Episode 09: The power of collaboration in ESG investing

TRANSCRIPT:

Michael Torrance: Welcome to "Sustainability Leaders." I'm Michael Torrance, Chief Sustainability Officer with BMO Financial Group. On this show, we will talk with leading sustainability practitioners from the corporate, investor, academic and NGO communities to explore how this rapidly evolving field of sustainability is impacting global investment, business practices and our world.

Legal Disclosure: The views expressed here are those of the participants and not those of Bank of Montreal, its affiliates or subsidiaries.

Michael Torrance: Today, I'll be speaking with David Sneyd, vice president and analyst with the Responsible Investment Team of BMO Global Asset Management in London. We're going to discuss how responsible investment works at BMO GAM, how BMO GAM is engaging with their investments and invested companies on sustainability topics and some real-world examples of projects that they're working on to integrate sustainability into their investment approach. In part two of this episode, David will host a conversation with James Coldwell from ShareAction, which is an NGO that collaborates with David's team on a number of ESG issues, including promoting better labor standards through investment engagement. So, in introducing David, I thought it would be good to get a little bit of background about him and what he does at BMO.

David Sneyd: I work within BMO GAM's Responsible Investment Team. BMO GAM, just a quick bit of background, we have about 328 billion in assets, with four hubs around the world in Toronto, Chicago, London, which is where I'm based, and Hong Kong. We invest in a wide variety of asset classes, and I work within the Responsible Investment Team. We're a centrally based team, predominantly based in London, and, really, we're a sort of central resource and sort of center of excellence for the ESG work that we do.

Michael Torrance: David, why is BMO GAM interested in responsible investment?

David Sneyd: At BMO Global Asset Management, we have a long heritage when it comes to responsible investment. We've been working in the field for over 34 years now, and I think it's worth just stepping back and looking at this big picture of the world in which we operate, and actually, as of today, but also increasingly over the next few decades, the world is going to be facing significant sustainability challenges, and the point is that business and life are not disconnected. The investment world and the companies we invest in are not isolated from those challenges, and our role as an asset manager, as an allocator of capital, we need to take these challenges seriously, and I think that's got two parts to it. Firstly, society has an impact on the companies in which we invest, so when it comes to serving our clients, we're looking to protect their capital, and we want to be sure that sustainability is considered as part of our investment process to be sure that we're understanding how these companies operate within these issues, but the second part of that is also flipping it. Companies have an impact on society, so we see our role within responsible investment is actually to also influence companies and to be sure that those in which we are investing are either looking to address these challenges or, at the very least, they're not in the business of making them worse.

Michael Torrance: And what does your responsible investment team do to integrate sustainability at BMO GAM?

David Sneyd: I'd probably put it in three main buckets which kind of summarizes the different areas in which we work. So, the first one is our stakeholders are both our internal fund managers who we look after both our responsible fund range but also any fund in any of our asset classes. In addition to that, we also have dedicated external clients who we provide ESG information and work for to help with their own ESG work. That falls into a variety of different areas. I think I would summarize our core function as a team really as the following three. So firstly, we look after ESG, and just to break down the lingo a bit, that stands for environmental, social and governance research and integration. We look at ESG trends on both a macro level, which may look at big trends in the world, whether that be seismic things that affect all of us such as climate change or maybe something that's a little bit more specific to a region, such as, for example, new data regulation in Europe, but also we deal with the micro, so we deal with sectors. We also deal with specific companies, looking at how ESG issues are prevalent at those companies, and we're really a centralized resource for helping our fund managers understand the risks but also producing research that can kind of help look for the opportunities too. In addition to that, we also do engagement on behalf of BMO GAM. Engagement, when I define that, most of the time can look like us actually believing that we should be speaking with the companies in which we invest, and, actually, rather than just kind of keeping a relationship going, we think that as an investor in these companies, we have an opportunity to have influence on them and actually to push for better ESG performance at these companies, particularly where in turn we think that is going to reflect materially on how good these are as investments, whether that be increasing opportunities or whether that be reducing the level of risk, and so we want to use our influence as an investor to actually be sure that we're talking to companies and guiding them in kind of these different directions. And then, finally, the third kind of pillar of what we do, I'd summarize it as our proxy voting work, so as a holder in equities and fixed income, we are entitled to votes pretty regularly with regards to equities, less frequently with fixed income, and actually we see it as an important part of having our formal say on various ways in which companies run themselves. We actually get to have an influence by voting certain directions. It's also a very good tool for opening a channel of communication with companies, and that's something we've been doing for a while now. Just to put this in perspective, we voted just under 10,000 meetings in 2018 against our own in-house policy and the view we like to do, and we did a lot of engagement around a lot of those meetings, so that's also another kind of big pillar of how we work.

Michael Torrance: David, how would you define responsible investment?

David Sneyd: I think it's important, to see where we are today, is to really understand also where we've come from. I think if we were to look back a few decades now, particularly around the '80s with apartheid in South Africa, and we had investors first starting to think a little bit about the implications of applying certain principles and values more broadly across their investment portfolios, and, by extension, some other parts of the investment world have been doing this for a little while with regards to more faith-based investors and those who had certain ideological views of what they were looking to support with their capital and what they wished to avoid. So going back many decades, we kind of saw this birth out of a very much exclusionary-based approach where it was a case of, actually, I don't want to be liable or I don't want to responsible for being involved with those companies, but actually often it would stop there, so it would be a case of excluding, let's say the classic sin stocks with regards to alcohol, gambling, tobacco, but actually going beyond that, it wouldn't necessarily go much further, then kind of moving on forward a little bit, and I think particularly we saw this around the formation of the UN PRI, the Principles for Responsible Investment, for which BMO GAM, or rather as it was formally known, FNC, was actually one of 10 asset managers involved with the formal founding of that organization, and what that was really looking to do was twofold. Firstly, introduce consideration of ESG much more into how research and investment decisions are made, actually trying to understand the issues that affect companies from an ESG perspective and integrate that into the process to be sure that we're best serving our clients ultimately by taking into everything account that can affect the value of these companies. Then, in addition to that, there was a degree and an obligation for stewardship introduced. Stewardship is this idea of you don't want to be the absentee landlord just to own something and take the value but never do anything with it. Actually, there's a responsibility there for being interested, for nurturing something, for taking responsibility for how something that you own as an investor, actually how it performs and what it does within the world and how it behaves, and so we saw that kind of birth around the mid 2000s. That organization today actually has over 1,600 signatories, so that's been very successful in the over 10 years since it was established, and we're certainly proud to be involved in that. Kind of where we've seen kind of things move to now is there's a lot more formality around not just the case of what I would call a very much avoiding strategy where you don't want to necessarily be invested where we think we shouldn't be due to certain ESG considerations and the sort of improving strategy whereby, as an owner, as an investor, we can actually have an influence here, and we should do that. Actually, we're now moving into an area and getting much more establishment around this idea of impact, which is the capital that we're providing to these companies, it's not just a question of what returns are we getting, what financial return is there, but actually, for the money that we put in, what is there in terms of the actual impact and where’s the non-financial, the ESG return that we get. So we've seen this particularly formalized lately around the UN Sustainable Development Goals, which is very much a powerful communication tool whereby the sort of development agenda over the next ... up to 2030, of all of the world's governments minus a few, has been formalized in a set of goals and by extension a set of targets, and a road map has been set for really the government, the international government agenda, for how they want the world to look in the future, and that is on such a grand scale that actually that has a lot of bearing, and investors have a big part to play in ensuring that they are funding that, that that's something that they are taking involvement in, and I think that's where we are now. We get increasing demands on us to actually, from investors, not just know what the return of a fund is, for example, but actually the companies within that fund, what are they doing? How is it aligned to this bigger picture of where the world is going, and what kind of impact are we having for the money that's kind of going in?

Michael Torrance: And can you tell us a little bit more about how exactly you would integrate environmental, social and governance considerations into your investment decision-making?

David Sneyd: Yeah, sure. Let me put some meat on the bones a little bit of this phrase ESG. As I said earlier, it breaks down into environmental, social and governance, and actually even those buckets are quite broad. So, some examples of environmental, now some of them obviously are quite obvious. So, for example, climate change is one where we've already felt it. I'm talking to you on a very, very hot day in London right now, but actually broader than that, we are going to be seeing the whole concept of how our economies work drastically change over the next decades as we transition to a lower-carbon economy, and that's going to have big implications on certain sectors. It's going to have implications on all sectors to some extent, and so this is one where this big theme, how do we boil that down into something that's a little bit more tangible and understandable specific to regions, to sectors, and actually going beyond that to specific companies? Moving on to the S, traditionally, we would put labor issues in this particular bucket, and, traditionally, that's looked a lot at, for example, labor disruption, but actually beyond that as well. As we look at this generation, they are increasingly expecting a higher level of accommodation for their lifestyle, how they work beyond just paying them lots of money. Actually, there's a real interest in the quality of work that's provided by companies, and that is something that is actually going to be very important for how they recruit, retain staff, how they make sure that they've really got the best to be sure that they can keep generating the ideas that effectively fuel the products and the services that these companies provide. Modern slavery has had a lot of focus lately. Again, with another statistic, it's calculated that currently 40 million people live in modern slavery. Slavery is not something that is put to the past. Actually it's something that's still very alive in the world, and actually that's something that, both from an exposure standpoint and also from a risk standpoint, companies need to be increasingly aware of and being able to figure out how it is that they can look not just at their own operations but at their bigger footprint, for example their supply chain, as they go down and look into these different areas. How viable is it that this is something that they may be funding or maybe something under their own nose? And then, from a societal perspective, one more I would just add is the area of nutrition. Since 1975, we've seen obesity in the world effectively triple, and actually there's a real challenge, and I will link this back to the climate change area of how is it that we have an expanding population but actually the nutrition and the quality of what people eat is declining, and, at the same time, actually traditional supply chains and what people can eat is also going to be subject to scrutiny too. So, there's a big question there about kind of how these things are going to move. And then, finally, just touching on the governance, corporate governance in general, we're often talking to companies to be sure that they're run accountably, to be sure that, as an investor, our voice is known, that stakeholders are not marginalized, and I think a lot of the scandals that we've seen lately generally result from poor governance failures as things go on within a company, and either they are tolerated or sometimes encouraged by bad culture, but actually, by extension, sometimes it's due to a lack of oversight and not fully understanding everything that's going on within their doors. I think, more specifically, I'd add one area we've been spending a lot of time lately is looking at gender diversity on boards and kind of diversity more broadly. This is an area where we've been looking to make sure that we can be playing our part as an investor to really push the agenda and to be sure that we can get closer to something more representative of either who it is that these companies have as their employees, who it is they have as their customers, and we think also just as a good principle to avoid groupthink and to be sure that the oversight and boards are as effective as possible. We've been engaging, voting and pushing a lot more generally for seeing improvements in these areas.

Michael Torrance: In your experience, how do companies react when you're engaging with them and asking them questions about their ESG performance as an investor? Can you outline for the audience how that process works?

David Sneyd: I think it's important to kind of define a little bit about what we would consider engagement to be. I mean, there's engagement, and then there's engagement. I think for effective engagement, really, you need to have a deep understanding of what ESG issues impact a company. You need to be approaching them about something where, effectively, it's not going to surprise them that you want to discuss that subject. It's got to be something that you're aware that the company understands is relevant or at least has the capacity to understand it's relevant, so we need to know the company as well and know the issues. I think another important part is we need to be able to speak to the right people, and engagement can sometimes be quite a nuanced thing. Sometimes there are levels within a company you may want to speak to. Sometimes it may actually be seniority of a board member that's important, although you can't necessarily always get into the weeds with someone who's really more in an oversight capacity. Sometimes you actually want to talk to the guy who actually looks after something specifically within the business and the operational specialists, so sometimes that's more appropriate, so kind of knowing where to go, but I'd say the big picture of how we operate is most of our engagement is really based on long-term relationship building where we try to earn the trust of the companies in which we invest, and we want them to understand that, actually, we're agreed at least in terms of the big picture of what we both want the company to be: successful. We may have some disagreement over what the pathway to success might look like, but that is certainly something that we can agree on. So, for us, really, engagement, it's looking to add value. It's not just a tick-box exercise, and I think kind of going in with that kind of mind-set, that kind of helps. In terms of kind of how it operates, it's probably best almost to talk a little bit about what engagement isn't for us as opposed to what it is. So, for us, engagement isn't necessarily always activists, confrontational, shaming in the press or jumping up and down and making a big noise because that's quite a good way to get yourself marginalized and to effectively get yourself ignored. As I said, it's much more about long-term relationship building, that trust and confidentiality, and really, we want them to see it as a partnership, both with a common interest in where we get to. I think also it's important to know that we're rarely telling companies something new when we approach them with something that they might want to talk about, so they might be actually ... The purpose of our engagement is to push something up the agenda at a company. If there's someone within the company who may be thinking, "Oh, we should really be doing X," or, "We're not quite as good at doing this as maybe some of our peers," it's not necessarily the case that they have the voice to actually push that as a change. Actually, for us as investors and outsiders to the business, if we can communicate to management or the board, "This issue is important. We want to know what you're doing about it," that almost gives legitimacy to those internally who may already be trying to kind of move in that kind of area. I think a good example, I don't know, Michael, if you saw that film "Inception" from a few years ago, and I like to think of myself as a little bit of Leonardo DiCaprio, this idea of we go in to the company, and actually we're just trying to kind of plant an idea, and it might not necessarily be where we ultimately want to get to, but actually we want to influence, but we want it to feel like it's something that the companies own, and it's something that they're driving because ultimately they're the best to do so. Now, it might be that we're the ones who went in and said, "Actually, have you looked at this area?" or, "We think you're vulnerable here," or, "Have you thought about this over here?" but in terms of where that goes to, that's something we definitely want the company to have a role in, and we're not there to come along and just tell them how to run their business per se. We're in there to be an influence, and that will be kind of a somewhat longer-step process.

Michael Torrance: What can you tell us about some of the projects you're working on now? I know that BMO GAM is really trying to be at the cutting edge of sustainability topics. What has your attention right now?

David Sneyd: Yes, certainly. So, we've got several projects currently underway, and they're in a variety of areas. I think two of the ones I would particularly highlight for this year is the first one is looking at the area of antimicrobial resistance, and this is an area which we see as very relevant to the current global public health debate, particularly in relation to the reliance within the food supply chain on antibiotics has led to a degree of resistance which actually could potentially lead to serious public health issues if these antibiotics are no longer effective going forward. So, we see that kind of big societal issue, and then we've decided to boil that down to something that's actually relevant to the stakeholders directly involved with this kind of area. So, for us, we're particularly discussing that with pharmaceutical companies, also those involved with meat and dairy production and also food retailers to better understand, firstly, is this something they're aware of? What are their thoughts? What collaboration are we seeing between all the different parties in the stakeholder chain to be sure that an effective strategy can be implemented, but also actually trying to understand a bit more about how we can influence these companies to be proactive players in slowing down the development and spread of antimicrobial resistance, what it is that they can do now to effectively avoid a much more costly and serious potential disaster that can happen in the future for which they may well be liable potentially, but also I think just from a societal impact, and as being stewards of the work that they do, to better make sure that they're equipped there. I think one other project I would just point out for this year is in the subject of climate change. As you can imagine, our climate change work has been going for well over a decade now, and actually the focus we get a lot more these days is really sectoral and understanding how particular parts of the economy are going to be better reflecting that. So, one of the areas we're particularly looking at present is marine transport, which accounts for around 2 percent of global GHG emissions every year, and although the carbon intensity by the amount of freight in transport is quite low, the average CO2 intensity compared to the sales of these companies is actually one of the highest. So as we look at our portfolios and we look at a variety of ways of monitoring our carbon footprints, these companies are quite regularly kind of standing out as very much outliers in terms of the revenue that they generate and actually the amount of carbon that they release in order to do so, and actually, when it comes to carbon, that's actually just the light touch for them because of course they're using very low-grade fuel, and so we get a lot of sulfuric oxides and nitrogen oxide emissions and things that, you know, are quite serious to the quality of water and also air as well. So, I think what we're looking to do with this project is actually better understand the companies within this sector, what they are doing to get somewhat ahead of the curve of what we see as actual, genuine potential disruption for that industry. I think we're going to get to a point, as governments move forward with climate change agendas and this transition, where we have a serious risk of this whole sector becoming vastly antiquated and actually not fit for purpose for actually maintaining the work that they do in the current logistic network, and actually these, you know, pardon the pun, but, you know, turning a tanker in these ways is not something that happens quite quickly. It's a very slow process, developing new technologies, so we think the conversation, even though the risk is actually quite a long way away in some respects to when it's material, the investments need to happen now, and the developments need to happen now to better make sure that these companies are going to be equipped and going to be relevant. So that's going to be in the form of investing in new technologies, also looking at how they're reducing emissions as of right now, and I think overall better understanding how these companies can communicate to shareholders, how they're actually looking at climate change overall, how that implements with their strategy, how is it that the board is looking at the issue and overseeing this big picture of where these companies are going to go and actually understanding kind of a positive public policy position on this too to be sure that the industry is not going to actively be lobbying against moving forward and cleaning up the oceans and then climate change policies, but actually we want them to be progressive and on the front foot and really seeing the opportunity that's here.

Michael Torrance: Would you ever collaborate with other investors or asset managers on this type of work that we've been discussing? What are some of the avenues for collaboration or industry associations or other types of projects that you work on?

David Sneyd: Yeah, collaboration is an important tool within our toolbox. We find that, actually, as we are talking to companies and trying to influence them as we are raising points with them, that can often by amplified and made more effective if the company is shown that it is not just us that might have that opinion. If something is important to a collection of their investors and not just one, then they're more likely to listen to that and potentially respond off the back of that. It's also a very good tool for us for information sharing. Although in the asset management world, we're often competing for clients, actually, we find increasingly in the responsible investment world, there is a high level of collaboration, information sharing and experience that we share with our peers because ultimately, we're all trying to achieve a very similar objective when it comes to improving the companies in which we're all invested. So that can take the form of either directly reaching out and collaborating with other investors who we know are also thinking the same things we are and invested in the companies in which we are trying to engage. On top of that as well, there are organizations out there that have been very effective at bringing investors together, providing a platform whereby they can do this in a more organized way. So one of the largest ones that we've seen over the last few years is the Climate Action 100 Plus, which is currently standing at a staggering $34 trillion in assets under management with all those that have signed up and effectively looking to engage with a set of companies to discuss climate change, to move forward with that agenda that we have there, and we found that's been a very effective way to push through change. We also use it in other areas as well, not just climate change but other parts and other research topics that we look at. We find that organizations who bring investors together can be very effective for us in getting the results that we're really looking to achieve.

Michael Torrance: If you'd like more information about BMO GAM's responsible investment program, you can visit our podcast website at bmo.com/sustainability leaders, where we have a notes page that will provide more information. You'll find the team's annual reports and a number of ways to explore this topic further. I'll now turn the podcast over to David who, as host, will interview James Coldwell from ShareAction.

David Sneyd: For the second half of our podcast today, we wanted to take a moment to speak with another organization that collaborates with investors like us on ESG issues. My guest today is James Coldwell from the NGO ShareAction to talk to us about their advocacy work on promoting better labor standards through the Workforce Disclosure Initiative. Great to have you with us, James. Maybe you could just start by telling us a bit about who you are and what you do.

James Coldwell: So, I'm James Coldwell. I work at ShareAction. ShareAction is a responsible investment NGO that's been in operation for over 12 years now, and we're committed to building the movement for responsible investments. We are headquartered in London, and we have now over 50 staff, the vast majority of which are here in London, and we have a couple of people in Brussels working on EU policy matters. Our focus of work divides down into three main areas. We have a movement-building team, so we work with civil society organizations in Europe who are having an interest in responsible investment. We work with charitable foundations to help them as a group to try to better align their investments with their charitable mission, and we also have an element of grassroots-movement-building whereby we encourage individual savers to take a direct interest in where their pension funds are invested, and we also encourage people to attend company AGMs to ask questions of the senior leadership of the institutions that we're all invested in through our pensions. We have a policy and research team, so we engage regularly with policy makers and regulators primarily in the UK but increasingly at the level of the European Union, and then we have a big focus of our work looks at driving corporate change and the programs which engage with corporations, again split into three main groupings. We have a public health focus to our work which is looking specifically at the sort of sugar content within food that's targeted and advertised to children in particular. There is a lot of climate work. We have a very big climate team, and then the third area of our corporate engagement work looks at the topic of decent work, which is where the Workforce Disclosure Initiative sits, and the Workforce Disclosure Initiative is the program that I work on directly.

David Sneyd: You said that one of your areas of focus is decent work. Maybe you can just flesh that out for us. What do you really mean by decent work?

James Coldwell: So we consider decent work to be jobs where employees are safe, where they are free from any form of discrimination, where they have a direct say and some direct control over the decisions that affect them at work, where they are free to organize if that's what they wish to do, and of course where they are decently paid and they receive a wage that enables them to live to an acceptable standard. One of the sustainable development goals, SDG 8, looks to achieve decent work and economic growth that's broad-based, and this is therefore an increasing area of focus for investors, for civil society. I think it is incumbent on companies that are huge, multi-national, powerful organizations to do more to provide decent work, and I think there is broad consensus among politicians, among civil society, and increasingly among investors as well, to want to promote decent work. I think a number of the investor signatories like the WDI ... Because originally, they actually wanted to run the WDI as an in-house program but very quickly realized that it was a huge undertaking and that it would require a collaborative effort and a sort of stand-alone entity to operate it. There's increasing evidence that links the way that companies treat their staff with long-term financial performance, and I think ... Whereas, you know, we are an NGO, and so we are a primarily mission-driven organization, and therefore we think that it's incumbent on companies to provide decent jobs because it's the right thing to do, investors, I think, increasingly agree with the outcome that we're trying to get, but I think, obviously, from an investor point of view, their main motivation is that it's good business as well as the right thing to do.

David Sneyd: We've known you guys for a while, but the Workforce Disclosure Initiative is certainly what we've been working on more lately with you. Can you tell us a bit more about the WDI?

James Coldwell: Yeah, so the Workforce Disclosure Initiative or WDI is an investor-backed program to encourage listed companies to disclose better quality and more comparable data on their directly employed staff and supply chain workers, and we have a coalition of over 130 institution investors that are supporting the program, and the WDI is centered around an annual survey which is sent out to listed companies, and it asks them to report on a number of topics that they are currently, in a general sense, not doing or at least not doing in any kind of comparable or consistent way. The investor signatories to the WDI receive access to all the data that companies submit on an annual basis, and they also receive access to disclosure score cards, which we introduced for the first-time last year in 2018 that give an indication of the amount of data that companies are reporting compared to their peer group. The program is funded by DFID, the UK Department for International Development, and they have been the sole funder, in fact, of the program since it was launched in 2017. We have two international partners. We're partnering with SHARE, that's the Shareholder Association for Research and Education in Canada, so they're our North American partner, and then we also have a partnership established with RIAA, the Responsible Investment Association of Australasia, and they have, in the last year or so, been a huge help in helping the WDI to take hold in Australasia.

David Sneyd: And when you say investor-backed, what is it that investors bring to the table, and how can they help you with your work?

James Coldwell: Among the 130 institution investors that support the WDI, there is a very broad range of institution among that, so that includes most of the largest asset managers certainly in Europe, so the likes of Legal & General and Amund are supporting it, but then that goes all the way through to quite small charitable foundations that have a very specific ethos and mission, so it's a very broad coalition of institutional investors, but I think what we have found is that by having such a large group of institutional investors, that really does add to the clout of the request to companies. I think it may well be the case that some companies would want to ignore what we're asking them, and if we were simply an NGO that wrote them a letter once a year, that might be quite easy for them to do, but the fact that this request is coming on an annual basis from, in many cases, their largest shareholders, means that it's something that they do have to engage with, and we're finding that lots of companies are starting to look at this really seriously.

David Sneyd: And maybe we can talk a little bit about the survey itself. What does it explicitly cover, and what information is it that you're not seeing published out in the world that you're actually asking for? And I guess, pulling out from that, it would be good to hear what you think about the role of publishing data and how it is that it can help you achieve this goal of decent work.

James Coldwell: In terms of the survey itself, it is a deliberately broad and quite comprehensive document, and I think companies are unanimous in agreeing that the survey is challenging. I think they have very different reactions to how they want to approach that challenge, which perhaps we can talk about a little bit later, but the survey itself is divided into 10 sections. Three of those apply exclusively to the supply chain side for companies. Five sections look at direct operations, and then there are two sections that apply equally to direct operations and supply chain. I think the reason for having this broad approach is that, certainly for the investors that support the WDI, the idea of having an easily accessible go-to platform to compare company data on a range of workforce topics is quite an appealing one. To a large extent, the WDI, we regularly keep in mind the model of CDP, formerly the Carbon Disclosure Project, and everything that they've done to mainstream environmental reporting, and we have in our mind that a similar platform is needed for the S of ESG. I think also in terms of having such a broad survey that reflects the fact that, at the moment at least, investors are not necessarily agreed on what the most material factors are for different sectors and different companies. When I talk to institutional investors and when they look at the survey in detail, the most common refrain I hear from the investors is, "Wow, this survey looks quite long. You should probably reduce its size." And then the next sentence they say is, "But you haven't included these four or five metrics that are really important to us. Please add those in," and so we're aware of this tension, but we think aiming to be a comprehensive survey is a good way to go, and I think it also means that, by starting off at this quite broad approach that we've developed, it will guard against scope creep. I think a lot of the frameworks that have been around for a longer time than the WDI, as they've evolved, they've got larger and more extensive and become more time-consuming. If at all possible, we're going to operate in the opposite direction so that the survey in 2019, for example, contains fewer questions than it did last year. So we want to try and make this an increasingly easy process for company in terms of the time it will actually take them to respond to this, and, as we go along, we want to make sure that the survey becomes more refined and more relevant to specific industries, so we've started with a broad approach, and we want to sort of narrow in and make it more sector-specific as the program develops in the years to come.

David Sneyd: The S is often the neglected part of ESG when it comes to the data and overall disclosure, and actually that can often be a real issue with comparative analysis, and I can say that as an analyst myself. We've seen a whole raft of legislation come in lately on this area, with the SEC asking for more disclosure on human capital management, as well as a focus on modern slavery in the UK, and we've seen a lot of legislative movements in France. Do you feel like this is a good tailwind for you right now with the work that you're doing?

James Coldwell: Yes, I think so. I would agree with all of that, and, yeah, it's certainly the case that the countries where there are some of these relatively new legislative requirements, there's a reasonably strong correlation with the countries who are more receptive to the WDI, and I think France in particular is a good example. We had a stronger response rate from French companies in 2018 than from any other country in the world, and I think there were two main reasons for that. One is that we do have a large French signatory base. All of the big French asset managers are supporting the WDI, but it's also the case that the devoir de vigilance, the law which came in, has forced companies to get their house in order and to be able to report on many of the topics that the WDI is asking about. So yes, certainly I think this does go beyond ... You know, it's not just something that's interesting to institution investors. There are clearly many other stakeholders who are interested in the sort of aims and the long-term aims of the WDI. We do give companies the option of whether to submit their data on a public basis or a private basis. Private means that the data is submitted to us at ShareAction, the WDI team as well as our international partners and to the investor signatories, but companies are also encouraged now, we tell companies we would prefer them to submit this on a public basis, and we can see from the number of downloads of this public data that there are many, many other stakeholders beyond just investors that are looking at this. We've had downloads of the data from a number of civil society organizations, from various consultants, from companies who are obviously looking at this, and from trade unions as well. So, there are a number of stakeholders that are, I think, willing the WDI to succeed, and of course it's important to note that there are many other actors that are looking to improve workforce reporting in one way or another. Some of them are more focused on a particular jurisdiction. Some of them look specifically at human rights impacts rather than the broader approach that we take, but there are many other frameworks that are out there, and we do work closely to collaborate where we can and also where we can to make sure that our questions are aligned with some of the other requests that companies are receiving.

David Sneyd: A lot of WDI's work is based on disclosure and scoring, whereas what we're really talking about here is actually workplace practices and how people structure their business rather than really how they talk about their business, so why this focus on disclosure? How does that drive the change that you're looking to achieve at the companies?

James Coldwell: I think at the most basic level, we believe that, by encouraging companies to be more transparent, that that will lead to a race to the top, but even if that is a belief that's not going to be borne out, necessarily, on its own, by engaging with the WDI and other frameworks and becoming more transparent, that allows companies to hold themselves comparable to their peer group. If companies start to report hard data on a number of the metrics that the WDI is asking them to do, that will allow them to prove in a more convincing way that they are outperforming their peer group than they can ever hope to achieve in a 300-page glossy sustainability report that contains a lot of anecdotal evidence but no hard data, and I think we're also finding already that the WDI data, although it's still at a very early stage of its development, it's already helping to inform engagement conversations between investors and companies, and it helps to, I think, close the gap between where companies are and where investors think they are, and by closing that gap, that means that there can be a much more meaningful conversation that, in some cases, was much more difficult a couple of years ago.

David Sneyd: And, James, thinking more long-term, where would you like to see the WDI in 5 years' time, say, and what would you have liked for it to have achieved over that time?

James Coldwell: That's a really good question and one that we think about quite regularly. I think we've all been quite surprised and quite pleased with how the WDI has grown in the 2 and a bit years it's been in existence, and we would certainly hope that that growth continues over the next 5 years. I do think we've become, in the UK, quite a recognized reporting framework now. I think it's quite likely that a majority of the FTSE 100 will respond to the WDI this year. If we can get that level of uptake from companies across the world, I think we'll be doing very, very well. I think, and I'm speaking personally here, I think right now that the number of people and institutions that are working on these topics is very, very encouraging. I would hope that, 5 years hence, there will be a greater degree of not necessarily consolidation of these organizations all merging into one, but I think there should be a greater degree of consensus as to the types of questions that we're asking of companies and the expectations that we're putting on them, and ultimately, the WDI, it's not about just holding companies accountable and getting them to report more data for the sake of it. It is about driving better working practices, and I think this is clearly a way of working that has many, many steps to it, but I think 5 years from now, we would certainly want to be able to point to a number of concrete changes that companies have made as part of their engagement with the WDI survey and the interactions that they've had with the WDI team and of course with the investor signatories.

David Sneyd: Great. Well, thank you, James, for joining us today. We do appreciate you taking the time to talk this over with us, and we wish you every success.

James Coldwell: Thanks for having me.

Michael Torrance: Thanks for listening to "Sustainability Leaders." This podcast is presented by BMO Financial Group. To access all the resources, we discussed in today's episode and to see our other podcasts, visit us at bmo.com/sustainability leaders. You can listen and subscribe free to our show on Apple Podcast or your favorite podcast provider, and we'll greatly appreciate a rating and review and any feedback that you might have. Our show and resources are produced with support from BMO's marketing team and Puddle Creative. Until next time, I'm Michael Torrance. Have a great week.

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