Eurosif Transparency Guidelines - Statement of Compliance

Transcription

1 F&C Responsible Emerging Markets Equity strategies September 2016

2 BMO Global Asset Responsible Fund Range F&C Responsible Emerging Markets Equity ESG Fund F&C Responsible Emerging Markets Equity Screened ESG BMO Responsible Global Emerging Markets Equity European SRI Transparency Code Fourth Statement of Commitment - September 2016 to September 2017 European SRI Transparency Code (Version 3) Date: October 2016 Eurosif response Statement of Commitment Sustainable and responsible investing is an essential part of the strategic positioning and behaviour of BMO Global Asset. We have been involved in SRI since 1984 and welcome the European SRI Transparency Code. This is our fourth statement of commitment and covers the period from October 2016 to October2017. Our full response to the European SRI Transparency Code can be accessed below and is available on our website: Compliance with the Transparency Code BMO Global Asset is committed to transparency and we believe that we are as transparent as possible given the regulatory and competitive environments that exist in the countries in which we operate. BMO Global Asset meets the full recommendations of the European SRI Transparency Code - 2 -

3 Section 1 Basic Details - The Fund Company 1a. Provide the name of the fund management company managing the fund(s) to which this code apply. Provide general information about The Fund Company managing the fund(s) to which this code apply (e.g. name, address, website ) Name of Company: BMO Global Asset (investment management carried out by LGM Investments Limited (LGM)) Registered address: Exchange House, Primrose Street, London, EC2A 2NY, UK Website: BMO Global Asset is the trading name of F&C Ltd, which is authorised and regulated in the UK by the Financial Conduct Authority. Our Financial Conduct Authority registration number is and confirmation of our authorisation by the Financial Conduct Authority may be found by accessing the Financial Conduct Authority's Financial Services Register on the following website: Alternatively the Financial Conduct Authority may be contacted directly on: +44 (0) Funds to which this code applies: F&C Responsible Emerging Markets Equity ESG Fund F&C Responsible Emerging Markets Equity Screened ESG BMO Responsible Global Emerging Markets Equity Contact details: Claudia Wearmouth, Director, Governance & Sustainable Investment team Claudia.wearmouth@bmogam.com Tel: b. Describe the general approach of the fund management company with regards to how it takes environmental, social and governance (ESG) criteria into consideration. At BMO Global Asset, we recognise the important role that environmental, social and governance (ESG) considerations play in the creation of superior long-term investment returns. We also believe that investors have a critical role to play alongside policymakers and business in meeting the many ethical and sustainability challenges facing today s world. We are fully committed to integrating the consideration of ESG factors within our overall investment activities. As such we offer our clients, and implement on their behalf, three different layers of responsible investing as demonstrated in the following diagram

4 1. Our flagship reo service, a market-leading engagement overlay service, covers a total of 18.8 billion of assets internally and 72.6 billion of assets for external clients (as of 30 June 2016). 2. We also offer a number of specialist ESG solutions, including the Responsible Funds range, which has total assets of 1.3 billion invested in a variety of asset classes. In the Responsible Fund range we employ a thorough screening process according to ESG criteria that we have developed to match our clients ethical beliefs. 3. ESG considerations are integrated into a large proportion of our investment processes. Where appropriate, our research analysts and portfolio managers follow a process that considers, among other factors, the potential impact of ESG issues related to investments in our internally managed portfolios. This analysis informs our decisions on asset allocation, stock selection, portfolio construction, shareholder engagement and voting. Is the fund management company approach towards ESG criteria aligned or inspired by its corporate social responsibility approach? Yes/No. If yes, insert a link to the company s CSR policy. If not, explain why not. Yes. Please find our approach to corporate responsibility at the following link: Has the fund management company signed the Principles for Responsible Investment? If yes, please insert the link to the answer to the PRI questionnaire. Yes. Please find our PRI Transparency report at the following link: Is the fund Manager a signatory or a member of other international and/or national initiatives supporting SRI practices? Please answer if you deem this information to be useful. At BMO Global Asset (EMEA) we have always seen the importance of working with collaborative organizations and initiatives to achieve effective change including those focused on climate change

5 We are a member of the following networks: UN Principles for Responsible Investment (UN PRI) Clearinghouse Committee (Matthias Beer) UN Global Compact including participation in the UNGC/PRI Expert Group on Responsible Business and Investment in Conflict-Affected and High-Risk Areas Carbon Disclosure Project (CDP) and CDP Carbon Action Institutional Investors Group on Climate Change (IIGCC) Board membership (Vicki Bakhshi) Consultative Panel for the Futures Programme on Asset Stranding at Oxford University's Smith School Global Network Initiative (GNI) Eumedion General Board and Investment Committee International Corporate Governance Network (ICGN) Asian Corporate Governance Association (ACGA) Global Investor Governance Network (GIGN) Council of Institutional Investors (CII) Corporate Governance Advisory Council (Manuel Isaza) The UK Sustainable Investment & Finance Association (UKSIF) Leadership Committee (Vicki Bakhshi) Has the fund management company established an ESG engagement policy? If yes, describe the policy by outlining its objectives and its methodology and/or, if it is public, insert a link to the policy. If not, explain why not. Our Responsible Ownership Policy can be found at the below link. This includes our approach to engagement which encompasses a broad spectrum of ESG issues, covering companies across sectors and geographies. Has the fund management company established a voting policy? If yes, describe the policy by outlining its objectives and its methodology and/or, if it is public, insert a link to the policy. If not, explain why not. Our Responsible Ownership Policy can be found at the below link which includes our corporate governance and voting policies. We use our vote, combined with engagement, to encourage companies to achieve these goals. It is our policy to vote at all shareholder meetings on behalf of our investment clients and third-party reo clients where voting is mandated. Describe how the fund management company or the group contributes to the promotion and the development of SRI. BMO Global Asset has a progressive and innovative approach to responsible investment. For over 30 years, we have been at the forefront of responsible investment, 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. We have undertaken ESG engagement activity since 2000 and were a founder signatory of the UNPRI in

6 Source: BMO Global Asset as at 30 June c. Describe/List your SRI products and the specific resources allocated to your SRI activities. Briefly describe the SRI fund range (number, assets under management, strategies,..) Please see a list of our SRI funds in the below table. Strategy Name Inception Date Legal type Share class/ ISIN AUM m F&C Responsible Emerging Markets Equity ESG Fund F&C Responsible Emerging Markets Equity Screened ESG BMO Responsible Global Emerging Markets Equity 2 March March July 1994 Source: BMO Global Asset as at 30 June 2016 Commingled (Cayman Island Funds) Commingled (Cayman Island Funds) UCITS/ Luxembourg SICAV A USD / KYG A USD / KYG A USD / LU X GBP / LU Describe/Detail the resources allocated by the fund management company (organisation, ESG research internal/external, dedicated portfolio management team, ) and indicate where this information is available. Internal resources Our in-house, London based, Governance and Sustainable Investment (GSI) team has extensive experience gained in financial services, the media, consultancy, public policy and industry, and is responsible for all ESG research, engagement and voting activities. The team forms part of the Investment and Solutions department as we believe the monitoring and analysis of ESG data is a core part of investment processes across our business. The GSI team is detailed in the following table

7 Name ESG issues covered Years of professional experience Years at BMO Global Asset Vicki Bakhshi, Head of GSI Climate change Claudia Wearmouth, Director Responsible Funds range 14 9 Kalina Lazarova, Associate Director Governance Global 12 2 Matthias Beer, Associate Director Oil and gas sector 14 7 Juan Salazar, Associate Director Governance Emerging markets Mining sector 17 7 Yo Takatsuki, Associate Director Pharmaceutical sector 13 5 Manuel Isaza, Associate Director Governance Americas 7 1 Daniel Jarman, Associate Director Governance Europe 12 <1 Liat Reback, Analyst Retail sector 2 2 Thomas Hassl, Analyst Industrials and Chemicals sectors 2 <1 Emma Lupton, Analyst Food and beverage sector 4 <1 Tenisha Elliot, GSI Data & Reporting Analyst Olivia Baker, GSI Data & Reporting Analyst Source: BMO Global Asset as at 30 June 2016 As part of a major global asset manager, our GSI team enjoys significant benefits that enhance the quality of its voting and engagement. These include a robust understanding of the impact of corporate governance structures, proxy voting matters and ESG factors on corporate performance and investment outcomes, and a high level of corporate access - essential for effective engagement. The GSI team draws on extensive internal and external resources including third-party ESG data providers, and the full infrastructure and support services of the wider BMO family. We believe our scale, integration of approach, and robustness of the services we provide are unique. External resources Important sources of research include MSCI ESG, which provides ESG risk data. We also use Institutional Shareholder Services (ISS) for global proxy voting research and vote execution services and use Institutional Voting Information Service (IVIS) for supplementary advice on FTSE All-Share companies. In addition, we use Solaron (bespoke screening research for ethically-screened funds) and Sustainalytics (cluster munitions exclusion). In order to complete the picture we consider research by broader stakeholders including NGOs such as Transparency International (anti-corruption), Oxfam and Human Rights Watch. Our research is also informed by our networks that may provide briefings and publications, including the UN PRI, International Corporate Governance Network (ICGN) and Asian Corporate Governance Association (ACGA). Whilst we believe that the quality of ESG data has improved markedly, we believe it needs a lot of interpretation and we always overlay data with our own team s expertise and experience. This helps us to identify how severe the ESG - 7 -

8 issue is, the quality of the company s response, and our ability to influence change through engagement. Sector and regional experts review our priority companies as well as our response to breaches of global norms, as set out above. Our status as an asset manager helps us to place ESG issues in a business context which is something we believe is essential in terms of making a convincing case to companies through our engagement. 1d. Describe the content, frequency and resources allocated/used by the fund management company to inform investors about the ESG criteria taken into account. We publish regular reports on a range of ESG topics from climate change, to living wages to supply chain labour standards. These can be found on our website: In addition, we now publish an ESG profile and impact report for our Responsible Emerging Market Equity strategies. It provides investors with more information on the ESG performance of these strategies, highlighting leaders and laggards, as well as the impact their holdings are having on the world. The report also describes our engagement activities with companies and shows areas where we could influence positive change. Furthermore, it looks at the carbon intensity of the fund relative to the MSCI World benchmark as well as the carbon emissions of the fund relative to the benchmark. We disclose holdings with the highest and lowest carbon risk management scores as well as case study holdings across our themes. We aim to publish these reports annually and continue to enhance and develop the ESG performance data for the funds. Each year we also publish an Annual Responsible Investment Report, providing an annual summary and highlights of engagement and proxy voting. The SRI Funds 1e. Provide the name of the funds to which this Code applies and their main characteristics. Describe the main characteristics of the fund(s): geographical focus, asset class, SRI strategy used (use the classification provided by Eurosif/EFAMA). Responsible Emerging Market Equity ESG / Responsible Emerging Market ESG Screened / Responsible Global Emerging Market Equity The Responsible Emerging Market Equity strategy invests in emerging markets equities which benefit from specified ESG themes within our GEM universe. Through screening and engagement, the strategy aims to reduce ESG-related risk and contribute to sustainable development in emerging markets. Unique to this LGM strategy, is the marketleading GSI team at BMO Global Asset (EMEA) who provide ESG analysis, screening and shareholder engagement for this portfolio. We aim to construct a non-index driven portfolio typically containing stocks. 1f. What are these funds trying to achieve through taking into account ESG criteria? For instance, financing a specific sector, reducing risks, support better CSR practices, develop new value creation opportunities, other objectives. If part of the fund(s) assets is invested in unlisted organisations with high social, community or impact investing relevance, please specify

9 BMO Global Asset (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. Our Responsible Emerging Market Equity strategy offers customers a way to invest in shares 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 driving or benefiting from sustainable development trends, within emerging markets, based on six sustainable investment themes, 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. We can confirm that the funds within these strategies are not invested in unlisted organisations with high social, community or impact investing relevance

10 Section 2. Approach to ESG Evaluation of Companies 2a. What fundamental principles underlie the ESG research methodology? Our responsible investment philosophy is based on three pillars: This philosophy underlies the process that is applied to define the investable universe through screening, the subsequent investment analysis, stock selection and active ownership. 2b. What internal and external resources are used to carry out this research? Please see answer at 1c 2c. Which ESG analysis criteria are used? Indicate what the main criteria for each of the environmental, social/societal and governance dimensions are. Specify if these criteria differ according to sectors, the geographical zones, the type of company, If appropriate, provide an example. Please refer to our Criteria document for a summary of the ESG analysis criteria used: Our in-house GSI team conducts in-depth analysis on each company considered for the Responsible Emerging Market Equity strategy. Companies must satisfy a set of minimum ESG standards: A. Corporate Governance: Companies are required to comply with minimum corporate governance standards across the three areas of board balance and independence, transparency and disclosure, and shareholder rights. B. Clear commitment to sustainability: The strategy invests in companies that meet high sustainability standards in how they operate, based on an assessment of their policies and performance with respect to overall management of environmental and social risks, opportunities and impacts. We expect companies to have an

11 approach to managing these issues commensurate with the magnitude of the potential impacts of their operations. We have detailed guidance on the key ESG issues per industry that should be reviewed when assessing companies for inclusion in the strategy. 2d. What is your ESG analysis and evaluation methodology (how the investment universe is built, rating system, )? Describe the ESG evaluation/rating system and how it is built by explaining how the various ESG criteria are articulated. If appropriate, provide an example. This process is illustrated as follows: Source: LGM. For illustration purposes only How well a company manages its ESG responsibilities is an indicator of management quality, long term strategic thinking and the resilience of a business. Companies that perform well on these metrics should create more sustainable shareholder value over time. We explicitly focus our investment horizon on the long term and find that particular themes linked to sustainable development are a rich source of ideas. Post investment we endeavour to develop relationships with the company management and board to engage in a constructive ongoing dialogue on all elements of business strategy including key environmental, social and governance issues. 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. 2e. How frequently is the ESG evaluation reviewed? After a company is made acceptable for our Responsible Emerging Markets Equity strategy by satisfying the minimum ESG standards, we then conduct ongoing monitoring of all held companies and an annual review to ensure the company continues to meet our criteria

12 In addition, we monitor ESG issues through a variety of sources, including quarterly monitoring of companies breaching UN Global Compact standards; our voting activity and research, which may flag governance problems; and the numerous networks of which we are members. These issues are discussed at a weekly Engagement Meeting and may trigger engagement with companies. Individual investment desks receive quarterly reports which are tailored to their own research universe and/or funds. These highlight the best and worst ESG scores, and the largest changes in score over the previous quarter. Fund managers select companies from these reports for further analysis; these are submitted to the GSI team who research the companies, in collaboration with fund managers. We may undertake engagement with the company if our analysis suggests a material issue. Results of this analysis and engagement are discussed, recorded in our data systems and then pulled into future reports

13 Section 3. Fund Process 3a. How do you take into account ESG criteria when defining the universe of eligible investments? If appropriate, describe the eligibility threshold and the resulting level of selectivity. For the F&C Responsible Emerging Markets Equity ESG Fund, F&C Responsible Emerging Markets Equity Screened ESG and the BMO Responsible Global Emerging Markets Equity Fund, stocks considered for the Strategy must drive or benefit from one of six sustainable development themes: Source: BMO Global Asset as at 31 August 2016 After meeting one of these positive sustainable investment themes, companies are required to meet the following additional minimum criteria, before they can be approved for investment: Good governance: Companies are required to meet specific standards of good governance covering issues such as board independence, shareholder rights, transparency and disclosure. Clear commitment to sustainability: The strategy invests in companies that meet high sustainability standards in how they operate, based on an assessment of their policies and performance with respect to overall management of environmental and social risks, opportunities and impacts. We expect companies to have an approach to managing these issues commensurate with the magnitude of the potential impacts of their operations. We have detailed guidance on the key ESG issues per industry that should be reviewed when assessing companies for inclusion in the strategy. The strategy also has a number of additional ethical screens as follows:

14 * Various revenue thresholds apply see detailed criteria Source: BMO Global Asset as at 30 June b. How do you take ESG criteria into account into the portfolio construction? Describe how you link ESG selection with the financial analysis or with portfolio management. More precisely, describe how the results of the analysis of each of the dimensions (E, S and G) are integrated into the investment / divestment process. If applicable, state where you provide information on divestments occurred in the past year on the basis of ESG criteria? If appropriate, explain how potential ESG weightings are defined and describe your treatment of companies that are not subjected to an ESG analysis. Responsibility for the oversight of the GSI team s outputs, including ESG data reporting, company research on ESG issues, and voting and engagement, sits with the Head of the Governance and Sustainable Investment team. The heads of each investment desk, together with their analysts, are responsible for the ultimate implementation of such research and data into portfolio construction. The overall integration strategy is overseen by our co-cios. Our Responsible Ownership policy and Corporate Governance guidelines are signed off by our Corporate Governance Committee, whose membership includes our co-cio, Head of Legal and Head of GSI. The matrix structure of the GSI team ensures in-depth market, regional, sector and issue based coverage of ESG issues. Please see the internal resources section in our response to question 1c. 3c. Do the funds have a specific ESG engagement policy? Please explain what you mean by engagement. Describe how you select the companies/ themes for engagement activities and the impact on the portfolio management of the fund(s). Who undertakes engagement on behalf of the fund (internal and/or service providers)? As part of our engagement efforts GSI team members analyse potential target companies in detail to see how serious the issues are, and whether there is potential for effective engagement. Once the list is finalised, companies are allocated to individual team members. For each company, engagement objectives for the year are identified and disclosed, and an assessment made of the company s responsiveness to prior engagement (good adequate poor). BMO Global Asset has a direct interface with each company. Our engagement leverages a range of engagement tools and methods including in-person and phone meetings, written correspondence and s, at different levels through organisations depending on the nature of our objectives, including Board level and operational

15 specialists. Typically our engagement is one-to-one with companies, but where we see scope to collaborate with other investors or through stakeholder groups, we may do so if this is in line with our objectives and will be more effective in achieving the desired outcome. Our approach is based on constructive and confidential dialogue, and on building a relationship of trust, where over time we gain a sound understanding of how key ESG issues fit into companies business strategies. We are then able to share our knowledge and expertise on best practice ESG management practices, with the objective of reducing companies risk profile over time. Alongside this focused engagement on company-specific risks, we also identify material portfolio ESG risks that apply to groups of companies within specific geographies, or that relate to a particular issue or sector. We structure our engagement on such issues as projects, reaching out to a group of companies to highlight best practice and to initiate dialogue. As with priority company engagement, the objective is to improve the management of these ESG risks and underpin long-term risk management and performance. 3d. Do the funds have a specific voting policy integrating ESG criteria? Yes. 3e. Do the funds engage in securities lending activities? No. (i) is a policy to recall the securities in place in order to exercise the voting rights? Not applicable. (ii) does the counterparty selection process integrate ESG criteria? Not applicable. 3f. Do the funds use derivative instruments? If yes describe, (i) their nature (ii) the objective(s) (iii) the potential limits in terms of exposure (iv) if appropriate, their impact on the SRI quality of the fund The Funds may make use of equity derivatives for hedging purposes and efficient portfolio management to the extent permitted by the investment restrictions. The Funds are also permitted to deal in currency forward contracts and may enter into such contracts in appropriate circumstances in order to hedge the assets and subject to the provisions contained in the prospectuses. 3g. Is a share of the funds invested in unlisted entities pursuing strong social goals? No share of the funds is invested in unlisted securities pursuing strong social goals. We have focused in the last 12 months on two key trends in responsible investment: the increased interest in positive impact and outcomes; and the growing importance of climate change as an investment issue, particularly in the context of the Paris agreement

16 Investor interest in social and environmental outcomes has in the past been mainly confined to impact investing in private markets, but developments such as the agreement of the UN Sustainable Development Goals have led to a need to scale up the idea of impact from small-scale private investments to large-scale public markets. In response to this, this year we published our first ESG Profile and Impact Report for two of our strategies: Responsible Global Equity strategy and Responsible Emerging Markets Equity. See for the report

17 Section 4. Controls and ESG Reporting 4a. What internal/external control procedures are in place to ensure the compliance of the portfolio with the ESG rules defined in section 3 of this Code? State who is carrying out the controls, their frequency and within which timeframe the fund(s) have to comply should a breach be detected. Our Mandate Compliance team undertakes daily independent pre and post trade monitoring of client funds via our portfolio management system thinkfolio to ensure compliance with pre-agreed mandate restrictions and house policies including screens implemented by the GSI team for the Responsible Range of funds. Every active or passive breach is immediately communicated to the relevant fund manager, allocation team and the responsible client director, as well as the Compliance Monitoring team. Should a change in rating of a holding occur the relevant portfolio manager has 6 months to sell the position in breach. 4b. Please list all public media and documents used to inform investors about the SRI approach to the fund, and include URLs. This should include a link to the detailed, no more than 6 months old, list of holdings of the fund(s). All of our responsible investment literature can be found on our website at the following address:

18 About Eurosif The European Sustainable Investment Forum (Eurosif) is the leading European membership association whose mission is to develop sustainability through European financial markets. Eurosif works as a non-for-profit partnership of the national Europe-based national Sustainable Investment Forums (SIFs) with the support and involvement of Member Affiliates. Eurosif Member Affiliates include a range of organisations covering the value chain of the sustainable investment industry, from institutional investors, asset managers to financial services providers, ESG analysis firms, academic institutes and NGOs. Eurosif speaks authoritatively and broadly on SRI (sustainable and responsible investment) issues. The main activities of Eurosif are public policy, research and creating platforms for nurturing sustainable investing best practices. For more details, please see National sustainable investment forums in Europe to date include: Belsif*,Belgium Dansif, Denmark Finsif, Finland Forum Nachaltige Geldanlagen* (FNG) e.v., Austria, Germany and Switzerland Forum per la Finanza Sostenibile*(FFS), Italy Forum pour l Investissement Responsable* (FIR), France Norsif, Norway Spainsif*, Spain Swesif*, Sweden UK Sustainable Investment and Finance Association* (UKSIF), UK Vereniging van Beleggers voor Duurzame Ontwikkeling* (VBDO), the Netherlands *Member of Eurosif For further information on Eurosif or more details on the European SRI Transparency Code, please look at our website, and contact Eurosif at +32 (0) or by at contact@eurosif.org

19 Important Information PRIVATE AND CONFIDENTIAL All information provided by BMO Global Asset within this document is provided for the attention of the addressee only for the purpose solely of evaluating the investment management services that are available from BMO Global Asset. The information is provided by BMO Global Asset on the basis that it remains private and confidential between BMO Global Asset and the addressee. Accordingly, the addressee is not permitted, in the event that a request for information is made under the Freedom of Information Act 2000, to disclose any of the information provided herein by BMO Global Asset, given the duty of confidentiality that exists as between BMO Global Asset and the addressee. CONTRACTUAL AGREEMENT This document is issued by BMO Global Asset, a trading name of F&C Limited. In the event that you decide that you wish to receive the services detailed within this document, your contractual agreement would also be with F&C Limited. Past performance should not be seen as an indication of future performance. The value of investments and 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. 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. Completed by: Michael Corf Telephone: +44 (0) Compliance No: CM

20 Contact Us BMO Global Asset (EMEA) - Head Office Exchange House Primrose Street London EC2A 2NY Tel: +44 (0) bmogam.com 2016 BMO Global Asset. All rights reserved. BMO Global Asset is a trading name of F&C Limited, which is authorised and regulated by the Financial Conduct Authority