Engagement is core to the team’s approach, with 18 change requests made in Q1 across climate, biodiversity, and AI ethics. New focus areas include nature risks and DEI challenges in the US, where the team is working to distinguish genuine commitment from box-ticking and drive long-term positive change.
Engagement is a really important part of our process. It's how the team holds investee companies to account and it's how we drive positive change. Engaging gives us better insight into how businesses are run and that in turn helps us to select and invest in high quality companies. We had a busy first quarter of this year making 18 specific requests for change across topics such as climate crisis, circular practises and biodiversity. That last one, or more generally protecting and restoring nature, is a topic where we see many companies struggle to fully assess their impacts and dependencies.
At the start of the year, we met with three companies as part of the Nature Action 100 initiative. The three investor groups have been set up to encourage better assessment and ambition when it comes to companies' impacts and dependences, as well as pushing for specific targets to reduce them. Over the quarter, we also began to engage with companies on the increasingly relevant ethical challenges posed by artificial intelligence, which is a new area of focus for us. And we joined two collaborative initiatives aimed at ensuring companies map their use of AI systems, mitigate the risks and address those broader societal and environmental impacts of AI. Over the last few months, we've also been closely monitoring the evolving landscape when it comes to diversity, equity and inclusion or DEI policies in the US, and that's in light of the recent executive order from the Trump administration to crack down on what they term as illegal DEI practises. Now, because the specifics of what constitutes illegal remains unclear, this has led to uncertainty and agencies in some states have started scrutinising practises in certain sectors like banks, which indirectly impacts other companies in other sectors too.
In response, we're actively assessing how these changes might affect US companies and the potential for ripple effects on UK and European firms. We have observed that some companies have reacted by dropping their DEI targets, likely due to the ambiguity and the fear of legal repercussions. This knee-jerk reaction underscores the importance of engagement with companies to understand their commitment to DEI beyond mere compliance. It's going to be really useful to distinguish between businesses that genuinely believe in the value of diversity and those that were simply maybe box-ticking in the first place. We've seen only a couple of US companies that we hold alter their DEI strategies, but because we firmly believe that diversity is critical to businesses' long-term success, we'll persist in our efforts to promote it despite this shifting landscape. We'll continue to use our voting rights and engagement to push for increased board diversity where it's lacking, and we'll reflect and capture any changes in their approaches as part of our routine sustainability analysis. For more on our engagement, visit the team's full review of our activity over 2024, which features examples and highlights and is now available on our website.
KEY RISKS
Past performance does not predict future returns. You may get back less than you originally invested.
We recommend this fund is held long term (minimum period of 5 years). We recommend that you hold this fund as part of a diversified portfolio of investments.
The Funds managed by the Sustainable Investment team:
- Are expected to conform to our social and environmental criteria.
- May hold overseas investments that may carry a higher currency risk. They are valued by reference to their local currency which may move up or down when compared to the currency of a Fund.
- May hold Bonds. Bonds are affected by changes in interest rates and their value and the income they generate can rise or fall as a result; The creditworthiness of a bond issuer may also affect that bond's value. Bonds that produce a higher level of income usually also carry greater risk as such bond issuers may have difficulty in paying their debts. The value of a bond would be significantly affected if the issuer either refused to pay or was unable to pay.
- May encounter liquidity constraints from time to time. The spread between the price you buy and sell shares will reflect the less liquid nature of the underlying holdings.
- May invest in smaller companies and may invest a small proportion (less than 10%) of the Fund in unlisted securities. There may be liquidity constraints in these securities from time to time, i.e. in certain circumstances, the fund may not be able to sell a position for full value or at all in the short term. This may affect performance and could cause the fund to defer or suspend redemptions of its shares. May invest in companies listed on the Alternative Investment Market (AIM) which is primarily for emerging or smaller companies. The rules are less demanding than those of the official List of the London Stock Exchange and therefore companies listed on AIM may carry a greater risk than a company with a full listing.
- May, under certain circumstances, invest in derivatives, but it is not intended that their use will materially affect volatility. Derivatives are used to protect against currencies, credit and interest rate moves or for investment purposes. There is a risk that losses could be made on derivative positions or that the counterparties could fail to complete on transactions. The use of derivatives may create leverage or gearing resulting in potentially greater volatility or fluctuations in the net asset value of the Fund. A relatively small movement in the value of a derivative's underlying investment may have a larger impact, positive or negative, on the value of a fund than if the underlying investment was held instead. The use of derivative instruments that may result in higher cash levels. Cash may be deposited with several credit counterparties (e.g. international banks) or in short-dated bonds. A credit risk arises should one or more of these counterparties be unable to return the deposited cash.
- Do not guarantee a level of income.
The risks detailed above are reflective of the full range of Funds managed by the Sustainable Investment team and not all of the risks listed are applicable to each individual Fund. For the risks associated with an individual Fund, please refer to its Key Investor Information Document (KIID)/PRIIP KID.
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.
DISCLAIMER
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It should not be construed as advice for investment in any product or security mentioned, an offer to buy or sell units/shares of Funds mentioned, or a solicitation to purchase securities in any company or investment product. Examples of stocks are provided for general information only to demonstrate our investment philosophy. The investment being promoted is for units in a fund, not directly in the underlying assets.
This information and analysis is believed to be accurate at the time of publication, but is subject to change without notice. Whilst care has been taken in compiling the content, no representation or warranty is given, whether express or implied, by Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified.
This is a marketing communication. Before making an investment, you should read the relevant Prospectus and the Key Investor Information Document (KIID) and/or PRIIP/KID, which provide full product details including investment charges and risks. These documents can be obtained, free of charge, from www.liontrust.com or direct from Liontrust. If you are not a professional investor please consult a regulated financial adviser regarding the suitability of such an investment for you and your personal circumstances.
