The Responsible Global Equities Team in BMO Global Asset Management manage the Friends First Stewardship Ethical Fund. They seek to actively invest in companies that stand to benefit from or substantially contribute to trends in sustainable development while avoiding investment in companies with damaging or unsustainable business practice.
Sustainable investing has continued to gain traction in the investment industry over recent years. Embedding environmental, social and governance (ESG) factors in capital markets makes good business sense and leads to more sustainable markets and better outcomes for societies.
BMO Global Asset Managers focus on encouraging companies to address strategic issues including ESG factors with a view to reducing risk and supporting long-term performance. They build partnerships with the companies using constructive confidential dialogue. They typically work one-to-one with the companies held in stock but taking a collaborative approach where this has more impact. 53 companies held in the fund (making up 90% of the fund weight) were engaged in 2017.
How does this look in practice?
Kerry Group is an Ireland-based world leader in food ingredients and formulations, and is exposed to global trends in nutrition, health and wellness, and the shift to “clean-labelling”.
Whilst these are clear societal positives there is limited disclosure on environmental supply chain management, and it is this area that now forms the core of the engagement activities with Kerry Group.
- Water management – BMO Global Asset Management has increased its weighting to companies focused on improving water management and climate change. Kerry Group responded to the CDP (formerly the Carbon Disclosure Project) water programme in 2017 for the first time and the fund managers are looking for further disclosures going forward.
- Supply chain management – The fund managers use engagement to encourage better management of sustainability and governance issues by companies. Kerry Group undertook a supplier risk mapping exercise in 2016 and identified its top ten strategic raw materials and the fund managers are encouraging more disclosure on risk management strategies here.
Sustainable Investing for a Sustainable Future
A closer look at the forces that have driven sustainable investing over the past decade suggests the trend will continue. Technology and the rise of transparency are here to stay. Gathering and processing data will become increasingly standardised and less expensive. Environmental changes, in particular climate change, will put a growing premium on good stewardship and fossil fuel free practices as natural assets will appreciate in value over time. Since February 2016, the fund has avoided fossil fuels companies and has also sold two companies that sat in high-emission sectors. Finally, people everywhere are increasingly empowered by technology. ESG investing allows them to express their own values and to ensure that their savings and investments reflect their preferences, without compromising on returns.
Friends First Stewardship Ethical Fund Performance
BMO Global Asset Managers believe their responsible approach can enhance returns and reduce risks for those invested in the fund. The fund managers aim to deliver top-quartile returns and be a leader in specialist, global ESG investing. Launched in 1997, the fund is one of the longest established ethical funds in the market and has shown a strong performance and high returns.
Graph Source: Friends First, 18/9/2018. Returns quoted are net of fees.
How to access the Friends First Stewardship Ethical Fund
The Stewardship Ethical Fund is available across the Friends First suite of Pensions, Approved Retirement Funds (ARFs), Approved Minimum Retirement Funds (AMRFs), Savings and Investment products.