Responsible Investment Solutions. Summary criteria

Transcription

1 Responsible Investment Solutions For professional investors only Responsible Investment Solutions Summary criteria

2 Responsible investment solutions BMO Global Asset Management (EMEA) has a progressive and innovative approach to responsible investment. For over 30 years, we have been running investment strategies that consider ethical as well as environmental, social and governance (ESG) factors in portfolio selection and management. Specifically, our range of responsible investment strategies has been designed to link investment performance to a clear set of ethical and sustainability principles. Philosophy Our Responsible product range offers customers a way to invest in shares and bonds of companies that adhere to certain values and standards, and are managed to provide capital growth and income. We do this by applying ethical and ESG principles to the selection of investments, having a robust approach to portfolio construction and management, and using our influence as shareholders to encourage more ethically, socially responsible and environmentally sustainable behaviour by companies. The philosophy for these products is based on three pillars: Invest in companies that demonstrate responsible business practices, and support those whose activities make a positive contribution to society and the environment, Avoid investments in companies with activities that harm society or the environment; and Improve: use influence as an investor to encourage companies in their efforts to improve their management of ethical and ESG issues through engagement and voting. Overview BMO Global Asset Management s range of Responsible strategies includes: Global assets UK assets Emerging assets F&C Responsible Global Equity F&C Responsible UK Growth F&C Responsible UK Income F&C Responsible Sterling Bond F&C Responsible Emerging Markets ESG BMO Responsible Global Emerging Markets Equity 2

3 I. Global and UK strategies 1 Invest The strategies seek to invest in companies that meet high standards in how they operate, based on a detailed assessment of their policies and performance with respect to overall sustainability management. In order to make these assessments, we have established particular positions on a range of relevant issues, such as climate change, and what we consider to be progressive approaches to these issues by companies. These positions are based on a range of inputs that include evolving international norms and agreements, extensive primary research, including field visits, and the input of our Responsible Investment Advisory Council. As part of the process of evaluating a company s overall approach to sustainability management, we will include an assessment of whether it provides products and services that make a positive contribution to society, including those that: Are essential for everyday life: this includes healthcare, food, education, housing, social services, retail financial services, clothing, water, energy, and transport. Meet sustainable development challenges by enabling lower carbon lifestyles or incorporating sustainable design. Improve quality of life through new technologies, such as mobile telecommunications, internet services and consumer electronics. Offer consumers ethical choices, such as fair trade and organic goods. Avoid BMO Global Asset Management has developed stringent criteria to determine the eligibility of companies for investment in the strategies. We review the criteria and indicators on a regular basis to ensure they reflect evolving responses to critical issues, emerging issues and changes in regulation, among others. A list of screening criteria on pages 5 and 6 against which every company considered for inclusion in the investable universe will be assessed, can be found in the appendix to this document. Improve We believe we have a responsibility as shareholders to exercise the rights and responsibilities of ownership and that through engagement and active voting we can encourage companies towards meeting or setting best practice in the management of ESG issues. This should ultimately support long-term performance, reduce risk and contribute to promoting a fairer and more sustainable world. There will be cases when we consider companies to be acceptable for investment despite having identified weaknesses in some areas of their sustainability management practices. In such cases, we will enter a programme of engagement to encourage companies to improve their sustainability management. As part of such a programme, we will define clear objectives, communicate directly with companies, track progress and measure success. 1 The screening process is common to all the Global and UK strategies for defining the investable universe. Beyond this, the strategies each apply varying degrees of positive selection in the investment process and take ESG considerations into account through the analytical process where there is relevance for financial performance. 3

4 II. Emerging Markets strategies Invest The strategies seek to invest in companies in emerging markets that stand to benefit from or substantially contribute to trends in sustainable development. All companies being considered for inclusion in the portfolio must show a clear link to the following six ESG themes: Infrastructure for development: providing critical public and private infrastructure in transportation, electricity, water, housing and other sectors. Financing the future: delivering financial services to underbanked and underleveraged economies. Rise of the low-income consumer: supplying products and services to low and middle-income consumers as disposable income grows. Human capital: supporting the provision of social services such as education and healthcare. Access to new technologies: offering cutting edge technologies to enable sustainable development Energy for growth: fuelling the economy with efficient energy from both conventional and alternative sources. Improve There will be cases when we consider companies to be acceptable for investment in this strategy despite having identified weaknesses in some areas of their corporate governance or sustainability management practices. In such cases, we will enter a programme of engagement to encourage companies to improve their approach to managing ESG issues. As part of such a programme, we will define clear objectives, communicate directly with companies, track progress and measure success. Avoid The strategies avoid investment in companies that fail to demonstrate a meaningful commitment to manage the sustainability risks of their activities, and/or have corporate governance practices that do not reflect good local standards. On corporate governance, we evaluate indicators across issues such as board balance and independence, the protection of shareholder rights, and transparency and disclosure. On sustainability management, we assess each company s relevant policies and systems in place to ensure they appropriately reflect the environmental and social risks and impacts of their operations. The F&C Responsible Emerging Markets ESG strategy is also available with additional screens to meet the needs of investors looking for specific ethically-based exclusions. This version of the strategy excludes companies involved in the following: Abortifacient drugs or devices Weapons or weapons systems Tobacco Embryonic stem cell research Pornography 4

5 Screening Criteria a) Product-based exclusion Companies are excluded from investment in our products because of their involvement in certain activities or products deemed to be negative from an ethical or sustainability perspective. Screening criteria Issue Position Criteria Alcohol Banking Fossil fuels Fur Gambling Genetic Modification (GM) Nuclear energy Abuse of alcohol harms the health of individuals and their families. Irresponsible risk-taking and questionable conduct and practices in some parts of the banking system has had a negative effect on the global economy. The unabated global growth in the use of fossil fuels is having significant impacts on human health and the environment. Fur farming of most species is not conducted in a manner that protects animal welfare. The capture of wild animals used for fur is also often inhumane. Gambling presents risks to the emotional health of individuals and their families from addictive behaviour and financial stress. Information regarding the impacts of genetically-modified crops and foods on the environment and public health is still inconclusive. Significant concerns persist around the serious risks associated with nuclear power, including nuclear waste, safety, and nuclear proliferation. Exclude companies that derive: Any turnover from the production of alcoholic beverages. Over 33% of turnover from selling alcohol (companies in the hotel, restaurant or leisure industries). Over 10% from bottling, wholesale or sale (other industries). Exclude financial institutions where revenues from investment banking are more than 50% of total revenues. The following companies will be excluded: Mining companies that derive over 10% of their revenues from the extraction of thermal coal. Oil and gas companies whose production derived from oil sands is 1% or more of total production. activities in the Arctic. Produce fur Derive over 1% of their total revenue from the sale of fur products. Exclude companies: Whose core business is gambling, such as casinos and betting shops. Deriving 10% or more of their total revenues from gambling, such as hotels. Exclude companies involved in the development or manufacture of genetically modified seeds or crops. Own or operate nuclear power stations. Derive more than 3% of their revenues from selling products or services to the nuclear power industry. 5

6 Screening criteria Issue Position Criteria Pornography Transport Tobacco Toxic chemicals Weapons The abusive and degrading portrayal of individuals in pornography contributes to sexual discrimination and exploitation of the vulnerable, and can be a contributor to violence. Transport is responsible for 22 percent of energy-related greenhouse gas (GHG) emissions worldwide 3, and its emissions are increasing at a faster rate than any other sectors. Tobacco smoking has significant negative public health impacts, including the cost of treating smoking individuals and the effects of passive smoking. A wide range of synthetic chemicals are used to manufacture everyday products that cause environmental damage and can threaten human health. Of particular concern are persistent organic compounds (POPs), which include endocrine disrupting chemicals (EDCs). Weapons can inflict death and injury and cause serious harm to natural and human capital. Exclude: Companies involved in the production or distribution of pornographic materials. Retailers that derive more than 3% of turnover from the sale of pornographic material. Exclude: Companies that are significantly involved in building roads, i.e. this accounts for more than 33% of total turnover. However, investment in companies with substantial involvement in road building and/or improvement in developing countries will be allowed. Companies whose core business is aviation, including airline companies or airport operators involved in airport expansion. Derive any turnover from the manufacture of tobacco products. Derive 10% or more of turnover from the sale of tobacco products. Derive 10% or more of turnover from the supply of machinery and packaging materials to companies in the tobacco industry. Involved in Polyvinyl Chloride (PVC) manufacturing if they derive over 10% of their revenues from PVC. Involved in the manufacturing or trade of POPs and other substances banned or restricted under international conventions. Derive any turnover from the manufacture or sale of weapons, weapons systems or platforms, including products or services specific to such systems. Supply goods and services designed for strategic military use. 3 Source: International Energy Agency,

7 b) Conduct based exclusion In addition to the above, the strategies will exclude companies that have failed to address the ethical, environmental and social impacts of their operations, as evidenced by: A history of serious environmental damage with no evidence of appropriate remedial action; Systematic failure to protect human rights and/or labour standards, including complicity in human and labour rights abuses, either deliberately or through neglect; Operations that directly and significantly contribute to the persistence of an oppressive regime; Involvement in the unnecessary exploitation of animals, or use of great apes as animal test subjects; Use or sale of species in contravention of the law or CITES (Convention on International Trade in Endangered Species); A history of consistently poor practices related to business ethics and conduct with no evidence of appropriate remedial actions.

8 Contact us Institutional business: +44 (0) Discretionary sales: +44 (0) bmogam.com Follow us on LinkedIn Subscribe to our BrightTALK channel 2016 BMO Global Asset Management. All rights reserved. BMO Global Asset Management is a trading name of F&C Management Limited, which is authorised and regulated by the Financial Conduct Authority. CM08997 (04/16).