Environmental and social risk management

A successful future for BMO and our customers depends on the sustainability of the environment, communities and economies in which we and our customers operate. To that end, we seek to identify, manage and mitigate the impact that environmental and social risks have on the business environment we operate in, our clients, portfolios and operations—thus contributing to a sustainable future.

 

A successful future for BMO and our customers depends on the sustainability of the environment, communities and economies in which we and our customers operate. To that end, we seek to identify, manage and mitigate the impact that environmental and social risks have on the business environment we operate in, our clients, portfolios and operations—thus contributing to a sustainable future.

 

Environmental and social risk

Environmental and social risk (E&S risk) is the potential for loss or harm, directly or indirectly, resulting from environmental or social impacts or concerns, including climate change related to BMO, our customers, suppliers or clients. Environmental and social factors may give rise to the risk of both direct and indirect impacts over both the short and long term, including but not limited to:

  • Climate change
  • Pollution and waste
  • Energy, water and other resource usage
  • Biodiversity and land use
  • Human rights
  • Diversity, equity and inclusion
  • Labour standards
  • Community health, safety and security
  • Land acquisition and involuntary resettlement
  • Indigenous Peoples’ rights 
  • Cultural heritage 

 

We may indirectly be exposed to financial loss or reputational harm if our customers, suppliers or clients are affected by E&S risk. Our approach to managing E&S risk is part of our Enterprise-wide Risk Management Framework (ERMF).

In 2022, the Bank introduced a new, board-approved Environmental & Social Risk Corporate Policy (E&S Risk CP). The E&S Risk CP provides the foundation for BMO to more fully integrate E&S risk considerations into and across our existing ERMF, as well as increase our ability to identify, assess, manage, monitor, and report on E&S risk. The E&S Risk CP further cements the importance the Bank places on the management of E&S Risk, including by: outlining the board’s expectation regarding integration of E&S risk considerations across the ERMF and noting how E&S risk will be articulated in existing policy documents.

The Enterprise Risk and Portfolio Management and Sustainability teams work with the lines of business and Corporate Services to manage BMO’s E&S risk. This includes integrating E&S risk into our operational and business decision-making processes, including financing and lending activities, and procurement of goods and services. We regularly report to various management committees, forums and Board committees on key developments, including emerging risks, related to sustainability and climate change.

Corporate Audit independently evaluates the quality and effectiveness of internal control, risk management and governance systems and processes within BMO using a dynamic, risk-based plan. Audit results are reported to management regularly. Each quarter the Chief Auditor reports results to the Audit and Conduct Review Committee together with key themes, trends and views of matters of high criticality to the bank.

Responsible lending

BMO integrates risk-related environmental, social and governance (ESG) considerations into decision-making and activities relating to financing and lending.

Our Environmental and Social Risk Financing Guideline provides overall direction for identifying, assessing and managing E&S risk in the context of credit risk decision-making processes. Our Enterprise and Credit Risk Management Frameworks outline our governance and accountabilities, enhanced due diligence, escalations and exceptions processes. We have sector-specific financing guidelines to help us identify and manage E&S risks in higher risk sectors and determine how to factor these risks into our decision-making. Social and environmental requirements in transaction agreements are monitored by the lines of business as part of our overall monitoring process.

BMO makes decisions regarding the provision and terms of its products and services based on an individualized assessment of the risks posed by the prospective customer or customer transaction to BMO’s financial condition. This risk-based approach means customers operating in higher risk sectors and activities are subject to enhanced due diligence, escalations and exception processes. Transactions with significant environmental or social concerns may be escalated to BMO’s Reputation Risk Management Committee for consideration. Utilizing this risk-based approach, we have determined that lending to clients engaged in the following activities and related transactions currently1 would expose BMO to undue risk:

  • companies involved in the sale of firearms and ammunition or weapons banned by existing international arms control treaties or involving international transfer of military or civilian equipment for military or internal security purposes;
  • business activity affecting UNESCO World Heritage Sites; and
  • business activity affecting High Conservation Value Forests.

 

Using the same risk-based approach, it is the bank’s intention to avoid direct financing for any project or transaction that involves exploration or development in the Arctic National Wildlife Refuge (ANWR).

In 2021, we introduced a Statement on Coal Lending that describes our risk-based approach to extending credit for transactions that involve thermal coal through BMO’s Commercial Banking and Corporate Banking lines of business.

We track and report on our lending to carbon-related assets and are implementing the processes for financed emissions quantification and target setting established by the Partnership for Carbon Accounting Financials (PCAF) and the Net-Zero Banking Alliance (NZBA), and also track and report on transactions within the scope of the Equator Principles.

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1 The list of activities and related transactions is periodically reviewed and may evolve over time.

Equator Principles reporting

BMO has been a signatory to the Equator Principles, a risk management framework for identifying, assessing, and managing environmental and social risk in transactions that fall within their scope, since 2005. BMO recommitted to the principles in 2006 and 2012.

Our Equator Principles reporting for 2022 can be found in our 2022 Sustainability Report Data Pack and Glossary.  For 2011-2021 reporting, please see the Archived Reports section on the Reports page.

Operational sustainability

Carbon neutral since 2010, BMO is dedicated to finding innovative ways to minimize the environmental impacts of our operations.