Impact summary BMO Responsible UK Income Fund Key risks Values may fall as well as rise and investors may not get back the full amount invested. Income from investments may fluctuate. Screening out sectors or companies may result in less diversification and hence more volatility in investment values. The income and capital due from bonds is dependent upon the issuing company’s ability to pay and any default will adversely affect the value of your investment. The BMO Responsible UK Income Fund aims to provide income and long-term capital growth, investing in a diverse portfolio of mainly UK equities. Ethical screening criteria are applied to exclude companies involved in damaging or unsustainable business practices. Page 1 Responsible Investment Measuring Impact This report provides analysis of the social and environmental impact of the companies invested in by the BMO Responsible UK Income Fund. An important framework for understanding impact is the Sustainable Development Goals (SDGs) – 17 high-level goals which set out a roadmap for a more sustainable world by 2030. This impact summary includes: Analysis of how the products and services provided by companies we invest in for this portfolio align with the SDGs Key portfolio impact metrics on carbon, water and gender Summary of our engagement with portfolio companies, and how this aligns with the SDGs
Transcript
Impact summary BMO Responsible UK Income Fund
Key risksValues may fall as well as rise and investors may not get back the full amount invested. Income from investments may fluctuate. Screening out sectors or companies may result in less diversification and hence more volatility in investment values.The income and capital due from bonds is dependent upon the issuing company’s ability to pay and any default will adversely affect the value of your investment.
The BMO Responsible UK Income Fund aims to provide income and long-term capital growth, investing in a diverse portfolio of mainly UK equities. Ethical screening criteria are applied to exclude companies involved in damaging or unsustainable business practices.
Page 1Responsible Investment
Measuring Impact
This report provides analysis of the social and environmental impact of the companies invested in by the BMO Responsible UK Income Fund. An important framework for understanding impact is the Sustainable Development Goals (SDGs) – 17 high-level goals which set out a roadmap for a more sustainable world by 2030.
This impact summary includes:
Analysis of how the products and services provided by companies we invest in for this portfolio align with the SDGs
Key portfolio impact metrics on carbon, water and gender
Summary of our engagement with portfolio companies, and how this aligns with the SDGs
Page 2Responsible Investment
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. The SDGs most represented are SDG9 – Industry, Innovation and Infrastructure; SDG8 – Decent Work and Economic Growth; and SDGD3 – Good Health and Well-being. SDG9 links to several business lines including loans to small and medium-sized businesses, supporting target 9.3 on financial services to small enterprises. Retail banking and insurance services support target 8.10, which aims for universal access to finance. Several investments in pharmaceuticals, healthcare and diagnostics relate to SDG3, including targets 3.3 and 3.4 on communicable and non-communicable diseases.
Some of the activities of our portfolio companies may conflict with certain SDGs, with these negative links also shown in the chart. For instance, the strategy invests in utility companies with strong climate strategies, but some of these also have a proportion of fossil fuel power generation.
34% of business activities undertaken by the companies in the portfolio have no specific SDG link. This includes some of the wealth management divisions of the banks we invest in, as well as companies such as supermarkets where there is no direct SDG link but we are satisfied that there are good sustainability management standards.
Investment SDG AlignmentHow the companies in this fund support the achievement of the SDGs through their products and services.
Negative 3%
Positive 59%
Neutral 34%
Neutral
Cash
Other
Target level:
2.1 13.2 3.3 3.4 3.8 6.1 6.2 8.2 8.10
12.6 12.4 12.2 11.2 11.1
9.c
9.5
9.
3
9.1
3
4%
G
oal level:
1% 2% 4% 12 % 3 % 13%
3 % 5% 8%
15%
BMO ResponsibleUK Income Fund
2.1 End hunger and ensure access to safe and nutritious food; 3.3 End AIDS, TB, malaria and other water-borne and communicable diseases; 3.4 Reduce mortality from non-communicable diseases and promote mental health; 3.8 Access to medicines and health-care; 6.1 Achieve universal access to safe & affordable drinking water; 6.2 Achieve access to adequate & equitable sanitation and hygiene; 8.2 Achieve greater productivity through innovation; 8.10 Increase access to finance; 9.1 Develop resilient and sustainable infrastructure; 9.3 Increase access to finance for SME’s; 9.5 Encourage technological innovation and scientific research; 9.c Ensure universal and affordable access to ICT; 11.1 Ensure universal access to safe and affordable housing; 11.2 Provide access to safe and affordable transport systems; 12.2 Sustainably manage and make efficient use of natural resources; 12.4 Manage chemical usage and waste throughout their life cycle; 12.6 Encourage companies to adopt sustainable practices and enhance ESG reporting; 13.2 Integrate climate change plans into policies and strategies.
Source: BMO Global Asset Management, as at 31st December 2019, designed for illustrative purposesOther: SDGs less than 2%
Page 3Responsible Investment
Portfolio sustainability metrics
A weighted average gives less or more significance to certain numbers in a data set. Our portfolio-weighted average gives proportionally less or more weight to our underweight and overweight positions respectively, versus the benchmark. This therefore gives a more representative comparison of the portfolio’s impact metrics compared to the benchmark.
Source: MSCI ESG and Bloomberg as at 31 December 2019.
Portfolio-weighted carbon intensityThe portfolio’s weighted average carbon intensity is significantly below its benchmark. The investments in green bonds (which we have assumed to have a carbon intensity of zero, for the purpose of analysis) brings the intensity down, as does the underweight to the energy sector, which is largely a result of the screens. Significant contributors to the overall carbon intensity include investments in construction and housing companies, which we see as providing important social infrastructure.
Water footprintWe use weighted average total water use as the most widely-available metric to represent water risk exposure,although company-level analysis is needed to understand how these risks are managed. The overall portfolio average is far below the benchmark, largely due to the sector composition of the strategy with a low exposure to water-intensive sectors.
Gender diversityMany markets are seeing progress on gender equality in boards due to regulatory measures and investor pressure, but change is much slower at the senior executive level. Here we give metrics at both levels. The gender profile of the strategy is currently slightly worse than the benchmark. We engaged with several companies in the strategy on diversity, including insurer Allianz.
0
30
60
90
120
150
79
127
Portfolio FTSE All-Share Index 0
30
60
90
120
150
122 129
Portfolio iBoxx Sterling Non Gilts Total Return Index
17,790
443,461
0
100000
200000
300000
400000
500000
Portfolio FTSE All-Share Index
0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
0
5
10
15
20
25
30
35
27%31%
15%17%
Percentage of female executives (average)
Percentage of women on boards (average)
Portfolio FTSE All-Share Index 0
5
10
15
20
25
3030% 30%
21% 20%
Percentage of female executives (average)
Percentage of women on boards (average)
Portfolio iBoxx Sterling Non Gilts Total Return Index
Portfolio-weighted carbon intensity Total water use Gender representation(tons CO2e / sales $m) (‘000 cubic metres)
In 2019 we engaged with 52 companies held in the fund, with the aim of improving their management of environmental, social and governance issues. Key topics included engagement on climate change (SDG 13), the payment of a living wage (linked to SDG 1), and corporate governance (no direct SDG link).
SDG1 – No Poverty 8% SDG2 – Zero Hunger 1% SDG3 – Good Health and Well-Being 6% SDG5 – Gender Equality 7% SDG6 – Clean Water and Sanitation 6% SDG7 – Affordable and Clean Energy 1% SDG8 – Decent Work and Economic Growth 5% SDG9 – Industry, Innovation and Infrastructure 1% SDG10 – Reduced Inequality 2% SDG11 – Sustainable Cities and Communities 2% SDG12 – Responsible Consumption and Production 7% SDG13 – Climate Action 12% SDG15 – Life on Land 1% SDG16 – Peace, Justice and Strong Institutions 11% No Link 31%
Engagement overviewWe engage with companies held in the fund to encourage them to improve their management of environmental, social and governance issues.
Source: BMO Global Asset Management
companies engaged52
milestones27
With management 98.2% Against management 1.4% Abstain 0.4%
Total meetings voted
74
No link
Page 5Responsible Investment
Engagement in Practice
National Grid
As the UK’s electricity grid operator, National Grid has an essential role in putting in place the infrastructure to allow for an expansion in low-carbon energy. It also is a large emitter in its own right and our engagement has called for ambitious targets to address its impact.
Our engagement with National Grid accelerated in 2017, when we asked the company to report on its alignment with the recommendations of the Task Force on Climate-related Disclosure, and in particular emphasised the importance of implementing climate strategies relating to the growing US share of its business. We also joined the collaborative investor engagement through the Climate Action 100+ initiative.
Our view
In late 2019 the company announced its ambition to cut its direct greenhouse gas emissions to net zero by 2050, alongside new measures to work with their supply chain and customers to cut Scope 3 emissions. Through the Climate Action group, we held a detailed call with the company to discuss how this would be implemented, including limiting the use of ‘offsets’, and investments in enabling infrastructure such as electric vehicle charging points.
Goal Prudential
Access to finance is critical for human development and the achievement of sustainability goals. We are encouraging companies to find ways to systematically measure and monitor the impact of their initiatives in this area.
Prudential is a global insurance company with customers across the UK, US and Asia. It has developed a number of initiatives to improve financial literacy and inclusion, including educational programmes in Asia, and schemes to help finance funerals in Ghana. We asked the company how they measure the impact of these specialist programmes, as well as how they monitor how accessible their whole product range is to lower-income customers.
Our view
Impact measurement in the area of access to finance is still nascent, with few companies having developed systematic or comprehensive methodologies. In our meeting we found Prudential to have a strong strategic focus on how they meet the needs of underserved customers, and to be frank about the challenges of measuring this. We hope to see the company enhance its sustainability reporting in this area in future.
Goal
This does not constitute a recommendation to buy or sell any particular security.
This financial promotion is issued for marketing and information purposes only by BMO Global Asset Management in the UK and Ireland.
The Fund is a sub fund of BMO Investment Funds (UK) ICVC V, an open ended investment company (OEIC), registered in the UK and authorised by the Financial Conduct Authority (FCA).
English language copies of the Fund’s Prospectus and English language copies of the key investor information document (KIID) can be obtained from BMO Global Asset Management, Exchange House, Primrose Street, London EC2A 2NY, telephone: Client Services on 0044 (0)20 7011 4444, email: [email protected] or electronically at www.bmogam.com. Please read the Prospectus before taking any investment decision.
Our Responsible Strategies range is built on a philosophy of:
Avoid
Avoid companies with damaging or unsustainable business practices
Use our influence as an investor to encourage best practice management of environmental, social and governance issues through engagement and voting
Invest
Invest in companies making a positive contribution to society and the environment
How BMO Global Asset Management can help youBMO Global Asset Management incorporates material ESG issues into its investment processes across asset classes. We also offer our Responsible Funds range, which invests in companies operating sustainably and excludes those not meeting our ethical and ESG criteria.
