opportunities.” Vicki Bakhshi, Governance and Sustainable Investment Team

Powering up: Umicore
We invest in solutions through our Energy transition investment theme, with Umicore being one example. This Belgian-listed materials technology company has been one of the three global leaders in emission control catalysts for internal combustion engines. It is now strategically repositioning itself at the forefront of energy transition – producing materials for rechargeable batteries used in electric vehicles.

Umicore has invested in capacity and taken a dominant market position in producing materials (e.g. cathodes) to meet the anticipated rapid acceleration in electric vehicle battery demand.

The company also is highly conscious of the strain that the global ramp-up in battery production is placing on scarce materials, particularly lithium, and has developed recycling technologies in anticipation of an increased demand to address this issue. Furthermore, Umicore has created a dedicated Sustainable Procurement Framework for Cobalt covering its entire supply chain and is a member of the REACH (Registration, Evaluation, Authorisation and Restriction of Chemicals) Consortium on behalf of the cobalt and lithium industries.

With clean-tech innovation at the core of its strategy, Umicore is likely to be a key beneficiary from the transition to a lowcarbon economy.

Our position on carbon footprinting
We have now tracked and published our strategy’s carbon footprint for three years. We are conscious that carbon footprinting does not, by itself, provide a measure of climate risk – due to, amongst other issues, the fact that it only measures direct emissions rather than those arising from the use of a company’s products; the backward-looking nature of the data; and gaps in disclosure.

However, we do find it a useful tool to identify potential outliers, and ensure that our analysis fully incorporates any risks associated with higher-emitting companies.

Portfolio-weighted carbon intensity

2017 performance
Our portfolio-weighted carbon footprint is 43% below that of the strategy’s benchmark index, the MSCI World index. In 2017 the strategy’s footprint fell by 14%. This was mainly due to the sale of two companies which were in relatively high-emission sectors: gas distributor Spectra Energy, which we sold following the Enbridge acquisition; and materials business Toray Industries.

The largest contributors to the strategy footprint now are water and waste company Suez, and chemicals firm Praxair. We have assessed the climate strategies of both. Although they are in high-emissions sectors, they both have sound emissions management systems, and are positioning themselves strategically as solution providers.

A key part of our investment rationale for Praxair is the range of products it manufactures which are targeted at enabling energy efficiency improvements. The company calculates that whilst its direct carbon footprint is high, at 24 million MT CO2e, it enables 68 million MT CO2e of greenhouse gas savings by its customers, giving it a positive net carbon balance if these Scope 3 effects are included.

Going forward we would like to see companies in our strategy adopt reporting in line with the recommendations of the Taskforce on Climate-related Financial Disclosures, and will press for this through our engagement.

Past performance should not be seen as an indication of future performance. Stock market and currency movements mean the value of, and income from, investments in the strategy are not guaranteed. They can go down as well as up and you may not get back the amount you invest.

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.

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.

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