Mike Appleby

Lower CO2 emissions from Liontrust Sustainable Future Funds

Mike Appleby

Analysis shows the Liontrust Sustainable Future Funds continue to emit significantly less CO2 – on average emitting 65% less carbon dioxide from their operations than their benchmarks, as the illustration and chart below show.

Lower CO2 emissions from Liontrust SF Funds

Lower CO2 emissions from Liontrust SF Funds

Source: MSCI ESG Carbon Analytics Report 07.03.17 using holdings data as at 31.12.16. The Corporate Bond fund uses weighted average carbon intensity as compared to the conventional benchmark. All other equity funds use Total Carbon Emissions for funds relative to their conventional benchmarks.

While this kind of analysis has some shortcomings – failing to capture the emissions from the use of products or services the companies provide for example – it is a useful starting point for investors to see how funds compare on CO2 emissions.

The same analysis, by MSCI ESG Carbon Analytics, estimates the funds have an average of 24% (between 8% and 38%) invested in clean technology solutions (combating climate change).

Lower CO2 emissions from Liontrust SF Funds

Source: MSCI ESG Carbon Analytics Report 07.03.17 using holdings data as at 31.12.16. Using MSCI classification of companies offering clean technology solutions.

We construct our portfolios from the bottom up, based on fundamental analysis to identify well-managed companies that are beneficiaries of structural changes and have good prospects to remain profitable with potential to be worth more in the future. We believe getting these elements right in an investment maximises the chances of generating competitive investment returns.

Our investment approach to carbon risk uses a combination of:

  • Actively avoiding carbon-intensive businesses (as we believe their future profitability to be overestimated by the market) – we do not invest in the primary extraction of fossil fuels such as coal, oil or natural gas, airlines or auto manufacturers
  • Seeking out the best operationally managed companies that are proactively running their business to mitigate expected increased regulation to make big emitters pay
  • Actively looking for exposure to profitable businesses that are providing solutions to help emit less pollution. The latter is not captured in the CO2 emission analysis but we disclose exposure to over twenty different structural investment themes that are not just limited to carbon dioxide and climate change.

So what? Investing in companies that emit less CO2 than their benchmark means the funds are better positioned to withstand any carbon cost inflation as they will have less additional costs to pass on to their customers. In short, the companies in the funds have margins that are more resilient to emissions regulations, which we see becoming tighter over the medium term.

In addition, we actively avoid the continued long-term death cycle of diminishing returns experienced by carbon-intensive businesses as lower carbon alternatives continue to get cheaper and gain market share every year.

We think there are three attributes that society needs and will drive demand for companies that:

  • Enable more efficient use of resources (energy, water, and raw materials)
  • Make people healthier (through what they eat, what they do and how they cope with being ill)
  • Make societies more resilient (software security, resilient financial and communications systems)

We look for well-managed companies that can grow profitably by providing for these needs. This gives us broad structurally advantaged companies, which we classify into over twenty investment themes. We build diversified portfolios that we think will appreciate in value more than the market in the future.

Disclaimer:

• This content contains information and analysis that is believed to be accurate at the date of publication but is subject to change without notice. Whilst care has been taken in compiling this content, no representation or warranty, express or implied, is made by Liontrust as to its accuracy or completeness. Some parts/sections of this content may been compiled from external sources. Whilst these sources are believed to be reliable, the information has not been independently verified and therefore no representation is made as to its accuracy or completeness. • It should not be copied, faxed, reproduced, divulged or distributed, in whole or in part, without the express written consent of Liontrust. • Past performance is not a guide to future performance. Do remember that the value of an investment and the income generated from them can fall as well as rise and is not guaranteed, therefore, you may not get back the amount originally invested and potentially risk total loss of capital. The issue of units/shares in Liontrust Funds may be subject to an initial charge, which will have an impact on the realisable value of the investment, particularly in the short term. Investments should always be considered as long term. • Any decision to invest should be always based on the final Prospectus and Key Investor Information Documents (KIIDs) and you should take independent legal advice if necessary. These documents contain important information which should be read before investing in any fund and they can be obtained, free of charge, here.

• Liontrust SF Absolute Growth Fund and Liontrust SF Global Growth Fund have holdings which are denominated in currencies other than sterling and may be affected by movements in exchange rates. Liontrust SF Absolute Growth Fund invest in emerging markets which may involve a higher element of risk due to less well regulated markets and political and economic instability. Consequently the value of an investment may rise or fall in line with the exchange rates. Liontrust UK Ethical Fund, Liontrust SF European Growth Fund and Liontrust SF UK Growth Fund invest geographically in a narrow range and have a concentrated portfolio of securities. There is an increased risk of volatility which may result in frequent rises and falls in the Fund’s share price.

Tuesday, November 21, 2017, 1:54 PM