Responsible Investment Solutions For professional ...

Responsible Investment Solutions For professional investors/qualified investors only

BMO Responsible Global Emerging Markets Equity Strategy ESG Profile and Impact Report 2020

ESG is a mindset, not an asset class bmogam.com/responsibleinvesting

http://www.bmogam.com/responsibleinvesting

Introduction 3

Investing for a better future 4

Areas of focus – Responsible finance 6

– Food and nutrition 8

– Health & Wellbeing 10

– Other 12

Impact metrics 14

Portfolio ESG metrics 16

Impact through our engagement 18

Company case studies 20

Portfolio at a glance 22

Leaders in Responsible Investment 24

Contents

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.

Investing in emerging markets is generally considered to involve more risk than developed markets.

Views and opinions have been arrived at by BMO Global Asset Management and should not be considered to be a recommendation or solicitation to buy or sell any stocks or products that may be mentioned.

BMO Responsible Global Emerging Markets Equity Strategy ESG Profile and Impact Report 2020 3

Sustainable investing is now more important than ever. We have started this new decade, which the United Nations calls the “decade of action”, against a significantly challenging global backdrop. Countries across the world are grappling with geopolitical tensions, the rise of nationalism, increasingly tangible impacts from a changing climate, demographic change and pervasive inequality. The unprecedented economic and social pressures that the COVID-19 global pandemic brings will only add to some of these challenges.

Despite the bleak picture, our team remains optimistic about the future. We believe in the ability of society, companies and individuals to turn crisis into opportunity. However, sustainability will need to be at the core of any recovery – regardless of its shape.

Since its start back in 2010, our Responsible Global Emerging Markets Equity Strategy has striven to help mobilise private capital towards companies that operate responsibly and, in most cases, offer products and services contributing to sustainable development. Our experience of recent years leaves us more convinced than ever that it is possible to deliver on our twin ambition of delivering investment performance and achieving positive non-financial impact. In pursuit of this, we will continue our efforts to extend our investment horizon and find innovative, purpose-led companies that are helping tackle inequality, improve access to basic needs and reduce negative impacts on the environment.

In this, our fourth annual report, we continue to explore the impact we can have by investing in listed equities. We have taken the opportunity to refresh our SDG revenue alignment reporting to now include both positive and negative impacts. Furthermore, we are providing more detailed information about our portfolio companies and our interactions with them. We are in an ever-evolving journey towards better transparency that we are glad to be able to share with you.

Responsible Global Emerging Markets team, London

Juan Salazar Gokce Bulut Rishikesh Patel Sam Mahtani

Investing with impact in mind

BMO Global Asset Management4

Investing for a better future The products and services which the companies held in our Responsible Global Emerging Markets Equity Strategy provide can lead to positive impacts on the environment and/or society. We use the UN Sustainable Development Goals (SDGs) as our starting point to map such impacts.

Portfolio alignment with the SDGs and underlying targets

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 portfolio. Specifically, we measure how the individual sources of revenue for each company correspond to the 169 targets that underlie the goals – so that one company, depending on its mix of goods and services, may have links to more than one goal.

The results of this analysis are summarised below, with a full breakdown of the portfolio and relevant SDG links provided in the following pages.

2.1 End hunger and ensure access to safe and nutritious food; 2.2 End all forms of malnutrition, particularly for children and women; 3.3 End AIDS, TB, malaria and other water-borne and communicable diseases; 3.8 Access to medicines and health-care; 3.9 Reduce deaths and illnesses from pollution and contamination; 8.2 Achieve greater productivity through innovation; 8.10 Increase access to finance; 9.3 Increase access to finance for small and medium-sized enterprises (SMEs); 13.2 Integrate climate change plans into policies and strategies

Source: BMO Global Asset Management, as at 31st December 2019, designed for illustrative purposes.Other: SDGs less than 2%

Neutral 31.5%

Neg

ativ

e 11%

Positive 51.5%

Neutral

Other

Cash

Ta

rget

leve

l:

2.1

3.9 1

3.2

2.1 2.2 3.3 3.8

9.3

8.10

8.

2

Goa

l lev

el :

7

%

2% 2

% 6% 9 % 14 %

31.5 % 2.5% 6%

20%

ResponsibleGlobal Emerging Markets Equity

Strategy


The strongest connection we have found is with SDG8: Decent Work and Economic Growth. This owes mainly to universal banks representing close to 25% of portfolio weight – we link retail banking activities to target 8.10.

Since our methodology is based on the analysis of revenue streams, it does not recognise all the ways that companies in the portfolio contribute to the SDGs. Even where we have judged that no such direct link exists, we realise that companies may be contributing in other ways. Examples include the notable work some of the food retailers in our portfolio, particularly Jeronimo Martins and Wal-mart de Mexico, are doing to offer affordable food products and help improve the livelihoods of agricultural smallholders in their respective produce supply chains. Our stock exchanges Bolsa Mexicana de Valores and Moscow Stock Exchange have been instrumental in driving improvements in ESG reporting among listed companies in their respective markets.

Highlights of our assessment include:

Some of the food companies in our portfolio, including AVI, Dali Foods, Tingyi, Unilever and Universal Robina Corporation, manufacture snacks and/or refreshments that provide limited nutritional value. We, therefore, have linked revenue streams from these products negatively to Target 2.1, which calls for the provision of affordable, safe and nutritious food for all. We have been engaging with these companies to encourage them to improve the nutritional quality of their snack products, with the likes of Dali Foods and Unilever taking bold action to do so.

Our holdings China Resources Gas (CRG) and Ultrapar derive most of their revenues from the distribution of fossil fuels – natural gas, and fuel and natural gas, respectively. As such, we have assigned negative links to Target 13.2, which addresses action to combat climate change. We recognise, however, the significant role that CRG has played in displacing coal as a source of energy, and thus reducing carbon emissions from energy consumption across many of China’s cities.

Bajaj Auto is one of India’s largest manufacturer of two- and three-wheelers, the main mode of transportation in the country. These vehicles help improve livelihoods by facilitating access to jobs, learning and healthcare – particularly in rural India. However, they also contribute to air pollution issues that represent a growing public health issue. We have, therefore, assigned a negative link to Target 3.9, which calls for a reduction in number of deaths and illnesses from air pollution.

Response to COVID-19

We have engaged with several of the companies in the portfolio to discuss their responses to the COVID-19 crisis, particularly on employee health and wellbeing and, where relevant, initiatives to help or protect customers. We have been encouraged by the strength of the actions most of our companies have taken, which seek to address immediate as well as longer-term impacts.

We would like to highlight some of the actions our companies in the health and personal care industries have taken in this regard:

One of Sinopharm’s subsidiaries was the first to develop COVID-19 nucleic acid detection kits and submit these to the Chinese Centre for Disease Control and Prevention for testing.

Pharmacy retailer Clicks announced that it would keep prices on hygiene products unchanged and take measures to ensure shelves are restocked as quickly as possible. The company is also providing free primary healthcare services at Clicks clinics across South Africa for patients without medical aid.

Insurer Discovery has taken proactive steps to ensure members of its health medical scheme who need it have the necessary cover for COVID-19. It has also partnered with Vodacom to deliver an online platform dedicated to COVID-19-specific screening and consultations, free of charge.

Unilever, in partnership with the UK Department for International Development, developed a COVID-19 handwashing campaign targeting 1 billion people worldwide. The initiative will also provide over 20 million hygiene products in the developing world.

Negative links

For the first time we have taken up the challenge to identify and outline some of our companies’ negative contributions to the

SDGs. That is, those products or services that companies in our portfolio offer which might hinder the achievement of some of the SDGs. This is our first attempt; as such, it is still subject to further development.


Responsible finance Banks and other financial institutions are uniquely positioned to deliver positive environmental and social impacts through their internal practices and, importantly, the enterprises they finance.

Company No. of employees

Company description SDG Alignment Number and subject of engagement(s)

Bank Mandiri Persero Tbk PT Banks INDONESIA

39,065 Provides general banking services, serving corporate, commercial and SME, retail and microfinance, and treasury customers.

Target 8.10; Share of company revenue 56% Promotes access to financial services for all through its retail banking operations

Target 9.3; Share of company revenue 21% Promotes socioeconomic growth by enabling access to financial services for small and medium enterprises, including affordable credit

5: Climate change, environmental stewardship, business conduct, corporate governance

Bank Rakyat Indonesia Persero Tbk PT Banks INDONESIA

61,546 Provides general banking services, serving corporate, commercial and SME, retail and microfinance, and treasury customers.

Target 1.4.; Share of company revenue 46% Helps the poor and the vulnerable have equal rights to economic resources through its microfinance products and services.



5: Climate change, environmental stewardship, labour standards, corporate governance

Bank Tabungan Pensiunan Nasional Syariah Tbk PT Banks INDONESIA

12,000 Provides banking services for unbanked and underbanked individuals and businesses across Indonesia.

Target 1.4; Share of company revenue: 100% Helps the poor and the vulnerable have equal rights to economic resources through its microfinance products and services

1: Business conduct

Bolsa Mexicana de Valores SAB de CV Diversified Financials MEXICO

536 Operator of the Mexican Stock Exchange.

n/a 1: Corporate governance

Commercial International Bank Egypt SAE Banks EGYPT

6,900 Provides general banking services serving corporate, commercial and SME, retail, and treasury customers.



1: Climate change, environmental stewardship

By integrating sustainability into their business strategies and decision-making processes, financial institutions can go above and beyond their critical role as providers of capital for people and businesses – they can play a significant role in promoting activities that support goals such as financial inclusion, environmental stewardship and respect for human rights. Importantly, financial institutions have a significant role to play in accelerating the transition to a low carbon economy.

We will, therefore, aim to invest in financial institutions that see strong sustainability and governance practices as essential to effectively managing ESG risks and opportunities, maintaining their social license to operate and, ultimately, creating long-term shared value.

We are particularly interested in financial inclusion for our Strategy. Over 1.5 billion people and countless businesses remain excluded from traditional banking systems across emerging markets. By increasing efforts to reach the unbanked and underbanked, including through leveraging technological advances, the finance sector can help eliminate poverty, create jobs and promote gender equality. Ultimately, financial institutions can help propel rapid expansion and development of high-potential economies, while profitably growing their own customer and revenue base.

Where company revenues do not add to 100%, then there is no SDG link for the remainder of the business revenues




Credicorp Ltd Banks PERU

34,024 Provides a range of financial services including corporate, commercial and retail banking, microfinance, corporate finance, asset management and insurance.

Target 1.4; Share of company revenue 11% Helps the poor and the vulnerable have equal rights to economic resources through its microfinance products and services

Target 8.10; Share of company revenue 73% Promotes access to financial services for all through its universal banking operations

1: Business conduct

Guaranty Trust Bank PLC Banks NIGERIA




3: Climate change, environmental stewardship, business conduct

HDFC Bank Ltd Banks INDIA

104,154 Provides general banking services serving corporate, commercial and SME, retail and microfinance, and treasury customers.


Target 9.3; Share of company revenue 23% Promotes socioeconomic growth by enabling access to financial services for small, medium and large enterprises, including affordable credit

3: Climate change, environmental stewardship, business conduct, corporate governance

ICICI Bank Ltd Banks INDIA

72,175 Provides a range of financial services including corporate, commercial and retail banking, corporate finance, asset management and insurance.

Target 8.10; Share of company revenue 54% Promotes access to financial services for all through its retail banking and insurance operations


0

Itau Unibanco Holding SA Banks BRAZIL

94,900 Provides a range of financial services including corporate, commercial and retail banking, corporate finance, asset management and insurance.

Target 8.10; Share of company revenue 64% Promotes access to financial services for all through its retail banking and insurance operations


2: Climate change, environmental stewardship, human rights, corporate governance

Kasikornbank PCL Banks THAILAND




4: Climate change, environmental stewardship, human rights

Moscow Exchange MICEX-RTS PJSC Diversified Financials RUSSIA

1,791 Operator of the Moscow Stock Exchange


Public Bank Bhd Banks MALAYSIA




2: Climate change, environmental stewardship, human rights

Where company revenues do not add to 100%, then there is no SDG link for the remainder of the business revenuesWhere company revenues do not add to 100%, then there is no SDG link for the remainder of the business revenues




AVI Ltd Food & Beverage SOUTH AFRICA

8,439 Focuses on producing fast-moving consumer goods, including foods, frozen foods and food ingredients.

Target 2.1; Share of company revenue 19% Provides affordable, safe and nutritious fish-based frozen food all year round

Target 2.1; Share of company revenue 29% Produces snack foods and beverages that provide limited nutritional value

1: Climate change, environmental stewardship, public health, corporate governance

BIM Birlesik Magazalar AS Food & Staples Retailing TURKEY

51,765 Operates food and basic consumer goods discount stores in Turkey.


Dali Foods Group Co Ltd Food & Beverage CHINA

37,975 Branded food and beverage company with a diversified multi-brand product portfolio.

Target 2.1; Share of company revenue 13% Provides affordable, safe and nutritious food, including soy milk and fresh bread, all year round


1: Environmental stewardship

Inner Mongolia Yili Industrial Group Co Ltd Food & Beverage CHINA

56,079 Manufactures and distributes milk and dairy-based products.

Target 2.1; Share of company revenue 83% Provides affordable, safe and nutritious food all year round

Target 2.2; Share of company revenue 10% Helps achieve targets on fighting stunting and wasting in children under 5 years of age through its infant milk powder formula


Jeronimo Martins SGPS SA Food & Staples Retailing PORTUGAL

108,560 Through its subsidiaries, distributes food in Portugal, Poland, and Colombia.

n/a 2: Public health, corporate governance

Magnit PJSC Food & Staples Retailing RUSSIA

217,258 Operates Russia's largest chain of discount supermarkets, hypermarkets and drugstores.


Food and nutrition Issues related to food and nutrition are increasingly important as global food systems seek to provide food for nearly 10 billion people by 2050 within the planet's boundaries that are under increasing pressure.

Rising incomes across emerging markets have led these populations to exhibit significantly fast growth rates in demand for food and beverages. The opportunities for manufacturing and retail companies operating in these markets are vast; however, they face significant supply and demand risks from sustainability factors. On the supply side, natural resource constraints exacerbated by climate change increasingly affect production levels along agricultural supply chains. On the demand side, pressure is coming from evolving consumer preferences and

regulatory standards in terms of affordability, diversity, quality and nutrition.

We aim to invest in businesses adept at capturing opportunities linked to changing diets and rising incomes, while helping drive food systems transformation. Such transformation is critical to improve the availability of food in a sustainable and scalable way. We, therefore, look for businesses that provide affordable, safe and nutritious food and beverages whilst effectively managing natural resource risks and pressures. We also expect them to invest in innovations to improve the nutritional profile and shelf life of their product portfolio, incorporate circular economy principles in their business strategies, provide decent and inclusive work and equitable trade, and work with smallholders to improve livelihoods.





Tingyi Cayman Islands Holding Corp Food & Beverage CHINA

58,182 Manufactures and sells instant noodles, baked goods and beverages in China.



3: Climate change, environmental stewardship, corporate governance

Universal Robina Corp Food & Beverage PHILIPPINES

14,239 Manufactures and distributes branded consumer foods as well as agricultural commodities across the ASEAN region and Oceania.

Target 2.1; Share of company revenue 21% Provides affordable, safe and nutritious basic foods, including meat products and flour, all year round



Vietnam Dairy Products JSC Food & Beverage VIETNAM

9,803 Manufactures and distributes milk and dairy-based products.


1: Environmental stewardship, public health

Vitasoy International Holdings Ltd Food & Beverage HONG KONG

6,755 Manufactures and distributes plant-based food and beverages.



Wal-Mart de Mexico SAB de CV Food & Staples Retailing MEXICO

238,972 Retails food, clothing, and other merchandise under a variety of store formats across Mexico and Central America.

n/a 3: Climate change, environmental stewardship, labour standards, public health, business conduct





AIA Group Ltd Insurance HONG KONG

23,000 Offers insurance and investment services across Asia.

Target 8.10; Share of company revenue 100% Promotes access to insurance products for all, including health and life insurance

1: Labour standards, public health

AK Medical Holdings Ltd Health Care Equipment & Services CHINA

790 Manufactures and markets medical devices in China, including orthopaedic implants.

Target 3.8; Share of company revenue 100% Promotes access to safe, effective and affordable healthcare devices and equipment

2: Business conduct, labour standards, public health, corporate governance

Clicks Group Ltd Drug Retailing SOUTH AFRICA

15,413 Owns and operates drug, health and beauty retail stores across South Africa.

Target 3.8; Share of company revenue 67% Promotes access to safe, effective and affordable essential medicines through its drug manufacturing and distribution activities

3: Environmental stewardship, public health, corporate governance

Colgate-Palmolive India Ltd Household & Personal Products INDIA

2,305 Manufactures consumer products for oral and body care.

Target 3.3; Share of company revenue 100% Helps improve oral care and personal hygiene across India


Discovery Ltd Insurance SOUTH AFRICA

8,484 Offers insurance, banking and investment services worldwide, focusing in South Africa.

Target 3.8; Share of company revenue 26% Helps achieve universal health coverage, including financial risk protection, through its health insurance products

Target 8.10; Share of company revenue 21% Promotes access to insurance products for all, including health and life insurance

2: Corporate governance

Emami Ltd Household & Personal Products INDIA

3,185 Manufactures and distributes personal, beauty, and healthcare products.

Target 3.8; Share of company revenue 74% Promotes access to safe and affordable ayurvedic medicines and products


Health & Well-being Countries across emerging markets continue to suffer from gravely insufficient healthcare funding, which adversely affects access to healthcare, quality and ultimately the health status of citizens.

According to the World Bank, some 400 million people globally lack access to essential healthcare services, mostly in Africa and South Asia. Poorly funded healthcare systems are struggling to manage the rise of non-communicable diseases fueled by mass urbanisation, sedentary lifestyles and the growing availability of nutrient-poor processed foods. Furthermore, high medicine and treatment costs coupled with persistent health protection and insurance gaps lead to out-of-pocket spending that can

have potentially catastrophic financial implications for households.

Our Strategy aims to invest in companies actively seeking to tackle these issues by promoting access to medicines and healthcare for underserved segments of the population in the markets they serve. These include drug manufacturing, distribution and retail companies for which access to affordable, good quality medicines is woven into their business strategies; companies that manufacture personal care products to improve hygiene and health; and providers of healthcare treatments and services. We also look for private insurance companies that have evolved from payers of claims and benefits to an expanded service proposition as providers of comprehensive healthcare advice and solutions.





Raia Drogasil SA Drug Retailing BRAZIL

41,450 Owns and operates a chain of pharmaceutical stores across Brazil.

Target 3.8; Share of company revenue 99% Promotes access to safe, effective and affordable essential medicines through its drug retail and distribution activities

0

Sinopharm Group Co Ltd Health Care Equipment & Services CHINA

86,888 Provides pharmaceutical supply chain services, including distribution, marketing, logistics and delivery.

Target 3.8; Share of company revenue 100% Promotes access to safe, effective and affordable essential medicines through its drug distribution activities

0

Unilever PLC Household & Personal Products BRITAIN

153,000 Manufactures branded and packaged consumer goods, including food, detergents, fragrances, home and personal care products.

Target 3.3; Share of company revenue 60% Helps prevent the spread of communicable diseases through its personal and home cleaning products, including soap

3: Human rights, labour standards, corporate governance

When people can access the health services they need without facing financial hardship, the result is healthier, more productive societies.Tedros Adhanom Ghebreyesus, WHO Director General



Other Companies focusing on advancing technology, building and operating critical infrastructure and supporting the energy transition have a significant role to play in achieving sustainable development in emerging markets.



Aguas Andinas SA Utilities CHILE

1,351 Distributes potable water and offers sewage treatment services in the Metropolitan Region of Santiago de Chile.

Target 6.1; Share of company revenue 100% Helps achieve universal and equitable access to safe and affordable drinking water


Bajaj Auto Ltd Automobiles & Components INDIA

10,258 Manufactures and distributes motorised two-wheeled and three-wheeled scooters, motorcycles and mopeds.

Target 3.9; Share of company revenue 100% Manufactures two- and three-wheelers that contribute to air pollution

1: Climate change, environmental stewardship

China Resources Gas Group Ltd Utilities HONG KONG

48,031 Distributes natural gas to a growing number of cities across China.

Target 13.2; Share of company revenue 100% Distributes natural gas to commercial and residential customers across China

2: Climate change, environmental stewardship, labour standards

Infosys Ltd Software & Services INDIA

243,454 Provides IT consulting and software services, including e-business, program management and supply chain solutions.

n/a 1: Business conduct

Ultrapar Participacoes SA Energy BRAZIL

16,024 Holding company with subsidiaries involved in fuel and gas distribution, petrochemicals and drug retail.

Target 3.8; Share of company revenue 2% Promotes access to safe, effective and affordable essential medicines through its drug distribution activities

Target 13.2; Share of company revenue 92% Brazil’s largest fuel distributor; it also distributes natural gas

0

Technological innovation: Meeting sustainable development goals will require action on several fronts, including harnessing and maximising the potential of technological innovation. We will aim to find companies working on disruptive innovations for transformative change – those that through tech-based solutions are making breakthrough advances, or helping their clients make such advances in areas like productivity, energy efficiency, healthcare and education. Importantly, we also look for companies offering digital communications solutions to improve connectivity for all.

Energy Transition: Around half of current total global carbon emissions are a result of power generation for electricity and heating. At the same time, there are still close to 900 million people worldwide that lack access to energy – the vast majority of whom live in emerging markets. We will aim to invest in companies offering solutions that can help effectively and efficiently balance people’s need for access to reliable and affordable energy while helping to reduce global emissions.

Infrastructure: Public infrastructures are essential to the efficient functioning of society and its ability to achieve sustainable development. These include water and energy systems, bridges, roads, as well as communications and transportation facilities. Our Strategy will strive to invest in companies designing, building and operating such infrastructure in a way that incorporates environmental and social considerations.





Taiwan Semiconductor Manufacturing Co Ltd Semiconductors & Semiconductor Equipment TAIWAN

48,752 The world's largest dedicated pure-play semiconductor foundry, TSMC manufactures and markets integrated circuits.

Target 8.2; Share of company revenue 100% Helps its customers achieve higher levels of productivity through diversification, technological upgrading and innovation

1: Environmental stewardship

Tata Consultancy Services Ltd Software & Services INDIA

446,675 Global IT services organisation that provides a comprehensive range of IT services to its clients in diverse industries.

n/a 1: Labour standards

Tencent Holdings Ltd Media & Entertainment CHINA

62,885 Provides internet and mobile value-added services (VAS), online advertising, online gaming, and e-commerce transactions.

Target 8.2; Share of company revenue 27% Helps its customers achieve higher levels of productivity through diversification, technological upgrading and innovation

2: Climate change, business conduct, corporate governance

We must shift our mindsets from that of optimizing scarce resources to one of harnessing the abundance of capital, technology and talent in order to address real-world challenges.Rajesh Gopinathan, CEO, Tata Consultancy Services



Impact metrics differ from outputs and other performance indicators mainly because they are built to track the outcomes that a company’s operations, products or services have for the environment or on the lives of stakeholders, such as workers, suppliers, and customers. In practice, many companies focus on their own actions as a proxy for impact (e.g. 5,000 new microloans disbursed), rather than diving deeper and using metrics to demonstrate these actions have had a positive effect (e.g. new microloans improved borrowers’ income by x%).

Ideally, impact metrics should also address the multiple dimensions of impact, as set out by the Impact Management Project. We would like companies to consider not just what type of impact they have but also how much; who is affected

Impact metrics Expectations of companies’ measuring and reporting on the environmental and social impacts of their businesses continue to grow. While significant progress has been made, challenges remain.

(e.g. marginalised groups, low-income countries); the contribution their actions have beyond what would have happened anyway; and, where they are forecasting future impacts, the risk that these may not materialise as planned.

We fully acknowledge the significant challenges companies face when trying to develop environmental or social impact metrics that they can effectively track and measure. We have been engaging with some companies in the portfolio to discuss these challenges and offer our support in identifying best practice. Examples in 2019 included discussions with HDFC Bank and BTPN Syariah on how they can best capture the impact of their financial inclusion initiatives.

We have selected some examples from companies in the portfolio that report impact-related outputs or outcomes to illustrate some of the different metrics being used.

75 million tons CO2

Estimated annual emissions avoided by displacing the use of coal.

China Resources Gas

40 million peopleProvided with free dental consultations in India.

Colgate Palmolive India

25 million peopleEstimated number of unbanked and underbanked adults provided with access to finance.

HDFC Bank, BTPN Syariah, Credicorp, Bank Rakyat

7 million peopleEstimated number of city dwellers in Santiago de Chile provided with access to potable water.

Aguas Andinas

11 million peopleBenefited from improvements in their mental and physical wellbeing via the Vitality programme.

Discovery

3.4 litres of waterSaved for every person on the planet from less water used per ton of production over the past 10 years.

Unilever

1.3 billion litres of waterConserved on average every year, enough to fill over 500 Olympic-sized swimming pools.

Taiwan Semiconductor Manufacturing

45%Decrease in the percentage of customers using firewood or charcoal briquettes at home in 2019.

BTPN Syariah

1,487 tons of sugar Prevented from entering the market in 2019 by reformulating private brand products.

Jerónimo Martins

15BMO Responsible Global Emerging Markets Equity Strategy ESG Profile and Impact Report 2019

“Impact measurement demonstrates the commitment of investors to the social and environmental progress of their investments. It also allows them to feed the knowledge gained back into the business to fuel data-driven decision-making.”Amit Bouri, CEO, Global Impact Investing Network


Portfolio ESG metrics We seek to measure how our Strategy performs on key ESG metrics so that we can address the risks, capitalise on opportunities, and promote change as an actively engaged investor. This year we have selected climate change, water consumption and gender diversity as topics of relevance to many of the companies in the portfolio.

We see engagement as a critical tool to help mitigate portfolio climate risk and drive enhanced value creation. Juan Salazar, Director, Responsible Investment

Our approach

We have chosen to use weighted average carbon intensity (Scope 1 and 2

emissions) to monitor and manage climate risks and opportunities in our investment portfolio. This metric, which allows for simple attribution analysis and portfolio decomposition, helps us understand and report to our clients the exposure of the portfolio to climate change-related risk in a relatively straightforward manner.

We acknowledge that this metric has its limitations. It provides a useful indication of the sensitivity of our investee companies to changes in emissions regulations, as well as to flag potential outliers. However, it is backward-looking and does not capture all aspects of climate risk, or companies’ actions to address it. Where we think

exposure to climate risk may be material, we conduct an in-depth assessment of companies’ practices and performance and, if appropriate, encourage them to strengthen their approach.

2019 performance

The weighted average carbon intensity of our portfolio was 78.6 tons CO2 per $m revenues at year-end 2019, which is significantly lower than that of the benchmark (MSCI Emerging Markets Index). This is explained by our stringent screening process as well as by the much lower active weight we have in traditionally high carbon-emitting sectors, such as materials, energy and utilities.

We report an increase in the portfolio’s carbon intensity between 2018 and 2019. This is to a large extent the result of 1) an increasing number of companies disclosing their carbon emissions, and 2) an increase in portfolio weight of a handful of carbon-intensive companies, including Taiwan Semiconductor Manufacturing (TSMC) and Inner Mongolia Yili Industrial Group. Despite the increase in our carbon footprint, we continue to run a portfolio of companies that is not highly sensitive to changes in emissions regulations or that includes potential outliers.

We note, however, that we own companies operating in industries, e.g. food & beverages, and countries highly vulnerable to the impacts of climate change. We actively engage with those companies to understand their climate risk management practices and encourage improvements where appropriate.

Climate change

Portfolio-weighted carbon intensity (Tons CO2 eq/sales $m)

55

333

79

309

0

50

100

150

200

250

300

350

20182019

PortfolioMSCI Emerging Markets Index

End Dec 2018 – 118.4 (vs MSCI World 190.6)End Dec 2017 – 107 (vs MSCI World 190)

Source: MSCI ESG and Bloomberg

17BMO Responsible Global Emerging Markets Equity Strategy ESG Profile and Impact Report 2020

Companies that are within the top quartile for gender diversity on their executive teams are 15%-24% more likely to achieve above-average profitability than companies in the fourth quartile. McKinsey, 2019

Our approach

We see investment water footprinting as a useful method to help us identify

areas of water risk in our portfolio and manage those risks accordingly. The water usage metric that we disclose in this report is one of the tools we use to flag potential risks. To improve our understanding of the materiality of water to the portfolio, we also assess water risk by industry and by geography. Ultimately, we aim to have a good picture of where key risks lie to focus on specific industries and companies for further water risk research and engagement.

2019 performance

At year-end 2019, our portfolio had a significantly lower water footprint than the benchmark. We attribute this to the absence of stocks in high water-use

industries such as extractives, power utilities and chemicals. However, we are also aware that a number of our companies have poor water use disclosure, which understates the total portfolio water footprint. We have been engaging with these companies to encourage they enhance their water-related disclosure.

In terms of exposure, portfolio companies in the food & beverages industry face the highest water risks. Their businesses depend on reliable agricultural supply chains where access to water resources is under increasing pressure from climate change – particularly in some key emerging markets. We actively engage with management at these companies on their response to address water risks.

Going forward, we plan to work on evolving our water footprinting and reporting methods to provide our clients with a more comprehensive picture of the water-related risks and performance of the fund.

Water

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

43,991

392,303



Total Water Use

‘000 cubic meters

Portfolio 43,991

MSCI Emerging Markets Index 392,303

Total Water Use ‘000 cubic meters

2019 performance

We are proud to report that the Strategy's average representation of women on board and management levels at 16.7% and 15.6% respectively, is higher than the benchmark. This, we believe, is partly an outcome of our long-standing work on research and engagement on gender diversity issues. However, we appreciate that these figures are still low. Pervasive perceptions around the role of women in some emerging markets societies and insufficient access to equal opportunities for education, employment and career development constitute significant obstacles.

11 of our companies have 30% or higher female representation on their boards, with two – Guaranty Trust Bank and Vietnam Dairy Products – having chairwomen. The latter and Aguas Andinas have female CEOs.

Finally, we would like to highlight that six of our companies, including AIA Group, Commercial International Bank, Kasikornbank and Wal-mart de Mexico y Centroamerica, are included in the 2020 Bloomberg Gender-Equality Index, comprised of 325 global companies committed to supporting gender equality through policy development, representation, and transparency.

Our approach

We recognise the value that diversity in the boardroom and senior management can bring

to an organisation. A relevant and suitably diverse mix of skills and perspectives helps enhance long-term performance and value creation. We, therefore, monitor the level of gender diversity at the board, management and all levels in our portfolio companies.

Gender diversity

Gender representation

55

11.1%

79

16.7%

0

5

10

15

20

Percentage of female executives

Percentage of women on boards



Percentage of

women on boards female executives

Portfolio 16.7% 15.5%

MSCI Emerging Markets Index 11.1% 13.0%

13.0%

15.5%




Impact through our engagementThrough engagement and voting, we seek to drive targeted improvement on how companies address ESG risks, opportunities and impacts. Our aim is to enhance long-term performance, reduce risk and encourage a positive contribution to broader environmental and social issues.

Brazil

We urged Itau Unibanco to strengthen lending policies on deforestation given the government’s actions to weaken environmental law enforcement.

UK

We engaged with Unilever to explore ways to work together and with other investors to strengthen awareness of the business case for fair wages.

India

We welcomed HDFC Bank’s efforts to better measure the positive impacts of its financial inclusion initiatives and encouraged it to report on such impacts.

South Africa

We met with Clicks Group’s CEO to discuss the company’s strategy to provide greater access to healthcare for low-income South Africans.

Egypt

Commercial International Bank signed up to the UN Principles for Responsible Banking, a framework to help banks show how they contribute positively to society.

Mexico

Walmex developed and published energy intensity and carbon emissions reduction targets to drive energy efficiency across the business.

Engagement Milestones

Active ownershipEngagement on ESG issues presenting the greatest threats or opportunities to long-term value creation is a cornerstone of our approach to investing.

19

Engagement

In 2019, we engaged with 90% of the companies held in the strategy, with the aim of improving their management of ESG issues. Our main topics for engagement were corporate governance – board composition and effectiveness in particular, and climate change, including emissions management and resilience and adaptation.

Strong boards are critical for effective oversight of companies’ material environmental and social risks, opportunities and impacts and the manner in which these are monitored, disclosed and managed.

The heightened vulnerability of emerging markets to climate change requires companies to develop strategic responses to manage potential regulatory and physical impacts as well as meet evolving societal expectations. Our engagement on climate and other environmental topics mainly addressed SDGs 12, 13 and 15.

As for social topics, our engagement covered mainly SDGs 8 and 9 – more specifically on issues related to financial inclusion, working conditions and business conduct. We also engaged on public health issues linked to access to healthcare, covering SDG 3.

Voting

Our voting policies take account of local practices and are applied in a pragmatic fashion that reflects an integrated understanding of local and international good practice. In all cases, we aim to achieve the same result: the preservation and enhancement of long-term shareholder value through management accountability and transparency.

Our voting activity in 2019 resulted in us opposing management on 12% of resolutions, with capital issuances and director elections the issues we most frequently had concerns on.

BMO Responsible Global Emerging Markets Equity Strategy ESG Profile and Impact Report 2020

Hong Kong

Encouraged China Resources Gas to develop a robust approach to managing risks related to fugitive methane emissions during gas transmission activities.

Indonesia

We spoke with BTPN Syariah about its approach to micro-loan generation and collection practices as well as financial education across rural Indonesia.

China

Yili signed strategic partnerships with 13 of its global suppliers to help drive more sustainable practices across the dairy value chain.

Tencent improved the balance of its board by appointing a new independent director, the first woman to join the board in its history.


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

Background: Bank Mandiri is one of Indonesia’s largest banks, as well as one of the largest lenders to the country’s palm oil industry. Loans to large, medium and small plantations and refineries account for approximately 10% of its loan portfolio. The industry is exposed to significant environmental and social risks, which can affect borrowers’ ability to meet their loan commitments and, ultimately, the risk profile of Mandiri’s credit portfolio.

Engagement approach: We have met the company several times over the past three years, including a meeting with the CEO in London and a meeting at its headquarters in Jakarta with representatives from the credit risk, wholesale and commercial banking and investor relations teams, to discuss its approach to managing the ESG risks in its lending activities, with a focus on palm oil financing. Specifically, we have asked the company to strengthen existing palm oil lending guidelines, policies and processes to better reflect the magnitude of the sustainability risks it is exposed to and, in the process, drive more sustainable agricultural and manufacturing practices across the industry. Our engagement has been largely collaborative – as members of the Investor Working Group on Sustainable Palm Oil convened and coordinated by the UN Principles for Responsible Investment, we co-lead engagement with Mandiri and Bank Rakyat Indonesia.

Outlook: The company has consistently responded to our engagement in a positive way, taking concrete measures to address some of the gaps we have noted. Mandiri published a new Sustainable Finance Action Plan that focuses on improving management of ESG issues in its lending activities. As part of this plan, the company has committed to review and strengthen its approach to identifying and assessing the ESG risks from financing companies in four sectors with high sustainability impacts, starting with palm oil. Additionally, the bank informed us it is considering becoming a more vocal advocate for a more sustainable palm oil industry. We will continue to press for the adoption of a No Deforestation, No Peat and No Exploitation (NDPE)1 policy and to require clients to achieve RSPO2 certification as it moves forward to implementing its revised approach.

Bank Mandiri

Robust ESG risk management in palm oil financing is key to enhancing loan portfolios’ credit risk profiles and driving sustainable agricultural practices.

Mandiri is considering becoming a more vocal advocate for a more sustainable palm oil industry in Indonesia.

1 NDPE policies usually include provisions to end all deforestation, protect high conservation value areas and respect labour and human rights. 2 Roundtable for Sustainable Palm Oil


We have been consistently impressed by the actions management has taken to improve the employee value proposition.

Inner Mongolia Yili Industrial Group

Growth in China’s dairy industry will contribute to increasing global emissions if current farming methods are not adjusted.

Background: China’s dairy product consumption is predicted to grow by 15-20% in the next five years. If farming methods remain unchanged, global emissions from livestock farming could increase over 30% by 2050. We engaged with the company, China’s largest dairy products manufacturer, on its approach to managing greenhouse gas (GHG) emissions from its manufacturing operations and dairy farming supply chain.

Engagement approach: In 2019, we engaged with Yili to encourage it to adopt a more robust approach to mitigating the risks from climate change, as well as its impacts on climate change, along the dairy value chain. We were impressed by the company’s measures to tackle climate-related issues, including improving emissions data collection, measurement and reporting, and cooperation with key raw milk suppliers to implement

sustainable dairy farming practices. These have enabled carbon emissions reductions per ton of product to decrease by 8% between 2016 and 2018. Importantly, the company has been proactive in collaborating with peers, academic organisations and suppliers worldwide to improve sustainability of the dairy value chain, including in relation to climate change.

Outlook: We are encouraged by the company’s openness to engage on climate-related issues as well as its actions. The latter will help reduce costs, improve productivity and have operations with lower environmental impacts. Going forward, we will continue our dialogue to encourage Yili to leverage its growing research and innovation capabilities to tackle enteric methane emissions from cows – the greatest, and still largely unmitigated, source of greenhouse gas emissions in the dairy value chain.

Wal-mart de Mexico & Centroamerica

Robust employee engagement practices are essential to improving retention and productivity and, ultimately, long-term value creation.

Background: With over 230,000 employees, Walmex is the largest private employer in Mexico. The sheer size of its workforce exposes the company to higher risks of labour-related disruptions than most of its peers. Such exposure is not helped by the fact that Walmex has endured persistent and very public criticism of its treatment of workers, and that its historically fraught relationship with unions has led to labour disputes in the past.

Engagement approach: We engaged several times with company representatives, including senior executives, to ask Walmex to improve working conditions across its operations as well as employee communication and engagement, including with union representatives. We have been consistently impressed by the responsiveness to our engagement and by the scope and ambition of actions taken to improve the employee value proposition. While calls for better relations with unions were initially met with reluctance given pervasive mistrust on both sides, we saw positive change in 2019 when the company improved its transparency around challenging negotiations with unions and announced a new regime of collective bargaining

and union engagement. The new regime allows union members to elect their representatives, a first for the company.

Outlook: The actions taken by management to enhance employee relations over the past few years seem to have been effective in improving organizational climate and ultimately employee satisfaction. This should contribute to better retention rates and, importantly, enhanced productivity. We particularly welcome measures to improve its relations with unions, which will improve Walmex’s reputation and decrease the likelihood of strike action that could impact the bottom line.


Portfolio at a glance

Portfolio Weight

HDFC Bank Ltd. >5%

AIA Group Ltd. 4%-5%

Taiwan Semiconductor Manufacturing (TSMC) Co. Ltd. 4%-5%

PT Bank Mandiri Persero Tbk 3%-4%

Unilever PLC 3%-4%

Colgate Palmolive (India) Ltd. 3%-4%

Inner Mongolia Yili Industrial Group Co. Ltd. 3%-4%

Tencent Holdings Ltd. 3%-4%

Clicks Group Ltd 3%-4%

Jeronimo Martins SGPS SA 2%-3%

Wal-Mart de Mexico SAB de CV 2%-3%

Discovery Ltd 2%-3%

Tata Consultancy Services Ltd 2%-3%

Mr Price Group Ltd 2%-3%

Sinopharm Group Co Ltd 2%-3%

Tingyi Cayman Islands Holding Corp 2%-3%

Dali Foods Group Co Ltd 2%-3%

Commercial International Bank Egypt SAE 2%-3%

Vitasoy International Holdings Ltd 2%-3%

Guaranty Trust Bank PLC 2%-3%

Kasikornbank PCL 2%-3%

Credicorp Ltd 2%-3%

Bajaj Auto Ltd 1%-2%

ICICI Bank Ltd 1%-2%

Raia Drogasil SA 1%-2%

Universal Robina Corp 1%-2%

Vietnam Dairy Products JSC 1%-2%

Infosys Ltd 1%-2%

Moscow Exchange MICEX-RTS PJSC 1%-2%

Portfolio Weight

Public Bank Bhd 1%-2%

Aguas Andinas SA 1%-2%

Itau Unibanco Holding SA 1%-2%

AVI Ltd 1%-2%

PT Bank Rakyat Indonesia Persero Tbk 1%-2%

China Resources Gas Group Ltd 1%-2%

Magnit PJSC 1%-2%

Bolsa Mexicana de Valores SAB de CV 1%-2%

BIM Birlesik Magazalar AS <1%

Emami Ltd <1%

Ultrapar Participacoes SA <1%

AK Medical Holdings Ltd <1%

PT Bank Tabungan Pensiunan Nasional Syariah Tbk <1%

Cash >5%

Data as at: December 31, 2019


“We believe that beyond reaping the financial benefits of a growing market and increasing revenues, companies can and should play an active role in improving peoples’ livelihoods by making goods and services affordable and inclusive.” LGM Investments Team


Leaders in responsible investment From the launch of Europe’s first ethically screened fund in 1984 and our position as a founding signatory of the UN PRI, to the comprehensive suite of ESG specialist funds and services available today, we have a strong heritage in responsible investment.

19 sustainability experts within our Responsible Investment team1

A+ Rated for strategy and governance by UN Principles for Responsible Investment 35 years of investing responsibly USD$5.1bn2 under management in ESG specialist funds

A history of innovationA growing range of ESG orientated client focused solutions

2020

Launch of BMO Responsible UK Income Fund, BMO Responsible

Global Equity Fund

Founding signatory to Principles

for Responsible Investment (PRI)

Launch of BMO Responsible Global Emerging Markets

Equity Fund Launch of Green

Bond Strategy

Launch of BMO SDGEngagement Global Equity Fund, BMO

Sustainable Universal MAP Funds and BMO

Sustainable Multi-Asset Income Fund

Launch of BMO Responsible

Sterling Corporate Bond Fund

Launch of BMO Sustainable

Opportunities Global Equity Fund

Launch of BMO Responsible Euro Credit portfolio

Launch of ESG Exchange Traded

Funds

Launch of Responsible Engagement

Overlay (reo®)

Launch of BMO Responsible UK

Equity Fund

200720152019 2006 198720162018 2010 2000

1 As at March 2020. In December 2019 the RI team was made up of 17 people2 As at 31 January 20203 This is the second consecutive year that we have won this award

Award winning

3

1984


“I am incredibly proud of our responsible heritage, the integrity of ESG products we offer and in co-leading our dedicated Responsible Investment team which is made up of inspiring, bright and motivated individuals.”Claudia Wearmouth, Managing Director, Co-Head, Responsible Investment

We believe that responsible investment is a mindset: as asset managers, we have a privileged and trusted position as stewards of capital, which gives us both influence and responsibility.

We take this responsibility seriously. We consider the impact of our investments on society and the environment, and the extent to which it affects long-term value creation. We work closely with the companies we invest in as active owners, to improve the management of ESG issues. We support this work with the thoughtful exercise of our voting rights. We strive to be thought leaders on these issues and their relevance to us as investors.

Thought leadership – promoting and encouraging the development of responsible investment across the broader marketplace and industries.

Active ownership – using our position as an asset owner to drive positive change through engagement and proxy voting.

ESG integration – ensuring financially material ESG issues are considered within our active investment processes.

Funds and solutions – offering a range of ESG orientated investment solutions built around a clear sustainability philosophy.

Phot

ogra

phy:

rich

ardj

ohns

on.c

a

© 2021 BMO Global Asset Management. Financial promotions are issued for marketing and information purposes; in the United Kingdom by BMO Asset Management Limited, which is authorised and regulated by the Financial Conduct Authority; in the EU by BMO Asset Management Netherlands B.V., which is regulated by the Dutch Authority for the Financial Markets (AFM); and in Switzerland by BMO Global Asset Management (Swiss) GmbH, which is authorised and regulated by the Swiss Financial Market Supervisory Authority (FINMA). 1164642 (01/21). This item is approved for use in the following countries; FR, DE, IE, IT, NL, NO, PT, ES, SE, CH, UK.

Although BMO Asset Management Limited’s (trading as BMO Global Asset Management) information providers, including without limitation, MSCI ESG Research LLC and its affiliates (the “ESG Parties”), obtain information from sources they consider reliable, none of the ESG Parties warrants or guarantees the originality, accuracy and/or completeness of any data herein. None of the ESG Parties makes any express or implied warranties of any kind, and the ESG Parties hereby expressly disclaim all warranties of merchantability and fitness for a particular purpose, with respect to any data herein. None of the ESG Parties shall have any liability for any errors or omissions in connection with any data herein. Further, without limiting any of the foregoing, in no event shall any of the ESG Parties have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages.

Institutional business:

+44 (0)20 7011 4444

[email protected]

UK Intermediary Sales:

0800 085 0383

[email protected]

bmogam.com/intermediary

European wholesale:

+44 (0)20 7011 4444

[email protected]

bmogam.com

Telephone calls may be recorded.

Follow us on LinkedIn

Subscribe to our BrightTALK channel

bmogam.com/responsibleinvesting

Contact us

mailto:[email protected]


http://www.bmogam.com/intermediary


http://www.bmogam.com

https://www.linkedin.com/company/bmoglobalassetmanagement/

http://www.bmogam.com/responsibleinvesting

Responsible Investment Solutions For professional ...

Documents