BMO Global Asset Management (Asia) Limited ( BMO GAM ASIA ) Responsible Ownership Policy (the Policy ) November 2016 The SFC has published consultation conclusions on the Principles of Responsible Ownership (the Principles ), which aim to improve the corporate governance culture in Hong Kong by providing guidance on how investors should fulfill their ownership responsibilities in relation to their investments in Hong Kong listed companies. To discharge their ownership responsibilities, investors should engage with the companies in which they invest to promote the long-term success of these companies; investors should: 1. establish and report to their stakeholders their policies for discharging their ownership responsibilities; 2. monitor and engage with their investee companies; 3. establish clear policies on when to escalate their engagement activities; 4. have clear policies on voting; 5. be willing to act collectively with other investors when appropriate; 6. report to their stakeholders on how they have discharged their ownership responsibilities; and 7. when investing on behalf of clients, have policies on managing conflicts of interests. BMO GAM ASIA has established this Policy to address ownership responsibilities described in the Principles. Principle I Investors should establish and report to their stakeholders their policies for discharging their ownership responsibilities BMO GAM ASIA s position on Principle 1 BMO GAM ASIA has established this Policy in response to the Principles. BMO GAM ASIA reports to its stakeholders by disclosing this Policy on the website of BMO ETF Hong Kong (https://www.bmo.hk/etfs/en/why bmo etfs/about bmo) and the website of LGM Investments (https://www.bmo.com/lgminvestments/investment approach). Any subsequent update of the Policy will also be disclosed on the websites. BMO GAM ASIA currently delegated the investment activities of some of our clients to our affiliated companies. Both BMO GAM ASIA and these affiliates belong to BMO Global Asset Management 1, a signatory to the United Nations Principles for Responsible Investment (UNPRI), and are committed to environmental, social and governance best practices and the creation of long-term value for our clients. Please refer to https://www.bmo.com/gam/about-us/g/overview/ri-esg-policy-statement for BMO Global Asset Management s Responsible Investment Policy. 1 BMO Global Asset Management is the brand name for various affiliated entities of BMO Financial Group that provide investment management and trust and custody services.
For portfolios for which investment activities are delegated, BMO GAM ASIA obtains periodic certifications from the delegated investment manager to ensure that the ownership responsibilities are discharged properly. Principle 2 Investors should monitor and engage with their investee companies BMO GAM ASIA s position on Principle 2 Investors' ownership responsibilities include voting, as well as monitoring and engaging on matters such as strategy, performance, risk, capital structure and corporate governance. As part of the investment process, BMO GAM ASIA s portfolio managers monitor the investee companies with the aim to: a) keep abreast of the companies' performance; b) keep abreast of developments, both internal and external to the companies, that drive the companies' value and risks; c) satisfy themselves that the companies' leadership is effective; d) satisfy themselves as to the corporate governance structures and practices adopted by the companies; e) consider the quality of the companies' reporting; and f) attend shareholder meetings of companies where appropriate and practicable. LGM Investments has an Environmental, Social and Governance ( ESG ) Policy that sets out the approach to engaging with investee companies on ESG risks and opportunities. Our portfolio managers will engage with investee companies on significant ESG issues that have the potential to impact on the companies goodwill, reputation and performance. Portfolio managers also may leverage key resources within BMO Global Asset Management, in particularly the Governance and Sustainable Investment Team that sits within BMO GAM Europe, Middle East and Africa (BMO GAM EMEA). This team, comprising over 10 responsible investment professionals, is responsible for monitoring and engaging with investee companies on material ESG issues. Please refer to Principle 3 below for further details. (2) For passive investment portfolios (i.e. index tracking exchange traded funds) Index tracking exchange traded funds ( ETF ) have to follow the relevant index s buy / sell decision and there is very little room, if any, for ETF managers to deviate from the benchmark index. Furthermore, given the significant number of investee companies in the index tracking ETF, it is impractical and inefficient for ETF managers to actively monitor and engage with all investee companies. Therefore BMO GAM ASIA will not adopt Principle 2 for the index tracking ETF that BMO GAM ASIA manages. Alternatively, BMO GAM ASIA keeps abreast of the investee companies performance and development and will voice out to the index provider if we have any concern about a particular company. We believe it is more efficient for the index providers to monitor and engage with the investee companies on behalf of all the ETFs, which are managed by different fund managers
using the same benchmark index. The index providers will alter the composition of their constituent stocks should there be any ESG issues. Principle 3 Investors should consider and establish clear policies on when they will escalate their engagement activities BMO GAM ASIA s position on Principle 3 We use a range of engagement tools and methods including in-person and phone meetings, written correspondence and emails. We engage at different levels within organisations depending on the nature of our objectives, including board level, executive management and operational 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. Where direct engagement does not progress as expected, we may consider other options, including voting against resolutions at general meetings, collaborative engagement with other institutions and filing/co-filing resolutions at general meetings (N.B. availability of these options could in certain limited instances be restricted as a result of regulation applicable to BMO GAM ASIA as a member of the wider BMO Financial Group). We prefer to engage with companies in a constructive manner and will only consider making public statements in advance of general meetings or requisitioning a general meetings in exceptional circumstances. (2) For passive investment portfolios (i.e. index tracking ETF) As explained in Principle 2 above, BMO GAM ASIA does not adopt engage with the investee companies directly for the index tracking ETF that we manage. We do, however, keep abreast of the investee companies performance and development and voice out to the index providers if we have any concern about a particular company. Principle 4 Investors should have clear policies on voting guidance BMO GAM ASIA s position on Principle 4 As an investment adviser, investment manager or any other roles which are to that effect, BMO GAM ASIA is responsible (unless clients specified to the contrary in the agreement) for the proxy voting of stocks held in the accounts on behalf of clients. BMO GAM ASIA manages its clients assets with the overriding goal of seeking to provide the greatest possible return to clients consistent with governing laws and the investment policies of each client. In pursuing that goal, BMO GAM ASIA seeks to exercise our clients rights as shareholders of
voting securities to support sound corporate governance of those companies with the principal aim of maintaining or enhancing the companies economic value. BMO GAM ASIA has adopted and implemented our Proxy Voting Policies and Procedures that we believe are reasonably designed to ensure that proxies are voted in the best interest of clients. These guidelines are designed to promote accountability of a company s management and Board of Directors to its shareholders and to align the interests of management with those of shareholders. BMO GAM ASIA will seek to vote all proxies for clients who have delegated the responsibility to vote such proxies to us. Under certain circumstances, the costs to the clients associated with voting such proxies would far outweigh the benefit derived from exercise the right to vote. In those circumstances, we will make a case-by-case determination on whether or not to vote such proxies. In the case of countries which require so-called share blocking, we may also abstain from voting. We will also typically abstain from voting on matters where the voting issue is not clear or inadequately disclosed. This may include votes for other (unspecified) business, voting for election of directors when the names of the directors to be elected are not disclosed or proposed changes to the Articles of Association where the details of such changes are not publicly disclosed. Finally, BMO GAM ASIA may be required to abstain from voting on a particular proxy in a situation where a conflict exists between BMO GAM ASIA and our clients. For portfolios for which investment activities are delegated (including proxy voting), BMO GAM ASIA ensures that the delegated party has clear policies on voting guidance before we appoint the delegated party. Principle 5 Investors should be willing to act collectively with other investors where appropriate BMO GAM ASIA s position on Principle 5 Collective engagement may be most appropriate at times of significant corporate or wider economic stress, or when the risks posed threaten to destroy significant value. Typically BMO GAM ASIA s 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. Principle 6 Investors should report to their stakeholders on how they have discharged their ownership responsibilities BMO GAM ASIA s position on Principle 6 BMO GAM ASIA reports to our clients on how we discharge our ownership responsibilities by disclosing the extent to which we comply with our proxy voting policy annually on website.
For portfolios for which investment activities are delegated, BMO GAM ASIA issues a report to the relevant clients on an annual basis re how and where the delegated party discloses their periodic reports on discharging ownership responsibilities. (2) For passive investment portfolios (e.g. index tracking ETF) BMO GAM ASIA reports to stakeholders on how we discharge our ownership responsibilities by disclosing the extent to which we comply with our proxy voting policy on https://www.bmo.hk/etfs/en/why-bmo-etfs/about-bmo on an annual basis. Principle 7 When investing on behalf of clients, investors should have policies on managing conflicts of interests BMO GAM ASIA s position on Principle 7 BMO GAM ASIA has established comprehensive Conflicts of Interest Policy for identifying and managing conflicts of interest situations. It is BMO GAM Asia s policy to identify the conflicts of interest that may exist between a) ourselves or anyone linked to the firm and our clients; or b) one client and another. BMO GAM ASIA will ensure that clients are not adversely affected by potential risks. Where the potential risk cannot be effectively managed with reasonable confidence to prevent the risk, we disclose this to our client before providing services. Conflicts of interest between employees acting in their personal capacity and BMO GAM ASIA and our clients are also identified and managed according to policies and procedures.