Gender equality, climate change and the overuse of antibiotics are some of the issues which will dominate the conversations that BMO Global Asset Management’s responsible investing team have with investee companies this year. 
Investors are increasingly aware of the importance of environmental, social and governance (ESG) factors when building portfolios and are allocating to strategies that pay attention to this issue. Specialist ESG mandates are yet to be a mainstream offering – accounting for just 1.4 per cent of total industry assets – although their inflows were particularly robust last year.
The latest figures from the Investment Association reveal that dedicated ethical funds captured net retail inflows of £1.3bn in 2018. This is a significant share of the year’s total net inflows, which amounted to just £7.2bn.
Ethical funds’ AUM and net inflows by calendar year
Source: Investment Association
The growth in popularity of these funds will mean that ethical portfolio managers have a greater chance of influencing investee companies for the better.
Vicki Bakhshi, a director in the responsible investment team at BMO Global Asset Management, said: “Engagement is a powerful tool that we, as stewards of our clients’ capital, need to use to tackle ESG risks and deliver sustained long-term returns for investors.
“We also believe that through engagement, we can work with fellow investors to drive progress towards a more sustainable world, through supporting the achievement of the Sustainable Development Goals [SDG].”
The 2019 priorities of BMO’s responsible investment team have to meet both of these objectives: being material to investors and being of “critical importance” to the SDGs – drawn up by the United Nations in 2015. Below, Bakhshi highlights five of these issues that the team is concentrating on in 2019.
The first is protecting vulnerable workers. She pointed out that inadequate wages, weak safety practices and modern slavery are issues that contribute to widespread societal problems such as poverty and inequality. They also undermine the achievement of sustainable development through the targets laid out by SDG1 and SDG8, which call for an end to global poverty and the implementation of safe working practices.
SDG1 aims for the eradication of extreme poverty for all people everywhere, currently measured as people living on less than $1.25 a day, by 2030 while SGD8 covers issues such as modern slavery, human trafficking and use of child soldiers as well as the protection of labour rights.
“In 2019 we will continue to engage companies on how they are tackling modern slavery practices such as forced and child labour within their supply chains. New legislation is shining a spotlight on this issue through driving better disclosure. Based on the work we undertook in 2018, we have built an understanding of corporate best practice, and will use this to press companies to make improvements,” Bakhshi said.
“This year will also see us follow up on previous work on the payment of a living wage, with emphasis on the retail sector, where corporate reputations are sensitive to allegations of poor staff treatment. We will also start a new strand of engagement around apparel sourcing practices and their impact on the environment and local populations, including the emerging risks arising from shifts toward sourcing from Africa as companies seek to diversify their supply chains.”
The second issue that BMO will engage on is gender equality. Bakhshi noted that the world seems to be “a long way” from achieving the goals laid out in SDG5, which is concerned with gender equality.
One area of where there has been some degree of success is board-level gender diversity, which has been subject to intensive investor focus in recent years. However, this is “only the tip of a very large iceberg”, given the widespread inequality problems still present in today’s workforce.
In 2019, BMO’s responsible investment team will be building on its past engagement at board level to look more deeply at the representation of women at senior management level and below.
“Based on an identification of best practices in areas such as mentoring, flexible working and pay, we intend to work with companies to identify barriers and encourage the adoption of forward-looking approaches – which should ultimately benefit company performance through attracting and retaining high calibre employees,” she explained.
Global carbon dioxide levels
Source: NASA
Climate change is one area that most people associate with ESG investing and the topic has been focused on by the investment community in the past year through initiative such as Climate Action 100+, which Bakhshi described as being “one of the largest investor collaborations ever formed”.
“Engagement has particularly concentrated on the oil & gas and mining sectors, and to a lesser extent, the energy-intensive industries such as utilities and automobiles, however the impacts of climate change range much more widely,” she continued.
“In 2019 we plan to widen our own perspective through focusing on the role of the finance sector, in line with the focus of SDG13 – climate action, which sets targets for climate finance. Our engagement will target banks in south-east Asia, which have generally been slow to act on climate change – but are highly exposed to the risks and may be missing opportunities to finance solutions.”
BMO also plans to start a dialogue with the marine transportation sector. The asset management house believes this sector has been overlooked by the responsible investment community, despite it accounting for around 2 per cent of global greenhouse gas emissions.
Last year witnessed a dramatic increase in the public awareness of the impact that single-use plastics on the environment, especially the negative effects that plastic waste has on ocean biodiversity, and this will be the fourth area of engagement.
Bakhshi said the world’s plastic waste problem is undermining the achievement of SDG14 – which focuses on life below water – especially the progress in SDG14.1, or the goal to prevent and significantly reduce marine pollution of all kinds, in particular from land-based activities including marine debris and nutrient pollution, by 2025.
This year, BMO Global Asset Management will continue to prioritise engaging with companies in the food and beverage sector, as well as others, on to encourage proactive approaches to identifying more sustainable packaging and to commit to phasing out single-use plastics.
“This focus will sit alongside our ongoing engagement on companies’ water use in line with SDG6, as the impacts of climate change exacerbate existing stresses from population growth and intensive agriculture,” she said. “Companies can no longer view water as a free, non-exhaustible resource, and companies in water-intensive sectors need to factor in water planning as an integrated part of their business risk analysis.”
The final issue that BMO’s responsible investment team is making a 2019 priority is antimicrobial resistance (AMR), which has been recognised as an increasingly serious threat to global public health as it jeopardises the effective prevention and treatment of infectious diseases.
AMR is a natural biological phenomenon where microorganisms like bacteria, viruses, and some parasites develop a resistance to antimicrobials such as antibiotics, antivirals and antimalarials, which makes standard treatments for them ineffective.
“The misuse of antibiotics is accelerating this process and has led to the emergence of infections which do not respond to antimicrobial therapy. Given that AMR is a pressing and complex problem, governments and companies in multiple sectors need to take action,” Bakhshi concluded.
“We intend to focus our engagement on pharmaceutical companies, companies involved in meat and/or dairy production, and food retailers. These companies can play a pivotal role in slowing down the development and spread of AMR.”