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Published in April 2018

 

Past performance should not be seen as an indication of future performance. Stock market and currency movements mean the value of, and income from, investments in the strategy are not guaranteed. They can go down as well as up and you may not get back the amount you invest.

 

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.

 

WATER

 

Over one-third of companies responding to the CDP water program achieved a Leadership rating.

 

Water-related issues can materially impact businesses; the problem is complex and solutions local. A systematic approach is required by exposed companies, and we encourage best practice.

 

A lack of effective water management can impact the financial returns of companies in exposed sectors, particularly as water resources become increasingly stressed, due to factors such as increased demand and climate change. For the seventh consecutive year, the World Economic Forum’s Global Risks Report has ranked water crises within the top five risks in terms of impact. Assessing and managing water is also crucial to achieving the SDGs, particularly SDG6 – Clean Water and Sanitation.

 

Having flagged this as an issue last year, we have since worked to understand our exposure to water risks, and how the companies we invest in are managing these risks. The BMO Responsible Global Equity Strategy has a low allocation to several water-intensive sectors such as mining, energy and food and beverage due to our investment choices and screening criteria, and a relatively high weight in sectors such as financials and technology, which leads to a natural bias against water-related risk.

 

To analyse our remaining risk exposure, we reviewed disclosures made by our companies to the CDP water security program. 40% of our companies were asked to respond, due to being in more water-intensive sectors. Over one-third of those who responded achieved a Leadership rating, meaning that they are carrying out best practices in water stewardship.

 

CDP water program scores

 

 


Using engagement to assess water risk

 

We targeted eight companies in our strategy for engagement, including Apple, Kerry Group, Novartis, and Umicore. Topics included governance of water risk, target setting, water risk assessments and opportunities.

 

Even though companies are at differing levels of water management, our engagement revealed awareness of the severity of the issue, and an understanding they need to be doing more – even by companies with strong policies such as Novartis and Taiwan Semiconductor Manufacturing Company.

 

Our key finding was that companies’ operational management systems and targets still often focus on direct operations, but that for companies in sectors such as technology hardware, pharmaceuticals and food, the larger risks are often in their supply chains, which may be highly water-intensive but often have weaker and more fragmented risk management. We were pleased to hear in our discussions that companies are now shifting their attention to these risks, and will continue to monitor progress going forward.


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