Insights from BMO: Reporting on the impact of listed equities

By Vicki Bakhshi, Director, Governance & Sustainable Investment at BMO Global Asset Management

BMO Global Asset Management has published the third annual impact report on its Responsible Global Equity strategy. Vicki Bakhshi, from the firm’s Governance and Sustainable Investment team, sets out how its thinking about impact reporting has evolved over that time and how BMO Global Asset Management has used the Impact Management Project to shape its analysis.

By Vicki Bakhshi, Director, Governance & Sustainable Investment at BMO Global Asset Management

In 2016 we published the first of our ESG Profile and Impact Reports for our Responsible Global Equity strategy, a fundamental equity strategy, based on the selection of between 50-70 stocks that contribute to positive sustainability. At the time we were not sure how much interest there would be in the report, but the reaction was overwhelmingly positive, leading us to turn the report it into a regular publication.

In 2016 and 2017, the centrepiece of our reports was a mapping of the holdings within the strategy to the UN Sustainable Development Goals (SDGs). This was based on an in-house analysis, looking at the revenue streams of all companies in the strategy and making a judgement on how these could be mapped against specific SDGs. For us this was a valuable exercise in understanding, and reporting on, which SDGs we have exposure to via our holdings and how this changes over time.

As we came to prepare our 2018 report we asked ourselves the question, ‘does this really measure impact?’. Whilst the SDGs are extremely useful in providing a common language to describe what type of impact our companies may have, the mapping told us nothing about the intensity of their impact.

It was at this point that we turned to the Impact Management Project to help us develop our thinking about how to develop a deeper approach to impact reporting. Using the five dimensions of impact, we concluded that our SDG mapping was effective in reporting in the first dimension, which is ‘What’. Our analysis, though, needed to expand to quantify the scale of that impact; we saw the ‘Who’ and ‘How Much’ dimensions being particularly relevant here.

With this aim, we started searching for data. We decided to structure our analysis into two parts. First, we wanted to analyse what we called ‘universal issues’; climate change, water and labour, which impact companies broadly across the portfolio. Second, we did a deep dive into two of our six investment themes; Health and Wellbeing and Technological Innovation, to understand impact at a sectoral level.

It was in the second part of our analysis, the deep dive into Health and Wellbeing and Technological Innovation that the Impact Management Project structure was particularly helpful. We quickly realised that when it comes to sector-specific metrics, such as the impact healthcare companies have on their patients, there is no easy off-the-shelf data solution. As such, we needed to go straight to the companies’ own reporting. Based on the annual and sustainability reports of our investee companies, we collated all reported data that related to the questions of ‘Who’ their products and services were being delivered to, and ‘How Much’ positive impact they were having.

It was at this point it became clear that consistent data was very difficult to obtain – even amongst some of the largest companies in our portfolio. We reported on the data points we could identify, but also set out our own recommendations on what impact metrics we would like to see companies using going forward, based on industry initiatives such as the Access to Medicine Index and our own experience and views. Figure 1 below gives an example from our report on the healthcare sector, with additional commentary on how our suggested metrics map to the IMP.

The report will be sent to our investee companies, with a view to encouraging them to improve their disclosure.

Finally, when we considered the ‘Investor Contribution’ element of the Impact Management Project, we saw a clear link to investor engagement. Through dialogue with companies on a wide range of issues, including water, climate change, labour standards and governance, we are directly supporting more sustainable long-term business models. Our report summarises our engagement over 2017, including examples of results, mapping our key engagement areas against the Sustainable Development Goals.

Ambitions for the future

One of the issues we grappled with when we wrote the report was how to capture the impact that companies have through their own operations, as well as through the products and services they provide. Given that our investments include large multinational corporations, this impact is substantial. We included metrics in our report on carbon footprints, jobs created and water management, but were conscious that these fall short of full impact analysis. A particular area of focus for us in the coming year is labour, where we would like to find better metrics to capture the quality of jobs (‘What’), not just the quantity (‘How Much’ – scale).

Like others in the industry, we are on an impact reporting journey and certainly do not think we have yet arrived at the destination. We are keen to share the results of our work with peers in the Impact Management Project and elsewhere, and would very much welcome feedback.