The quarter saw heightened engagement activity, with nearly 70 company meetings addressing 45 ESG issues. Focus areas included climate, circular practices, and ethical AI, where the team led initiatives with PayPal and American Tower. Voting efforts were intensified, underscoring the commitment to driving positive corporate change.
Engagement is an essential element of our process. It's the way that we as a team, hold companies across the Funds accountable and help to effect positive and lasting progress. Through engaging, we gain deeper insights into how these businesses operate, which in turn helps us to select and invest in high quality companies. Over the quarter, we met with nearly 70 companies, raising some 45 key ESG issues. We made 7 specific requests for change across topics such as the climate, circular practises, and also requesting better data for fostering employee wellbeing. Now, one topic of note is our initiative all about the ethical challenges posed by artificial intelligence. It's been estimated that only 18% of companies have the systems in place to make sure that their use of AI is ethical and responsible. Activity over the quarter included finding out how companies are mapping their use of AI systems and how they're mitigating the risks of using AI. We spoke to Sage Group, the UK software company on this topic, meeting with Investor Relations and a senior risk and AI expert to better understand how it implements its set of principles around ethics of AI operationally and within its business, as well as learning about the frameworks that underpin those principles. We also signed up to two collaborative initiatives on the same topic. We will engage with other investors as part of the World Benchmark Initiative's 'Collective Impact Coalition for Ethical AI', where we've been assigned to lead on engagement for two US companies held in the Funds, and that's PayPal and American Tower, and we've got meetings upcoming for the quarter ahead.
The other initiative is through the Thomson Reuters Foundation, who are partnering with UNESCO, to look at company data on AI in the hope of supporting businesses in risk mitigation and mapping their AI adoption. And this initiative builds on the first global standards on AI ethics from UNESCO that emphasises human rights, human dignity and fundamental freedoms.
In April, we had our first Advisory Committee meeting of the year where the team and its five committee members, all experts in their fields, discussed a range of topics, including our ongoing engagement in the UK water sector. And we were also challenged on our thoughts around the sustainability of the insurance sector. We also spent time discussing the changed world from a geopolitical standpoint and this global trajectory on climate change and resilience. Overall, although it was felt we do need to be aware that the US administration's influence on policy is impeding the transition, our team needs to press ahead regardless. The fundamentals really haven't changed and the real work just continues. The Advisory Committee also encouraged us to look for additional opportunities to push for progress on diversity, equality and inclusion given the evolving landscape in the US and the executive orders there on illegal DEI practices.
So over the quarter, the team really rose to this challenge. We stepped up our efforts in an already busy quarter when it comes to voting. We withheld support at 35 company AGMs due to a lack of diversity, ensuring that we continue to use our voting rights as well as engagement to really push for better board and senior representation within companies. Now we usually vote against the chair of the nomination committee, but where they're not up for re-election, we were choosing to select other relevant directors. We withheld our support at 29 AGM's due to lack of board gender diversity. And 6 companies where we saw a lack of diversity within the company's current leadership team. And then there were 2 companies where we felt that ethnic diversity on the board was also lacking. Lastly, in Q2, we released our full review of activity over 2024 and that features the company examples and highlights, and it's 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.
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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.
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