The Liontrust Sustainable Investment team launched the Sustainable Future (SF) fund range in February 2001 at a time when there were some ethical and the odd environmental fund.
The Liontrust Sustainable Investment team manages 12 funds to meet the different risk profiles, return objectives and geographical preferences of investors. The range comprises:
- Four equity funds
- Three fixed income funds
- Five managed funds with different exposures to equities, bonds and cash that are determined by the level of risk they take as measured by volatility
The team’s distinct investment process combines negative and positive screening and identifying the key structural growth trends that will shape the sustainable global economy of the future. The team looks at the world through the prism of three mega trends – Better resource efficiency (cleaner), Improved health (healthier) and Greater safety and resilience (safer) – and then 20 themes within these.
The team then identifies well run companies whose products and operations capitalise on these transformative changes. Every company that meets the team’s thematic requirements is assessed using its sustainability matrix. This analyses:
- Product sustainability (rated from A to E): the extent to which a company’s business helps or harms society and/or the environment.
- Management quality (rated from 1 to 5): whether a company has appropriate structures, policies and practices for managing ESG risks and impacts.
Companies must score C3 or higher.
A key differentiator for the team is the fact that all the sustainable elements are integrated within a single team. They do not have separate fund management and ESG divisions. Every team member is responsible for all aspects of financial and ESG relating to an investment decision. Because of this approach, the team engages with companies across a broad range of issues, including screening criteria, sustainable investment themes and company specific ESG issues.
The team ensures there is no greenwashing through:
Transparency: The Liontrust Sustainable Investment team has always been transparent, having a clear investment process and publishing all holdings in its SF funds on a quarterly basis.
Experience and resource: The team has been managing sustainable investment funds since 2001. The investment team is 13-strong, along with a specialist governance and stewardship manager.
Activism: Engagement is an integral part of how the team invests, and challenges and encourages companies to proactively manage the wider aspects of their business. In 2019, the team met with 185 companies face to face and raised 245 key ESG issues.
Evidence: Since 2015, the team have shown how themes and companies are contributing to the UN’s Sustainable Development Goals (SDGs). The team shows the impact of their investments, such as the funds emitting 75% less carbon dioxide than the markets in which they are invested.
The team were founding members of the PRI and have a track record of successful engagement in areas such as climate change, clothing supply chains and tax.
Highlights of recent engagement activity include meaningful progress on board gender diversity. In 2016, the team began withholding support for companies that are not sufficiently gender diverse. Where companies had fewer than 15% women on the board, they voted against the annual report and accounts at the AGM and abstained where this was greater than 15% but less than 30%. In 2019, the team used the same process but focused on the resolution to re-elect the Chair of the Nomination Committee.
Twenty-one companies in the team’s funds have increased the proportion of women on the board to over 30%, such that they no longer need to withhold support. After voting, these companies now have an average of 38% female boards, compared to just 22% before they began voting. A further 15 companies in the funds have increased the number of women on their boards, and we remain positive that continued efforts through voting and engagement should result in further progress.
The team’s latest initiative is the One and a Half Degree Transition Challenge that was launched in early 2020. This is calling for all companies held within the SF funds to explain how they plan to decarbonise their businesses to limit global warming to 1.5 degrees. Over 200 companies held across the funds have until the end of 2020 to provide a plan for how they are going to reach zero carbon emissions and over what time period this will be achieved. The team will use all measures at their disposal, including voting and ultimately divesting over time, to persuade companies to reduce their emissions.
1. SDGs video from our Sustainable landing page:
2. Video from recent Responsible Investor event:
3. Video with one of our Sustainable team, Mike Appleby, filmed for the SimplyBiz virtual events a few weeks back:
