BMO: How to Build an ESG Portfolio

ESG investments that consider Environmental, Social and Governance factors have become powerful tools for mitigating risk, generating returns, and promoting more sustainable growth. As a result, they’re being readily embraced by investors looking to effect real change in their portfolios and the greater world. In fact, according to Morningstar, ESG funds now account for about a quarter of all money invested into U.S. stock and bond mutual funds.¹

Building an ESG portfolio has never been easier. There are options tailored to the preferences and capabilities of each investor. The simplest is an all-in-one approach that offers an entire investment solution within a single fund - ideal for anyone seeking efficient, broad market access across asset classes, regions, and sectors, without the need to monitor day-to-day portfolio activity.

BMO offers a suite of 4 all-in-one responsible mutual funds called the BMO Sustainable Portfolios.  Each has a level of investment risk and performance potential to suit different types of investors as they save for their long-term goals - whether that’s buying a future vacation home, helping a family member achieve their dreams, or funding a comfortable retirement.

Each portfolio is designed to be well-diversified with a mix of fixed income investments, equities, and cash. Together, they provide a more convenient approach to investing with the potential to improve risk-adjusted returns. 

Each BMO Sustainable Portfolio is monitored and rebalanced by professional investment managers to enhance performance and ensure the blend of asset classes in your portfolio remains right for your needs. 

For do-it-yourself investors looking for a globally diversified and responsible ETF, BMO offers ZESG – the BMO Balanced ESG ETF.  The first of its kind in Canada, ZESG is a low-cost, all-in-one solution that focuses on ESG factors, balancing moderate income with the potential for long-term growth.

Whether you invest with the BMO Sustainable Portfolios or the BMO Balanced ESG ETF, letting professionals do the heavy lifting is a major timesaver that lets investors rest easy knowing that their asset allocation is on track. 

Investors who want to target a specific theme with their investments may choose to tactically tilt a portfolio towards a particular theme or add a satellite position that may align with their values.  For example, like the BMO Sustainable Opportunities Global Equity Fund which excludes any fossil fuel related companies, and the BMO Women in Leadership Fund that invests in companies committed to gender equity in senior leadership. 

Many ESG investors may be inclined to avoid the energy sector given the industry’s negative association with the environment, but there are companies working to transition their businesses and lessen their carbon footprint that may be worthy of consideration. The same is true for a growing number of companies spearheading the drive towards less expensive, carbon-neutral solutions like wind, solar, hydro and geothermal energy.

Companies that produce renewable energy are primed to play an important role in our future, and countries around the world are investing heavily in their development. Even now, their progress is undeniable. In April 2019, renewable energy provided more power generation than coal for the first time ever², and in 2020, long-term contracts, priority access to the grid and continuous installation of new plants helped renewables surge relative to traditional energy sources³. This trend was further underscored by a recent Bloomberg New Energy Finance analysis that suggested more than 50% of the world’s energy will come from solar and wind sources by 2050⁴.

Together, these developments are creating huge opportunities for investors looking to get behind the ‘green revolution’ through funds like BMO’s Clean Energy Index ETF (ZCLN). The fund tracks the S&P Global Clean Energy Index to provide liquid and tradable exposure to a diversified mix of 100 clean energy companies from around the world.

Although we often tend to look at ESG factors from an equity perspective, they also play a very important role in fixed income markets as well. Companies generally issue debt much more frequently than equity, making bondholders uniquely positioned to enact change by aligning their ESG priorities to a company’s capital funding needs.

Investing in sustainable bonds is about mitigating downside risk – exactly what you want from the fixed income allocation of your portfolio. Thanks to choices like the BMO Sustainable Bond Fund, these objectives can be met while aiming to preserve yield, credit quality, duration, or diversification.

BMO Global Asset Management is committed to innovation in responsible investing, with a range of responsible investment choices and strategies. Whether you choose an all-in-one solution or a build-your-own approach, there’s a BMO responsible investment solution to suit your investment profile and investment goals. Speak to a BMO advisor or investment professional to find the investment that’s best for you. 

¹Source: Morningstar, 2020, Canadian ESG Investing Soars in 2020

²Source: https://www2.deloitte.com/us/en/pages/energy-and-resources/articles/renewable-energy-outlook.html

³ Source: Bloomberg, Sept 30, 2021

⁴Source: New Energy Outlook 2021 | BloombergNEF | Bloomberg Finance LP (bnef.com)

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