The road to net zero

Vicki Bakhshi, Director, Analyst, Responsible Investment Team

We can no longer afford to be complacent over climate change. Governments, industries, corporates and individuals must all now mobilise to ensure the future of human life on our planet. Financial institutions must contribute by using our influence to support a rapid and just transition towards net zero emissions.

In December 2020, we announced our ambition to reach net zero emissions by 2050 or sooner across all assets under management, as a founder signatory to the Net Zero Asset Managers initiative. This commitment builds on our existing actions on climate change, and also forms a key part of our parent company BMO Financial Group’s climate ambition to be our clients’ lead partner in the transition to a net zero world.

Three principles for action

2021 will see us working on implementing our approach to managing our assets in line with our new net zero commitment through our 3-principle approach:

1. Focus on real-world emissions reductions
   Selling carbon-heavy companies can cut a portfolio’s carbon intensity dramatically but has little impact in the real world. Instead, we aim to use the power of our engagement to encourage these companies to take action to reduce their emissions.
2. Work in partnership with clients
   As asset managers, our fundamental responsibility is to meet our clients’ current and future investment needs. Many clients will have questions about what net zero means and so our aim is to work with them to educate them on what the low-carbon transition means when applied to portfolios.
3. Transparency
   The risks of ‘net zero-washing’ are real. Methodologies are still emerging and disclosure by corporates remains patchy. We’ll therefore be straight with our clients and wider stakeholders about limitations in our approach, including gaps in data or methodology.

Methodological framework

Defining a ‘net zero aligned’ investment portfolio is no straightforward task. To guide our implementation, we are looking to the Net Zero Investment Framework, developed by the
Paris Aligned Investment Initiative, with input from BMO GAM. This is a comprehensive
framework, covering governance, target-setting, methodologies for specific asset classes, and policy and stakeholder engagement.

COP26 and beyond

2021 is a crucial landmark year in the fight to tackle the climate crisis, and every part of society needs to play its part. We will continue our engagement with companies and our efforts to decarbonise portfolios, supporting the low-carbon transition in the real economy – and will also be part of the collective investor voice calling on governments to be visionary and ambitious in the way they approach the Glasgow COP26 negotiations. Strong action now is essential to set the world on a trajectory to a more stable climate and a healthier planet.

Asset managers have a unique and critical role to play in the transition to global net zero emissions. We look forward to building partnerships both with our asset owner clients, and with the companies we invest in, to move together on the journey to making this a long-term shared goal.

Kristi Mitchem, CEO, BMO Global Asset Management

Interested in learning more? Net zero investing is a complex topic – download our Viewpoint to understand why net zero emissions matters, and details of our roadmap to getting there.

DOWNLOAD VIEWPOINT

Risk warnings

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 companies that may be mentioned.

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.