When bankers make a difference

Responsible investing is all the rage. This is an investment approach that includes so-called ESG factors in the analysis criteria. But, in real life, does it work? We asked this question, and a few others, to Grégoire Baillargeon, Co-Head, BMO Capital Markets, Quebec and President-Elect, BMO Financial Group, Quebec.

Gregorio Baillargeon, Co-Head, BMO Capital Markets, Quebec and President-elect, BMO Financial Group, Quebec.

What does responsible investment mean in a banker’s daily life?

UK : It is the implementation of the various financing instruments, be they equity, bank loans or bonds, in a perspective that is not only financial, but much broader. Responsible investment leads us to rigorously and measurably consider environmental issues, social issues and issues of sound governance. From the moment we set an ESG target on financial instruments, we truly place ourselves in a sustainable investment approach. This is a major trend in all capital markets.

Could a bank refuse to invest in even a very profitable project because the company in question has a poor ESG record?

UK : Absolutely. At BMO, this is clearly a qualification criterion. This is an orientation made explicit in the bank’s strategic policies. We consider ourselves one of the main economic actors and we want to exploit this relationship of trust with economic actors to positively influence them in the management of sustainability issues. When we finance a company, we expect it to have the same sustainability goal as our own, and we expect the capital we bring to help improve its balance sheet further.

Works? In other words, does this power of influence move the needle in the right direction?

UK : It is undeniable that it works and it works more and more! The system is constantly being improved. Over time, methods have been developed to measure ESG aspects in companies across all sectors. When we conclude a loan, we agree on the objectives to be achieved and if the objectives are met, some parameters of our loans can be subsidized. The goal is to encourage companies to do better. We believe sustainable finance can promote long-term business value and support a resilient economy. At BMO, we launched the Climate Institute in 2021, one of whose roles is to help smaller companies draft their environmental reports so that they too can benefit from the input of partners guided by responsible investment practices. .

The movement is gaining momentum, but it is strong enough to achieve its goals decarbonization?

UK : If all the actors take serious action, we’ll get there. I strongly believe in it. BMO, for example, which is committed to achieving carbon neutrality by 2050, measures its emissions up to level 3, i.e. up to the emissions of the companies we finance, which must therefore also be net zero emissions. We are the first bank to make such a commitment publicly. If other capital providers do the same, the decarbonisation movement will be immense and profoundly transformative. Our partnership strategy with our clients focuses on supporting decarbonisation efforts rather than radical divestment. The empty chair strategy doesn’t get things done.

In recent months we have witnessed a strong volatility of the economy: rising inflation, shortage of supply, geopolitical tensions. Could this thwart the movement to decarbonise the economy?

UK : Will disturb in the short term. There are crisis imperatives that may require urgent corporate attention, but the strong trend will not be affected. The challenge of climate and sustainability will remain a priority. It is an unavoidable global issue.

What are the pitfalls that remain?

UK : There is still progress to be made on metrics, transparency, how we measure all impacts and how we communicate this information. International accounting and reporting standards are necessary in order to accurately compare and maintain the trust of economic actors. It is diplomacy as much as finance. There has been very significant progress in recent years. But we cannot yet say that we have a common language, that is, the same disclosure rules and the same methods of accounting for impacts all over the world.

Banks are in action, governments are in action, many companies are in action, but what about small savers? Can they make a difference in this responsible investing movement?

UK : Decidedly! Small savers are the major force in the capital market. Ultimately, all fund managers manage people’s money. So each of us, through our values ​​and our choices, becomes an agent of change. We can simply make wire transfers and ask for returns, but we can also say that we want enlightened returns, that we want to choose our investment vehicles and give our directives. And that’s what we see. BMO has a range of green products, services, investment advice and loans. There is a strong demand for responsible investment. Sustainable funds are growing rapidly. The combined power of small savers is enormous; it is also the key to success.

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