Mike Appleby

75% less carbon emitted by Liontrust SF Funds

Mike Appleby

2019 was a remarkable year as we saw a surge in people realising the climate is in crisis and there is an urgent need to act on this emergency. We have been working hard since our Sustainable Future (SF) funds launched in 2001 to ensure they are on the right side of this energy transition and well positioned to benefit from companies driving this positive change.

How we generate and consume energy is clearly undergoing huge change and this is affecting many parts of our economy. The science is telling us to act ever faster to reduce greenhouse gas emissions, and we believe the transition from high to ultra-low carbon energy sources and how we can use energy more efficiently to reduce emissions represents a huge structural shift and has a major impact on our investment decisions.

First, companies helping to reduce emissions will experience significant growth and those that can meet this demand in a profitable way can potentially make for interesting investments. The energy transition will reduce emissions in power and heat generation, industry, transport and in heating and cooling buildings.

Many of our themes play directly into this and we have meaningful exposure to companies set to benefit from delivering lower emissions across the following broad range of areas:

  • Increasing electricity generation from renewable energy sources
  • Improving the efficiency of energy use
  • Making transport more efficient
  • Improving industrial and agricultural processes
  • Increasing waste treatment and recycling


Second, we want to ensure the companies we own understand the magnitude of the energy transition and are managing their businesses in a proactive way that protects them from inevitable tightening regulations. We engage with companies to encourage them to manage this and other key material impacts on their business.

Finally, there are some industries, no matter how proactively managed, on the wrong side of this transition and these will experience secular decline in demand for their carbon-intensive products or services. We choose to avoid areas such as fossil fuel extraction and production, internal combustion engine car manufacturers, airlines and energy-intensive businesses that are not positioning themselves for a lower carbon world.

We disclose the aggregated carbon emissions for our single strategy funds, which we started doing in 2012. This work is carried out independently and, on average, our SF funds emit 75% less carbon dioxide than the markets in which they are invested, have 25% exposure to companies whose products help to reduce emissions, and hold 0% in companies exposed to the extraction and production of fossil fuels (such as coal miners and oil and natural gas exploration and production).

Average carbon exposure of SF funds compare with mainstream benchmarks

Average carbon exposure of SF funds to companies offering cleantech solutions

In addition to our SF funds emitting less carbon than the markets in which they invest, there are important positive attributes of these low-carbon portfolios. In the event of a tax on carbon, companies that can pass this cost on to their customers will not face a negative impact on their margins (and profitability).

Companies unable to pass these carbon costs through to clients will have to bear it themselves. The very low carbon emissions coming from the businesses in our funds mean these portfolios will have relatively more resilient margins as carbon-related regulations tighten.

While there have been big advances in reducing the carbon in some sectors, global emissions remain stubbornly high and we are concerned the current pace of change is not fast enough. We are engaging with companies we own to encourage them to dial up their ambition to reduce greenhouse gas emissions this decade. In January 2020, we launched our 1.5 degree energy transition challenge to achieve this aim and will be reporting on our findings in the last quarter of the year.

For a comprehensive list of common financial words and terms, see our glossary here.

Key Risks

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 majority of the Liontrust Sustainable Future Funds have holdings which are denominated in currencies other than Sterling and may be affected by movements in exchange rates. Some of these funds 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 has 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. Liontrust SF Managed Fund, Liontrust SF Corporate Bond Fund, Liontrust SF Cautious Managed Fund, Liontrust SF Defensive Managed Fund and Liontrust Monthly Income Bond Fund invest in bonds and other fixed-interest securities - fluctuations in interest rates are likely to affect the value of these financial instruments. If long-term interest rates rise, the value of your shares is likely to fall. If you need to access your money quickly it is possible that, in difficult market conditions, it could be hard to sell holdings in corporate bond funds. This is because there is low trading activity in the markets for many of the bonds held by these funds. Mentioned above five funds can also invest in derivatives. Derivatives are used to protect against currencies, credit and interests rates move 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.

Disclaimer

The information and opinions provided 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. Always research your own investments and (if you are not a professional or a financial adviser) consult suitability with a regulated financial adviser before investing.

Tuesday, March 17, 2020, 9:36 AM