Download - BMO Financial Group 2020 Climate Report
BMO Financial Group
2020 Climate Report
BMO Financial Group 2020 Climate Report 1
Our Approach to Climate Change
In 2020, BMO continued to focus on innovative approaches to managing climate-related financial risks and opportunities. We expanded our work on climate-related scenario analysis and enhanced our capabilities to embed this analysis into our broader risk management approach. We have partnered with our customers to build innovative sustainable finance products to support them during the transition to a net zero economy.
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• Board:AuditandConductReviewCommittee;RiskReviewCommittee
• Management committees:SustainabilityCouncil;SustainableFinanceSteeringCommittee;SustainableBondsWorkingGroup;DisclosureCommittee;RiskManagementCommittee;GlobalInvestmentCommittee
• Management:GeneralCounsel,ChiefSustainabilityOfficer,ChiefFinancialOfficer,HeadofSustainableFinance,GlobalChiefInvestmentOfficer;ChiefRiskOfficer,HeadofEnterpriseRisk,SeniorCreditOfficers
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• Developinginnovativesustainablefinanceproductsandmakingprogresstowardourgoaltomobilize$400billionforsustainablefinanceby2025
• Activelycontributingtodevelopmentofclimatechangeknowledgeandmethodologiesforfinancialinstitutions
• Integratingclimateriskanalysisintoriskframeworks
• Expandingclimate-relatedscenarioanalysisworkandcapabilities
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• Integratingclimateriskanalysisintoriskframeworks
• Climate-relatedriskisanengagementpriorityforassetmanagement
• Drivingcarbonneutralityandacommitmentto100%renewableelectricityinourglobaloperations
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• Carbonneutralinouroperationssince2010
• 100%renewableelectricityin2020
• Surpassedgoaltoalign$250billioninclientinvestmentswithsustainableobjectives
• Achieved71%ofgoaltomobilize$150billionincapitaltocompaniespursuingsustainableoutcomes,43%ofwhichisgreenfinance
• Trackingcarbon-relatedassetsinlendingportfolioandexploredmethodologiestomeasurecarbonintensityoflendingportfolio
• TrackingScope1,Scope2andsomeScope3emissions,includingsupplychainemissions
BMO Lending to Power Generation1, as at October 31, 2020
Category %
Low-carbonenergygeneration 58%
Fossil-fuelbasedenergygeneration 31%
Other(Unclassified) 11%
31%
11%58%
1Powergenerationisasubsetofutilities,excludingwaterutilities,independentpowerproducers,andelectricitytransmissionanddistributioncompanies.Theshareoflow-carbonenergygenerationiscalculatedonaclient-by-clientbasisusingthemostrecentlypubliclyavailableinformationonenergysource.
• Engagewithboardsmorefrequentlyonrisksandopportunitiesrelatedtoclimatechange
• Buildcapacityandstrengthenclimatechangeriskmanagementgovernance
• Advancesustainablefinancestrategywithourclientsandindustrypeers
• Buildcapacityonclimateriskanalysisandembedresultsintolong-termstrategyandgoalsettingwherefeasible
• Expandclimate-relatedscenarioanalysisworkandcapabilities
• Continuetodevelopenvironmentalandsocialriskframeworks,includingclimate-relatedrisks
• Maintaincarbonneutralityinouroperations
• Maintain100%renewableelectricitypurchases
• Establishnewoperationalemissionsreductiontargetsbeyond2021
• UnderstandandincorporateemergingmethodologiesonScope3emissionsanalysisandscience-basedtargets
$45.7billion
BMO has provided $45.7 billion in green finance since 2019
3.0%
of lending portfolio is to carbon-related assets1
1Thevalueofnetloansandacceptancesconnectedtotheenergyandutilitiessectors,excludingwaterutilities,independentpowerproducers,electricitytransmissionanddistributioncompanies,renewableelectricityproducers,nuclearelectricityproducers,andwastemanagementcompanies.Theamountisreportedasatthespecifieddate,andisexpressedasapercentageoftotalloansandacceptances,netofallowanceforcreditlossesonimpairedloans.
Sensitivity to Climate Risk of BMO Lending Exposures, as at October 31, 2020
Sector (% of net loans
and acceptances)
Nosignificantclimateriskidentified 47.9
Residentialmortgages 27.5
Commercialrealestate 8.7
Manufacturing 5.7
Agriculture 2.9
Transportation 2.8
Oilandgas 2.7
Utilities 1.1
Mining 0.5
Forestproducts 0.2
Primarily physical risks
Primarily transition risks
Both physical and transition risks
No significant physical or transition risks identified
Future Goals
BMO Financial Group 2020 Climate Report 2
Special Supplement
2020 Climate Report
The events of 2020 have placed a spotlight on the resilience of our economies and the livability, workability and inclusivity of our societies. At BMO, we recognize that climate change is a challenging issue that presents a test of resilience and requires us to anticipate risks and capture opportunities.
BMOhassupportedtheFinancialStabilityBoard’sTaskForceonClimate-relatedFinancialDisclosures(TCFD)since2018.WehavebeenworkingtoimplementtheTCFD’srecommendationsanddevelopprograms,approachesanddisclosuresthatalignwiththeTCFDframework.Wearefocusedontheopportunitiesthatthetransitiontoanetzerocarboneconomypresents,forbothourbusinessandourcustomers.In2020,wemadesignificantprogressondevelopingoursustainablefinancecapabilitiesandpartneredwithourcustomersoninnovativesustainablefinanceproductstosupportthemduringthistransition.Wealsoenhancedourapproachtomanagingclimate-relatedfinancialrisk,includingexpandingourclimate-relatedscenarioanalysiscapabilitiesandbuildingourcapacitytoembedsuchanalysesintoourbroaderriskmanagementapproach.
Thisreportdescribesourapproachtomeasuringandmanagingclimate-relatedimpactsandhighlightsthemilestonesweachievedin2020.Itisintendedtoprovideinvestorsandotherstakeholderswithinformationontheclimate-relatedrisksandopportunitiesweface,andonourstrategiesformanagingrisksandcapturingopportunities.
BMO Financial Group 2020 Climate Report 3
Governance
BOARD OVERSIGHT BMO’sdirectorsarerecruitedandevaluatedbasedonaskillsmatrixthatincludessustainabilityexperience,andeightofour14currentindependentdirectorshavesuchexperience1.BMOintroducedclimatechangeriskanddisclosuretrainingforitsBoardofDirectorsin2018.ThistrainingisavailabletoallcurrentandnewBoardmembers,includingmembersofsubsidiaryboards.
Board-leveloversightofsustainability,includingclimate-relatedrisksandopportunities,isembeddedinthecharteroftheAuditandConductReviewCommittee(ACRC)ofBMO’sBoardofDirectors.TheACRCmeetsregularlywithBMO’sChiefSustainabilityOfficerandGeneralCounseltoreviewanddiscussmattersrelatedtosustainability,includingclimatechangeandclimate-relateddisclosures.
1Informationontheskillsandexperienceofourdirectorscanbefoundinour2020ManagementProxyCircular.
TheRiskReviewCommittee(RRC)oftheBoardofDirectorsassiststheBoardinfulfillingitsriskmanagementoversightresponsibilities.ThisinvolvesoverseeingtheidentificationandmanagementofBMO’srisks,includingourriskculture,adherencebyoperatinggroupstoriskmanagementcorporatepoliciesandprocedures,andcompliancewithrisk-relatedregulatoryrequirements.OurriskmanagementframeworkisreviewedonaregularbasisbytheRRCinordertoprovideguidanceforthegovernanceofourrisk-takingactivities.TheRRCalsoreviewsrevisionstotheRiskAppetiteFramework,includingtheadditionofaqualitativestatementreferencingclimatechangein2020.TheRRCmeetseighttimesannually.
MANAGEMENT’S ROLE TheChiefExecutiveOfficer(CEO)hasdelegatedresponsibilityforsustainabilitytoBMO’sGeneralCounsel,whoisamemberoftheExecutiveCommitteeandreportsdirectlytotheCEO.BMO’sGeneralCounselalsohasaccountabilityforareassuchaslegalandregulatoryrisk,reputationriskandbusinessconduct.Thisorganizationalstructurealignsresponsibilityforsustainabilitywithaccountabilityfortheserelatedareas.
BMO’sGeneralCounselchairstheBMOSustainabilityCouncil,whichwasestablishedin2008andiscomprisedofseniorleadersfromacrosstheorganization.TheSustainabilityCouncilsupportsandadvisesontheimplementationofBMO’ssustainabilitystrategy,andmeetsquarterlytodiscusssustainabilitytopics,includingrisks,opportunitiesanddisclosuresrelatedtoclimatechange.Climate-relatedtopicsdiscussedduring2020includedtheenhancementofBMO’senvironmentalandsocialriskframework,anintroductiontotheconceptofaJustTransition,BMO’s100%renewableenergycommitment,physicalclimateriskandresponse,financedemissionsandhowinvestorscanaligntothegoalsoftheParisAgreement.
BMO’sChiefSustainabilityOfficer(CSO)reportstotheCorporateSecretaryandtotheGeneralCounsel.TheCSOisresponsibleforthedevelopmentandexecutionofBMO’ssustainabilitystrategy,includinginternaladvisoryandsupportefforts,stakeholderengagementanddisclosure.Thismandateincludesmonitoringclimate-relatedissues;developingpolicies,governancemechanismsandstrategiestomanageclimate-relatedrisksandopportunities;providingadvisorysupporttooperatinggroupsonidentifying,managing,measuring,monitoringandreportingonclimateriskassociatedwithourclientsandtransactions;andproducingandpublishingclimate-relateddisclosures.
BMO’sRiskManagementCommittee(RMC)isourmanagement’sseniorriskcommittee.Itreviewsanddiscussessignificantriskissuesandactionplansthatariseinexecutingourenterprise-widestrategy.TheRMCprovidesriskoversightandgovernanceatthehighestlevelsofmanagement.ItischairedbytheChiefRiskOfficer(CRO)anditsmembersincludetheCEO,headsofouroperatinggroups,andtheChiefFinancialOfficer.
BMO’sCROreportsdirectlytotheCEOandisresponsibleforprovidingindependentreviewandoversightofenterprise-widerisksandleadershiponriskissues,developingandmaintainingariskmanagementframeworkandfosteringastrongriskcultureacrosstheorganization.HereportsannuallytotheRRContheeffectivenessofBMO’sgovernanceofclimaterisk,andensuresthatBMO’sclimateriskexposureremainswithinourriskappetite.EnterpriseRiskandPortfolioManagement(ERPM)providesriskmanagementoversight,supportingadisciplinedapproachtorisk-takinginindependenttransactionapprovalandportfoliomanagement,policyformulation,riskreporting,stresstesting,modellingandriskeducation.ERPMisresponsibleforconductingclimatechangescenarioanalysisinordertoidentifypotentialrisksinBMO’slendingportfolio.
ERPMandtheSustainabilityOfficecollaborateonadvancingBMO’sprogramformanagingclimate-relatedriskacrossourlinesofbusiness.In2020,thetwoteamsworkedtogethertoenhanceourenvironmentalandsocialriskframework,includingidentifying,mitigating,managing,measuringandmonitoringclimate-relatedrisks.Aworkinggroupcomprisedofindividualsfromacrossourfootprint–fromSustainability,ERPM(includingriskgovernance,creditrisk,operationalrisk,andstresstesting)andBMOGlobalAssetManagement(GAM)–workstoensureaconsistentresponsetoevolvinginternationalstandardsandregulations.
2020 Management Proxy Circular: www.bmo.com/home/about/banking/investor-relations/annual-reports-proxy-circulars
BMO Financial Group 2020 Climate Report 4
In2019,BMOrespondedtotheU.K.PrudentialRegulationAuthority(PRA)SupervisoryStatementonEnhancingBanks’andInsurers’ApproachestoManagingtheFinancialRisksfromClimateChangebyassigningseniormanagementfunctionaccountabilityforclimatechangetotheCRO,Europe.WeareontrackinimplementingourplantomeetthePRArequirements.In2020,weincludedclimatechangeinourrisktaxonomyandriskappetitestatement.WearecurrentlyintheprocessofconductingscenarioanalysisforourLondonportfolio.
Tobettercaptureopportunitiesassociatedwithsustainablefinance,weestablishedaSustainableFinanceteamin2019thatissupportedbyBMO’sSustainabilityOfficeandworksacrosstheEnterprisetogrowandinnovateoursustainablefinanceproductsandservices.Theteamisresponsibleformobilizingsustainablefinanceopportunitieswithcustomersacrossalllinesofbusiness.Itincludessustainablefinancespecialistswhoareresponsibleforbuildingcustomerengagementandidentifyingmarketopportunitiesforproductsandservicesasthesustainablefinancemarketgrows.WehaveestablishedaSustainableFinanceSteeringCommitteecomposedofBMOexecutives,whichisresponsibleforreviewing,validatingandmonitoringBMO’ssustainablefinancestrategy.
TheGlobalInvestmentCommittee(GIC)overseesallresponsibleinvestmentpoliciesandactivitiesatBMOGAM,includingthoserelatedtoclimatechange.GICmembersincludetheGlobalChiefInvestmentOfficer(CIO),theCIONorthAmericaandotherseniorrepresentativesfromBMOGAM’sregulatedentities.TheGIChasresponsibilityforthefinalapprovalofallresponsibleinvestmentpolicies.
Climate-Related Opportunities and Strategy
AtBMO,werecognizethatthetransitiontoanetzerocarboneconomywillbeacomplexendeavourthatwillhappenovertime.Asenergyneedscontinuetoincrease,andtheenergymixcontinuestoevolve,therewillremainaneedforaffordableenergyandsupportoflocalcommunitiestopromoteasmoothandjusttransitionthataddressesclimategoalswhiletakingsocialimpactsintoaccount.Ourclientswillplayacriticalroleinthetransitiontoanetzerocarboneconomyandwebelievethistransitionwillpresentopportunities,fromgainsinefficiencytoevolvingcustomerdemandsforsustainablefinanceandtransitionfinanceproducts.BMOiscommittedtomakingapositiveimpactbyworkingwithourclientsonthisjourneythroughproductinnovation.Ouroperatinggroupsareactivelypursuingoperationalefficiencygains.Ourcommitmentstooperationalsustainabilityandsustainablefinancearefocusedresponsestothistransition.
Werecognizeanopportunitytodifferentiateourselvesbydevelopinginnovativenewproductsandbusinessservicesrelatedtoclimatechange,andbyaccessingnewmarketswithfinancialsolutionsthatcanassistcustomersduringtheirtransitiontoanetzerocarboneconomy.
OurSustainableFinanceteamisengagingwithourcustomersinordertoidentifymarketopportunitiesforsustainablefinanceproductsandservicesacrossBMO.Wehavecommittedtomobilizing$400billionforsustainablefinanceby2025,including$250billioninclientinvestmentstoalignwithsustainableobjectivesand$150billionincapitaltocompaniespursuingsustainableoutcomes.Clientinvestmentsinclude,amongothers,innovativeapproachestoresponsibleinvestingtakenbyBMOGAMtohelpaligncustomerinvestmentswithsustainableobjectives.BMOCapitalMarketshasunderwrittensignificantamountsofsustainabledebtandalsocreatedadedicatedadvisorycapabilitytosupportourclientsintheirworkonsustainability.TheseeffortsaresupportedbytheSustainabilityOffice,whichguidesthegrowthofoursustainablefinancebusinessbyidentifyingopportunitiesforgreenlendingactivityanddevelopinginternalprocessesfortrackingandmonitoringtheseinvestments.
In2020,wesurpassedourgoaltomobilize$250billioninclientinvestmentstoalignwithsustainableobjectives,reaching$444.8billionatyear-end.BMOGAM’scomprehensiveglobalinvestorengagementprogram,describedinmoredetailbelowinthesectiononRiskManagement,includesclimatechangeasakeytopic.BMOGAM’sResponsibleEngagementOverlay(reo®)service,whichprovidesinstitutionalinvestorsaccesstoBMOGAM’sengagementandvotingexpertise,experiencedsignificantgrowthin2020,withassetsunderadvicereaching$433.9billionasatSeptember30,2020.
BMOGAMisafoundingsignatorytotheUNPrinciplesforResponsibleInvestment,sotheidentificationoffinanciallymaterialEnvironmental,SocialandGovernance(ESG)issuesisanintegralpartofitsinvestmentprocesses.BMOGAMappliesanapproachtoESGintegrationthatistailoredbyinvestmentstrategyandassetclasstoensurethattheadditionalanalysisisrelevantandmeaningfultoeachinvestmentprocess.BMOGAMalsooffersspecificESGstrategies,forwhichESGconsiderationsareaformalpartoftheinvestmentmandate.Assetsundermanagementinthesefundstotalled$9.1billionasatSeptember30,2020.Manyofthefundsofferinvestorstheopportunitytodirectcapitaltowardclimatechangesolutionsorlower-carbonassets.These
BMO Financial Group 2020 Climate Report 5
2020 Annual Report to Shareholders: https://www.bmo.com/home/about/banking/investor-relations/annual-reports-proxy-circulars
offeringsincludetheClimateOpportunityPartnersprivateequityfund,whichisentirelyinvestedinsolutionsproviders;greenbondinvestmentmandates;andagroupofResponsibleFunds.
BMO’sSustainableFinanceteamalsoexperiencedsignificantgrowthin2020,achieving71%ofourgoaltomobilize$150billionincapitaltocompaniespursuingsustainableoutcomes.43%ofthe$106.9billionincapitalprovidedsincethebeginningoffiscal2019includedtransactionsthatenablethetransitiontoalower-carboneconomy.Forexample,BMOwasthesustainabilitystructuringagentandsolebookrunnerprovidingMapleLeafFoodswiththefirstsustainability-linkedloaninCanada.This$2billioncreditfacilityallowsforaninterestratemarginreductionifMapleLeafFoodsachievespredeterminedsustainabilitytargetsrelatedtoelectricityuse,wateruse,solidwasteandcarbonneutrality.Wewerealsothesustainabilitystructuringagentandleadarrangeronasustainability-linkedreserve-basedlendingfacilityforanorthernEurope-basedexplorationandproductionborrower.ThisfacilitywasmorethanUS$3billionandincludedenvironmentaltargetsthat,ifmet,wouldallowforaninterestratemarginreductiononthedrawnspread.BMOCapitalMarketsalsounderwrote$42.7billionofsustainablebondsinfiscal2020,whichincludedseveralgreenbonds,withproceedsusedtosupportrenewableenergyandenergyefficiencyprojects,greenbuildings,pollutionprevention,andmore.
Climate-Related Risks and Strategy
Werecognizethatclimatechangeposespotentialriskstoourorganization,ourcustomersandthecommunitieswhereweoperate.Climate-relatedriskscanbecategorizedasphysicalrisksassociatedwiththeeffectsofachangingclimate,andtransitionrisksassociatedwiththeshifttoanetzerocarboneconomy.
BMO’sRiskManagementFramework(RMF)guidesourrisk-takingactivitiesinordertoalignthemwithourriskappetite,clientneeds,shareholderexpectationsandregulatoryrequirements.TheRMFprovidesforthedirectmanagementofeachindividualrisktype,aswellasthemanagementofrisksonanintegratedbasis.TheRMFisoverseenbytheCRO.Itguidesandisanchoredinthethree-lines-of-defenceapproachtomanagingrisk,asdescribedintheEnterprise-WideRiskManagementsectionofour2020AnnualReporttoShareholders.Ourapproachtoevaluatingriskexposuresincludesclimate-relatedtransitionrisksandphysicalrisks.
IDENTIFYING AND ASSESSING CLIMATE-RELATED RISKSIn2020,weincorporatedspecificclimateconsiderationsaspartofourenhancedenvironmentalandsocialriskframework.Climate-relatedriskhasbeenidentifiedasamaterialriskandisincludedinourenterprise-widerisktaxonomyasasubsetofenvironmentalandsocialrisk.Wehaveestablishedprocessestomeasureandmanagethisriskandwecontinuetoanalyzethemagnitude,timehorizonandpotentialfinancialandnon-financialimpact.Forinstance,wehaveexpandedourclimatechangescenarioanalysiscapabilities,discussedonpage10,anddevelopedaqualitativeriskappetitestatementonenvironmentalandsocialrisk,includingclimatechange.
Toidentifyandassessspecificclimate-relatedrisksarisingfromourcustomerrelationships,wefollowinternalguidelinesthatoutlinethescopeofenvironmentalandsocialrisk,andestablishprocedures,includingenhancedduediligence,todeterminetheextentofourexposuretoanysuchrisk.Theseincludeidentifyingandassessingourcustomers’climatechangestrategiesandcarbonmitigationplans,aswellasthequalityoftheirclimatechangedisclosuresandtheirreadinesstorespondtoclimate-relatedregulatorychangesorreputationrisk.Wearealsoimplementinganenhancedenvironmentalandsocialriskpolicyframeworkinordertoimproveourgovernanceandmanagementofclimate-relatedrisks.
Tokeepinformedofevolvingpracticesrelatedtoclimate-relatedrisk,BMOconductsindependentresearch,participatesinglobalforumswithourpeers,maintainsanopendialoguewithourinternalandexternalstakeholders,andmonitorsregulatorydevelopments,bestpracticesandinitiativesfromnon-regulatoryinternationalbodies.
BMOhasbeenasignatorytotheEquatorPrinciplessince2005andappliesitscreditriskmanagementframeworktoidentify,assessandmanagetheenvironmentalandsocialriskoftransactionswithinitsscope.AsamemberoftheEquatorPrinciplesSteeringCommittee,BMOactivelycontributedtotheevolutionoftheEquatorPrinciplesandthereleaseofEP4in2019.WeareimplementingtheEP4framework,whichincludesmorestringentrequirementsrelatedtoclimatechangeforin-scopetransactionsandin2020weconductedtrainingonthenewframeworkforourCapitalMarketsteam.Wealsoapplyanenvironmentalandsocialscreeningandassessmentprocesstocategorizeandassessprojectsbasedonthemagnitudeoftheirpotentialimpactsandrisks,includingclimatechange.
Goingforward,BMO’sevolvingclimatechangescenarioanalysisworkwillinformourprocessforclimate-relatedriskassessment.
BMO Financial Group 2020 Climate Report 6
MANAGING CLIMATE-RELATED RISKSWerecognizethatbothphysicalandtransitionriskscouldheightenotherkeyriskexposuresthatBMOfaces.TheSustainabilityOfficeworkswiththelinesofbusiness,RiskManagement,andothers,todevelop,coordinateandmaintainanenterprise-widestrategythataddressesourenvironmentalandsocialresponsibilities.Tomanageanyrelatedbusinessrisks,weworkwiththesebusinesspartners,aswellasexternalstakeholders,tobetterunderstandtheimpactsofouroperationsandfinancingdecisions.
Credit and Counterparty RiskClimate-relatedriskscouldaffectourexposuretocreditandcounterpartyriskbyimpactingourcustomers’revenues,costs,oraccesstocapitalsuchthattheymaybecomeunabletomeettheirfinancialcommitmentstoBMO.Borrowersmayfacelossesorincreasesintheiroperatingcostsasaresultofacuteorchronicchangesinclimateconditionsand/orclimate-relatedpolicies,suchascarbonemissionspricing.Revenuesmaybeaffectedbynewandemergingtechnologies,whichcoulddisrupttheexistingeconomicsystemanddisplacedemandforcertaincommodities,productsandservices.
1Carbon-relatedassetsaremeasuredasthevalueofnetloansandacceptancesconnectedtotheenergyandutilitiessectors,excludingwaterutilities,independentpowerproducers,electricitytransmissionanddistributioncompanies,renewableelectricityproducersandnuclearelectricityproducers.TheamountisreportedasatOctober31,2020,andisexpressedasapercentageoftotalloansandacceptances,netofallowanceforcreditlossesonimpairedloans.
2Powergenerationisasubsetofutilitiesthatexcludeswaterutilities,independentpowerproducers,andelectricitytransmissionanddistributioncompanies.Theshareoflow-carbonenergygenerationiscalculatedonaclient-by-clientbasisusingthemostrecentlypubliclyavailableinformationonenergysources.
Wehaveimplementedfinancingguidelinestoaddressenvironmentalrisks,andweapplyenhancedduediligencetotransactionswithcustomersoperatinginhigherrisksectors.OurEnvironmentalandSocialRiskFinancingGuidelineincludesdirectiononhowtodevelopanunderstandingofspecificclimatechangeimpactsontheborroweranditsoperations,includingregulatoryand/orlegislativechanges.Thisincludeseffortstodevelopanunderstandingofborrowers’climatechangeadaptationandmitigationstrategies.
Toavoidoverexposuretoanyonesectororgeographicregionthatmightbeimpactedbyclimate-relatedrisks,BMOmaintainsadiverselendingportfolio.Wehaveconductedasector-specificanalysisacrossourlendingportfoliotoassessourexposuretoclimate-sensitiveindustries.In2020,ourlendinginsupportofcarbon-relatedassetswasapproximately$13.7billionandrepresented3.0%ofourtotallendingportfolio1.Inourpowergenerationportfolio,approximately58%oflendingwastolow-carbonenergygenerationassets2.Theresultsoftheseanalyses,shownbelow,willinformthedevelopmentofourclimateriskprogramgoingforward,includingourprioritizationofsectorsinwhichtopilotscenarioanalysismethodologies.
Lending to Carbon-Related Assets
BMO’s total lending
$461billion1
1 Total loans and acceptances, net of allowance for credit losses on impaired loans.
3.0%
3.0%ofBMO’stotalloanportfolioistiedtocarbon-relatedassets
BMO’s Lending to Power Generation, as at October 31, 2020
Category %
Low-carbonenergygeneration 58%
Fossil-fuelbasedenergygeneration 31%
Other(unclassified) 11%
Sensitivity to Climate Risk of BMO Lending Exposures, as at October 31, 2020
Primarily physical risks Primarily transition risks Both physical and transition risks
No significant physical or transition risks identified
Industry % of Net Loans
and Acceptances
Residentialmortgages 27.5%
Consumerinstalmentandotherpersonalloans 15.2%
Serviceindustries 10.4%
Financial 9.8%
Commercialrealestate 8.7%
Manufacturing 5.7%
Retailtrade 4.4%
Wholesaletrade 3.4%
Agriculture 2.9%
Transportation 2.8%
Oilandgas 2.7%
Creditcards 1.7%
Utilities 1.1%
Construction(non-realestate) 1.0%
Financingproducts 0.9%
Mining 0.5%
Government 0.5%
Other 0.4%
Forestproducts 0.2%
Communications 0.2%
31%
11%58%
BMO Financial Group 2020 Climate Report 7
Environmental Policy: corporate-responsibility.bmo.com/our-practices/environmental-stewardship/environmental-policy-and-approach/
Website: https://corporate-responsibility.bmo.com/our-practices/environmental-stewardship/
BMOisawareofindustryinitiativestodevelopadditionalmeasuresofportfolioclimate-relatedimpacts,includingemissionsassociatedwithlendingandunderwritingactivities,orfinancedemissions.Atthetimethisreportwaspublished,nogloballyacceptedmethodologyformeasuringfinancedemissionshadbeenestablished.Thetopicisasubjectofinternalresearchandevaluation,andin2020,webegantoimplementleadingmethodologiestoestimatetheGHGemissionsassociatedwithourlendingactivity.Wecalculatedtheweightedaveragecarbonintensityofourlendingactivityasafirststeptobetterunderstandingourfinancedemissionsandourexposuretocarbon-intensivecompanies.
Wewillcontinuetoassessthecredibility,reliability,comparabilityanddecisionusefulnessofapproachestoquantifyingScope3emissionssuchasthoseproposedbythePartnershipforCarbonAccountingFinancials(PCAF)andtheScience-BasedTargetsinitiative(SBTi),andhowtheycouldbeincorporatedintoourclimateriskmanagementprocessesanddisclosures.
Operational RiskBMOiscommittedtoreducingtheenvironmentalimpactofouroperationalactivitiesbymanagingouruseofenergy,transportationandwater,aswellasourmaterialconsumption,wasteandemissions.Ourexposuretooperationalrisksrelatedtoouruseofresourcescouldbeheightenedbyclimate-relatedphysicalandtransitionrisks.Forexample,changesinclimatepatternsandclimate-relatedpoliciesmayresultinincreasesintheoperatingandcapitalcostsassociatedwiththeenergyandequipmentusedtoheat,coolandpowerourfacilities.
BMO’sSustainabilityOfficeworkswithCorporateRealEstatetoassesstheserisks.WemaintainanoperationalenvironmentalmanagementsystemthatisalignedwiththeprinciplesofISO14001andwearecommittedtocontinuouslyimprovingourenvironmentalmanagementsystem,includingbysettingobjectivesandtargetsthatalignBMO’soperationswithitsEnvironmentalPolicy,andreportingonourprogress.In2020,wedevelopedsustainable
designandconstructionguidelinesthatincludeenergyintensityperformancespecificationsforofficeandretailconstructionandrenovationprojects.TheseguidelinesreflectindustrybestpracticesdevelopedbytheU.S.andCanadaGreenBuildingCouncils,theInternationalWELLBuildingInstituteandotherorganizations.ByimplementingelementsoftheLeadershipinEnergyandEnvironmentalDesign(LEED)andWELLstandards,weincreasetheenergyefficiencyofourbuildings.WemaintainISO14001certificationattwoofficebuildingsinCanadaandtwointheUnitedKingdom,andwehaveachievedLeadershipinEnergyandEnvironmentalDesign(LEED)certificationatninelocationsglobally.
Wealsomonitortheregulatorylandscapefornewfuelorenergytaxesandcarbonpricingregulationsonanongoingbasisthroughourinternalriskmanagementgroup,feedbackfromourthird-partyfacilitiesmanagementserviceprovidersandparticipationinindustryassociations.
Facility Certification
BMOexecutiveoffices–FirstCanadianPlace,Toronto,ON LEEDGold–ExistingBuildingsOperationandMaintenance
BMObranch–9630MacleodTrailSE,Calgary,AB LEEDSilver–NewConstruction
BMObranch–5111NewStreet,Burlington,ON LEEDCertified–CoreandShell
BMObranch–1454MerivaleRoad,Ottawa,ON LEEDSilver–NewConstruction
BMObranch–105ClairRoadE,Guelph,ON LEEDSilver–NewConstruction
BMObranch–631–645CommissionersRoadE,London,ON LEEDSilver–NewConstruction
BMOcustomercontactfacility–Mississauga,ON LEEDGold–CoreandShell
BMOHarrisbranch–12920SRoute47,Huntley,IL LEEDSilver–NewConstruction
BMOHarrisbranch–15450WNationalAvenue,NewBerlin,WI LEEDSilver–NewConstruction
BMOfirstachievedcarbonneutralstatusinouroperationsin2010andwehavecontinuedtomaintaincarbonneutralityeachyear.Ourcarbonneutralstrategyisbasedonathree-prongedapproachthatincludespromotingenergyefficiencyandlimitingemissions,purchasingelectricityfromrenewablesourcesandpurchasinghigh-qualitycarbonoffsets1.In2020,wesetandmetagoaltomatch100%ofourglobalelectricityusagewithelectricityprocuredfromrenewablesources,includinginvestinginrenewableenergycertificatesthatwillenablethegenerationofapproximately400,000MWhofrenewableelectricityeachyear.Thishelpstocleantheelectricalgridswhereweoperatewhileinvestingintherenewableenergymarketandcreatingdemandtostimulateitsgrowth.
WetrackandanalyzeourScope1and2GHGemissionsandourScope3GHGemissionsassociatedwithwastegeneration,businesstravelandpurchasedgoodsandservices.BMOhassetandachievedthreesuccessivemulti-yearenterprise-wideemissionreductiontargetssince2008.Ourcurrenttargetistoachievea15%reductioninabsoluteGHGemissionsbytheendoffiscal2021relativetoourfiscal2016baseline.Wearemakingprogresstowardthistargetbyinvestinginenergy-savinginitiativessuchaslightingretrofits,heatingandcoolinginfrastructureupgrades,andbuildingenvelopeimprovements.Attheendoffiscal2019,wehadachievedareductionof8.7%relativetoourfiscal2016baseline,demonstratinggoodprogresstowardachievingourtarget.Weareinvestigatingsettingfurtherscience-basedemissionreductiontargetsinthefuture.
1InformationonBMO’scarbonneutralstrategyisavailableonourwebsite.
BMO Financial Group 2020 Climate Report 8
Scope1
Scope3
Scope2
Scope1+2GHGIntensity
BMO’s Greenhouse Gas Emissions Performance
Physicalrisksfromenvironmentalevents,suchasdroughts,floods,wildfires,earthquakes,andhurricanesandotherstormscouldalsopotentiallydisruptouroperations,impactourcustomersorcounterparties,andresultinlowerearningsandhigherlosses.Ourbusinesscontinuitymanagementpreparationsprovideuswiththecapabilitytorestore,maintainandmanagecriticaloperationsandprocessesintheeventofabusinessdisruption.
Changingclimatepatternsandclimate-relatedpoliciesmayalsoaffecttheoperatingandcapitalcostsofoursuppliers.Suppliersmaychoosetopassthesecostsontotheircustomers,whichcouldresultinhigherpurchasingcostsforBMO.ConsistentwithourSupplierCodeofConduct,BMOisdevelopingaSustainableProcurementprogramthatconsiderscurrentandfuturesuppliers’sustainabilityperformanceandriskmanagement,includingrisksrelatedtoclimatechange.In2020,weconductedananalysistoestimatetheGHGemissionsembeddedinoursupplychain,identifiedasScope3category1emissionsfrompurchasedgoodsandservicesintheGHGProtocol.Thisinformationenabledustosetabaselineandidentifycarbonhotspotsinoursupplychain,andwillalsoinformthedevelopmentofoursustainableprocurementprogram.WealsojoinedCDPSupplyChaintohelpusbetterunderstandtheenvironmentalimpactofourprocurementactivitiesandtoprovideaplatformforengagingwithstrategicsuppliersonclimate-relatedrisksandopportunities.
In2020,inlinewithourgoaltodivertwastefromlandfillandworktowardasustainableeconomy,wepartneredwiththeRecyclingCouncilofOntariotodevelopanenterprise-widestrategytoeliminateplasticwasteinouroperations.
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BMO Financial Group 2020 Climate Report 9
Risks to BMO’s Investment ActivityWithinourassetmanagementbusiness,BMOGAMintegratesconsiderationsofclimate-relatedriskintoinvestmentprocessesbyspecificassetclass.Examplesinclude:
Asset Class Risk Management Activities
EquitiesandFixedIncome BMO’sESGportfolioanalyticstoolshelpfundmanagersflagcompaniesashighlyexposedtoclimateriskbasedontheiremissionsperformancerelativetotheirsectoraverage.FundmanagersworkwiththeResponsibleInvestingteamtounderstandthedriversofemissionsperformanceandthestrategiesthatcompaniesaretakingtomitigatethisrisk.
Wearealsoassessingphysicalrisksforinvesteecompaniesincertainsectors.Forexample,BMOGAMhasengagedcompaniesinthefoodandbeverageindustryonwaterriskmanagement.
GreenBonds BMOGAMoverseesgreenbondmandatesforindividualinstitutionalclients,andalsoinvestsingreenbondsunderourResponsibleSterlingandEuroBondstrategies.Wehaveacomprehensivein-houseassessmentprocesstoscreenbondsandensuretheymeetourstandards.
SovereignDebt BMOGAM’scountry-levelESGtoolincludesdataonenvironmentalrisks,includingindicatorsdrawnfromYaleUniversity’sEnvironmentalPerformanceIndex.
Property BMORealEstatePartnershasaResponsiblePropertyInvestmentstrategythatconsidersenvironmentalissuesinrelationtobothexistingassetsandassetsattheduediligencestage,andincludesanassessmentofhowenergyefficiencyisfactoredintopropertymanagementandrefurbishment.
BMOGAMhasacomprehensiveglobalinvestorengagementprogramthatdatesbacknearly20years.Climatechangeisoneofthecoreprioritiesofthisengagement,andtheResponsibleInvestmentteamhasfivememberswhoareworkingonclimatechangeengagement,aswellasawatermanagementexpert.In2020,weengagedwithapproximately60companiesonthetopicofclimatechange.
OurESGViewpoint,Climatechangeengagement:aframeworkforthefuture,outlinesourexpectationsofinvesteecompanies,whicharealignedwiththoseoftheTCFD.
AtBMOGAM,weengagebothone-on-oneandthroughtheClimateAction100+initiative,throughwhichweleadonengagementwithsixcompaniesandcollaborateonengagementwithseveralmore.OurengagementalsoinvolvessectorsbeyondthemandateofClimateAction100+.
Climate change engagement: a framework for the future: https://www.bmogam.com/gb-en/institutional/news-and-insights/climate-change-engagement-a-framework-for-the-future/
BMO Financial Group 2020 Climate Report 10
SCENARIO ANALYSIS ON BMO’s LENDINGBMOhasundertakenclimatechangescenarioanalysistoexploreclimatevulnerabilitiesinordertoenhanceourresiliencetoclimate-relatedrisks.In2020,wecontinuedtoexpandourscenarioanalysiswork,evaluatingbothphysicalandtransitionrisksforaselectionofclimate-sensitivelendingportfolios.
Our2020scenarioanalysisactivitiesbuildonapilotconductedin2019thatfocusedonupstreamoilandgascounterparties.Weareimprovingourcapabilitiestoconductclimatechangescenarioanalysisenterprise-wideanddevelopinganapproachtoclimateriskstress-testingthatisconsistentwithourbroaderriskmanagementapproachandthatcanbereplicatedforothersectorsinourportfolio.In2020,wetestedthisapproachonourcommercialrealestateandagricultureportfolios.Thesewereselectedfortheircontributiontoouroveralllendingactivity($40.0billionand$13.5billion,respectively,jointlyamountingto11.6%ofourtotallendingportfolioin2020).Weevaluatedthepotentialimpactofbothphysicalandtransitionrisksunderarangeofscenarios,asshowninthetablebelow.WealsocontinuetodevelopourapproachtoscenarioanalysisonourLondonportfolioinlinewithourimplementationplanforthePRASupervisoryStatementonEnhancingBanks’andInsurers’ApproachestoManagingtheFinancialRisksfromClimateChange,beginningwiththeoilandgasandmetalsandminingsectors.TheresultswillbesharedwiththebusinessandwithleadersinRisksotheycanfactorpotentialclimateriskconsiderationsintotheirdecisions.
BMO’s 2020 Scenario Analysis Pilots
Commercial Real Estate Pilot Agriculture Pilot Metals and Mining Pilot
Lending portfolio Commercial Real Estate Agriculture Metals and Mining
Transitionrisksassessed PolicyriskfromcarbonpricingresultinginhighercostofoilandGDPdeclineinselectedeconomies
Policyriskfromcarbonpricingresultinginhigherenergyprices
Regulatoryriskresultinginmorestringentenergyefficiencyrequirements
Policyriskfromcarbonpricingresultinginhigherinputcostsandconsumerprices
Marketriskfromshiftsinconsumers’dietarypreferencestolower-carbonproducts
Marketriskfromshiftsawayfromfossilfuels
Theimpactofpolicies,suchascarbonpricingresultinginhigherenergyprices,onthecostofoperations
Physicalrisksassessed AcuteriskfromfloodingduetoEastcoaststormsurge,RockyMountainsnowmeltandmassiverainfalleventsinOntarioandQuebec
Chronicriskfromincreasedaveragetemperatureandprecipitation
Acuteriskfromincreasedvolatilityofweatherpatterns
Notassessed
Climatescenariosassessed BMOevaluatedthreereferencescenarios,consistentwithemergingglobalregulatorypracticesincludingthoseusedbytheNetworkofCentralBanksandSupervisorsforGreeningtheFinancialSystem(NGFS)
Orderlytransition(2°C,RCP8.5)–climatepoliciesintroducedearlyandbecomegraduallymorestringent;netzerocarbonemissionsachievedbefore2070;67%changeoflimitingglobalwarmingto2°C
Disorderlytransition(2°C,RCP8.5)–climatepoliciesintroducedbeginningin2030;sharperemissionreductionsneededtoreachnetzerocarbonemissionsby2070
Hothouseworld(3°C+,RCP8.5)–currentlyimplementedpoliciesarepreserved;emissionsgrowuntil2080leadingtoglobalwarmingof3°Cormore;irreversibleclimaticchangesoccur
BMOappliedtheREMIND(RegionalModelofInvestmentandDevelopment)coupledwiththeMAgPIE(ModelofAgricultureProductionandItsImpactsontheEnvironment)integratedassessmentmodellingframework.TheBankevaluatedtwoimmediateactiontransitionscenarios:
Immediate2°C–collectiveactionistakennowtoreduceemissionstowardsa2°Ctarget
Immediate1.5°C–immediateactionistakennowtoreduceemissionstowardsa1.5°Ctarget
Timehorizon Short-term–immediate
Medium-term–2030
Long-term–2040+
Climateriskmetrics Potentialimpactoncreditlosses
Weplantoconsolidatelearningsfromthesepilotstoexpandsuchanalysistoothersectorsandrisktypesinordertoidentifypotentialmaterialfinancialrisksandtoinformourbusinessstrategyrelatedtoclimatechange.TheresultsofthescenarioanalysispilotsareprovidedtotheSustainabilityCouncil–educatingourleadersaboutpotentialclimateoutcomesenablesthemtoincorporatetheseinsightsintotheirdecision-making,improvingtheresilienceofourlong-termstrategicplans.
In 2020, BMO’s Artificial Intelligence team conducted geospatial modelling to create a rainfall flood risk map for a selection of our residential real estate assets. This enabled us to assess the vulnerability of our mortgage portfolio to property damage and to quantify the potential adverse economic consequences of flooding.
BMO Financial Group 2020 Climate Report 11
BMOalsoactivelyparticipatedinPhase2oftheUnitedNationsEnvironmentProgramme–FinanceInitiative(UNEPFI)climate-relatedscenarioanalysispilot.Throughthisworkweadvancedmethodologiesandinnovativeapproachestoidentifyingandmanagingclimate-relatedrisksintherealestate,agricultureandmetalsandminingsectors.
Scenario Analysis on BMO’s Investment ActivityBMOGAMhasalsobeenexaminingscenarioanalysisfromtheperspectiveofanassetmanager.In2020,BMOGAMdevelopedtoolsforanalysisandclientreportingonscenarioanalysis.BMOGAM’sRiskteamdevelopedastresstestingtoolbasedonscenariosdevelopedbytheDutchNationalBank.
BMOGAMalsocontributedtotheParisAlignmentInvestmentInitiative,runbytheInstitutionalInvestorsGrouponClimateChange,includingco-chairingtheworkinggrouponstrategicassetallocation.TheInitiativepublishedareportforconsultationinAugust2020thatsetoutspecificcriteriainvestorscouldusetoaligntheirinvestmentportfolioswithaglobalgoalofnetzerocarbonemissionsby2050,consistentwithlimitingtheglobaltemperatureriseto1.5degreesC.
Convening and Catalyzing
BMOiscommittedtobeingaconvenorandcatalystinmobilizingactionthatcaneffectivelyaddressthechallengesposedbyclimatechange.Weactivelyparticipateinthefollowinginitiatives,workinggroupsandmulti-stakeholderpartnerships.Thesecollaborationssupportthedevelopmentofclimatechangeknowledgeandexpertise,includingabetterunderstandingoftherisksandopportunitiesrelatedtoclimatechangeandthetransitiontoanetzerocarboneconomy.
Initiative Key Area of Focus
EquatorPrinciples BMOhasbeenasignatorytotheEquatorPrinciplessince2005.WerepresentNorthAmericaontheEquatorPrinciplesSteeringCommitteeandwereactivelyinvolvedintheEP4update,whichincludedclimatechangeandriskmanagementinitsscope.
InstitutionalInvestorsGrouponClimateChange
BMOGAMisamemberofthiscollaborativeplatform,whichencouragestheadoptionofpublicpolicies,investmentpracticesandcorporatebehaviourthataddressthelong-termrisksandopportunitiesassociatedwithclimatechange.ItparticipatedintheParisAlignedInvestmentInitiative,whichpublishedareportoutlininghowinvestmentportfolioscanalignwiththeParisAgreement.
ClimateAction100+ BMOGAMwasafoundingmemberofthisUS$40trillionglobalinvestorengagementcollaboration,whichisworkingtoensurethattheworld’slargestcorporategreenhousegasemitterstakenecessaryactiononclimatechange.
TransitionPathwayInitiative BMOGAMsupportstheTransitionPathwayInitiative,whichassessescompanies’preparednessforthetransitiontoalower-carboneconomy.
InvestorStatementonJustTransition BMOGAMsupportsthe2019StatementofInvestorCommitmenttoSupportaJustTransitiononClimateChange,whichcommitsinvestorstoconsideringthesocialaspectsofthetransitiontoalower-carboneconomy.
UNEPFITCFDPilotProjectforBanks–Phase2
BMOparticipatedinPhase2oftheUNEPFITCFDBankingPilottoenhanceourTCFDimplementation.Thepilotbroadenedandexpandedthegroupofparticipatingbanksandexternalpartners,enhancedtheexistingTCFDtoolkit(includingscenarios,dataandmethodology,reportingandgovernance),andestablishedUNEPFI’sleadershippositionasanessentialplatformforadviceanddialogue.
CanadianBankersAssociation–TCFDWorkingGroup
BMOisparticipatinginaforumfortheindustrytodevelop,shareanddisseminatebestpracticesonclimate-relateddisclosuresthatalignwiththerecommendationsoftheTCFD.
ISOTechnicalCommittee207onStandardizationintheFieldofEnvironmentalManagement
AmemberofBMO’sSustainabilityOfficeistheheadoftheCanadiandelegation,andsubjectmatterexpertandinternationalnegotiatorfortheharmonizedStandardsCouncilofCanadaMirrorCommitteestoISO’sTechnicalCommittee207–EnvironmentalManagementandISO’sTechnicalCommittee207/Sub-Committee1onEnvironmentalManagementSystems.Thisworkisfocusedoncreatingtoolstohelporganizationsofanysizebuildrobust,credibleandreliableenvironmentalmanagementsystemstoimprovetheirenvironmentalperformance.
ISOTechnicalCommittee322onStandardizationintheFieldofSustainableFinance
AmemberofBMO’sSustainableFinanceTeamistheChairofCanada’sMirrorCommitteetoISO’sTechnicalCommittee322onStandardizationintheFieldofSustainableFinance.Itsworkwillpromotetheintegrationofenvironmental,socialandgovernancepracticesinfinancingactivities.
CanadianStandardsAssociation–TechnicalCommitteeonTransitionandSustainableFinance
BMOisparticipatinginaCanadianTechnicalCommitteetodevelopanationalstandardofCanadafortransitionandsustainablefinance.ThefirstdraftoftheTransitionandSustainableFinanceTaxonomyisexpectedtobereleasedbyFebruary2021.
BMO Financial Group 2020 Climate Report 12
Metrics and Targets
Inassessingourapproachtoclimate-relatedrisksandopportunities,BMOtracksthefollowingmetrics.Wealsotrackoursustainablefinanceactivityandhaveprovided$45.7billionincapitaltocompaniespursuingobjectivesrelatedtoclimateandtheenvironmentsince2019.
Climate-Related Metrics and Targets
Metric UnitofMeasure 2020 2019 2018 2017 2016
Managingclimate-relatedrisks
Lendingtocarbon-relatedassets %oftotalassets 3.0 3.3 N/A N/A N/A
Operationalefficiency1 Target Progress
GHGemissionsfromfuel(Scope1) tonnesCO2e TBD2 45,672 42,883 38,065 37,837
GHGemissionsfromelectricityandsteam(Scope2) tonnesCO2e TBD2 90,457 99,062 103,350 115,334
GHGemissionsfromwastegeneratedinoperations(Scope3category5)3 tonnesCO2e TBD2 530 1,227 1,167 1,401
GHGemissionsfrombusinesstravel(Scope3category6)4 tonnesCO2e TBD2 24,655 20,164 20,667 20,696
Total GHG emissions tonnesCO2e TBD2 161,314 163,336 163,249 175,268 15%reductionby2021vs.2016 Ontrack–8.7%reductionsince2016
Carboncreditsretired tonnesCO2e TBD2 71,401 74,180 67,775 115,715
GHGreductionsfromRECs tonnesCO2e TBD2 89,913 89,156 95,474 59,553
Net GHG emissions tonnesCO2e TBD2 0 0 0 0 Carbonneutralinoperations Achieved
Additionally,aspartofBMOGAM’sESGintegrationapproach,wemonitortheportfolio-weightedcarbonintensityoftheportfolioswithinourkeyfundamentalequityandfixedincomestrategies.WehavepublishedthisdataforourspecialistESGstrategies,includingourResponsibleandSustainableFundsandSDGEngagementFund.
1AdditionalinformationonBMO’soperationalefficiencyperformance,includingenergy,waterandwastedata,canbefoundonourwebsiteat:EnvironmentalPerformance.
2AvailableonlineinJune2021at:EnvironmentalPerformance.
3Scope3category5emissionsincludeindirectGHGemissionsfromBMO’ssolidwastesenttomunicipallandfills(NorthAmericaonly).
4Scope3category6emissionsincludeindirectGHGemissionsfromemployeebusinesstravelinnon-companyownedassets.
Website: https://corporate-responsibility.bmo.com/our-practices/environmental-stewardship/enviro-targets-performances/
Environmental Performance: https://corporate-responsibility.bmo.com/our-practices/environmental-stewardship/enviro-targets-performances/
100%
renewable electricity achieved in 2020