Expert Insight

BMO seeks leading position in 'sustainable finance'

ESG should spell opportunity for miners

April 29, 2020

Staff Reporter

Expert Insight
February 21, 2020

Canada’s BMO is seeking to establish a leading position in sustainable finance as ESG becomes an increasingly important factor for investors and issuers, head of sustainable finance Jonathan Hackett told Mining Journal at PDAC 2020 in Toronto.

The bank has set a $400 billion sustainable financing commitment by 2025 as a goal.

"Sustainability is a major trend that is going to shape a lot of industries over the next 10 years that we want to make sure the bank is well-positioned for it," Hackett said.

"As we looked across the bank, we saw we had the differentiated capability, the mix of asset management, asset advisory, underwriting, all the things we were doing in our businesses that when this takes off, and we believe it has, it creates a fundamental strategic opportunity to say this is a change in the market which continues to evolve and will impact all of our clients, so how do we give them the best advice possible, the best product possible and making sure we are supporting them."

For Hackett, a key part of the business opportunity is helping clients navigate the trend which is a major factor influencing their business, coming in with ideas, options and opportunities.

"Investors are asking more questions around ESG between the huge needs we are going to have for new energy materials like copper, cobalt, lithium, graphite that will define the new energy economy that still rely on those industries that we have been working with our clients on for years," he said.

"It is also helping clients in the energy industry understand the implications of the transition to a low carbon economy and how to best work with them to ensure they are driving value. We don't want to get caught in a reactionary short-term response where people want change to happen quickly. To get to a low carbon economy is going to require massive investment and we want to help our clients navigate that."

This goes beyond ethical investing and BMO sees it as an area which will have the capability to generate significant returns for those that get it right.

"This is a shift from values to value," Hackett said.

"When people talk about ethical funds it is really a statement about their values, but a lot of modern ESG funds are value-based with a belief that there is a long-term out performance thesis, and potentially a near-term out performance thesis.

There is value for end consumers or intermediaries who are trying to position themselves around their sustainability story

"This is fundamental and that if you are not incorporating ESG to your analysis then you are overlooking relevant information. This is enlightened self-interest as the long-term stewards of capital are going to be one of the biggest factors to drive it and if you do it well, there is the ability to make fundamentally good returns."

For those slow on the uptake, the risks go beyond simply missing out on opportunities to make returns, potentially threating future sustainability of a business.

"If you are trying to put your head in the sand at this point you are at risk of just having a real financial exposure," Hackett said.

"Being at either extreme [early adopter or late adopter] is going to have a financial implication. If miners are sufficiently off on environmental and social practices there are consequences whether that be exclusion from the market, or government and regulatory. For investors, there can be financial benefits on one side and financial penalties on the other," he said.

Hackett said many mining companies had been strong on ESG aspects for years albeit under different labels and here, one of the aims was to ensure companies were recognised for what they did, and also to look at how this could become a more sustainable competitive advantage as issues of provenance could result in differentiated offtake agreements or pricing.

"Most responsible mining companies have had strong concerns around safety and around workplace emissions, if not the long-term environmental emissions," Hackett said.

"Environment, health and safety are core competencies of mining teams. We are helping clients recognise the value of what they have. If they have a graphite mine, they can view that as a series of commodity prices depending upon what the graphite is being used for.

"Or you can say you are focused on the new energy economy and how do you extract the most value from that? There are people that have been doing this for years whether it is diamonds that have provenance or gold that have specific environmental and social practices. We are seeing it more and more across a slew of commodities.

"There is value for end consumers or intermediaries who are trying to position themselves around their sustainability story and if you're able to tell the story about your product and that a customer you are never going to have an issue around your social practices, have steady production because you have a strong licence to operate and you have 20% less carbon in our operations versus your peers, suddenly we have decommodification of commodities."

Hackett said some companies were aligning against ESG as a strategic goal looking at their commodity mix and how it fuelled the transition to a carbonless economy to take a position on whether they were a positive commodity bet on transition.

"Or how do I diversify my portfolio over time or reflect the fact that I am going to have investors making choices and I want to be the affirmative choice, I want to be the best company at sustainability within my industry?"

Expert Insight
April 29, 2020

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