Mike Appleby

Aligning our funds with the UN Sustainable Development Goals

Mike Appleby

As part of our ongoing commitment to measure and publicise the impact of our Sustainable Future Funds, clients have asked us to show how the companies we hold are aligned with the United Nations’ Sustainable Development Goals (SDG).

The SDGs are an internationally recognised set of goals to aim for by 2030, which will help the world develop in a more sustainable way. They replaced the United Nations’ Millennium Goals and have captured many progressive investors’ interest as a more comprehensive way of thinking about and reporting on sustainable investing.

We have refreshed the work we did in our 2017 Annual Review showing how our themes are aligned with the SDGs by analysing where each theme is directly linked to Key Performance Indicators in the SDG text. Each of our themes is limited to one main SDG, although, in reality, there are overlaps and most companies are exposed to more than one goal. A summary table showing which of our themes are aligned to which SDG, along with which specific Key Performance Indicator they improve, is available here.

As a reminder, our themes are at the core of our process and a key component in the investment decision, the others being quality of management, business fundamentals (essentially the investment returns the business can make) and valuation.

The SDGs where our funds have largest exposure are:

  • Good health and well-being (SDG #3)
  • Affordable and clean energy (SDG #7)
  • Decent work and economic growth (SDG #8)
  • Industry, innovation and infrastructure (SDG #9)
  • Responsible consumption and production (SDG #12)


In addition to these, we also have exposure to: Quality education (SDG #4), Clean water and sanitation (SDG #6), and Sustainable cities and communities (SDG #11).

Liontrust SF Funds Investment themes mapped to primary SDGs

Source: Liontrust, average weight of SDGs as mapped to our themes for SF UK Growth, SF European Growth (ex UK), SF Global Growth and SF Corporate Bond Funds as at 31.12.18 (unweighted simple average).


How our themes are aligned to the SDGs where we have most exposure

Good health and wellbeing (SDG #3)

We have five investment themes aligned with this SDG to ensure healthy lives and promote wellbeing for all at all ages. These include:

Improving auto safety: We have identified companies whose products improve the safety of travel and reduce road traffic accidents, principally through active safety, which involves collision avoidance, active breaking and semi-autonomous driving. We concentrate on the specialist companies making the kit to improve safety (or reduce emissions) rather than the car manufacturers we believe are challenged to meet tightening regulations to improve safety as well as reducing emissions.

Delivering healthier foods: There is a trend in the food industry where consumers are changing their preferences and demanding healthier options. We have identified companies that provide reformulation services to change the recipe of foods to make them healthier (less fat, sugar and salt) while maintaining the taste. These companies are a beneficiary of this demand for healthier food as their customers (many of which are the big incumbent food producers) respond to changing consumer preferences and use their reformulation services. This improved diet has positive health impacts. For example, it can help reduce non-communicable diseases such as obesity and cardio-vascular disease. This contributes to the Key Performance Indicator 3.4 of the SDGs, which is to reduce by one third premature mortality from non-communicable diseases through prevention and treatment.

Enabling healthier lifestyles: Companies that promote healthier lifestyles, principally through increasing activity, taking exercise and sport, help to meet the same Key Performance Indicator 3.4 of this SDG.

Providing affordable healthcare globally: Companies that help to deliver affordable, positive patient outcomes in managing disease also help to achieve this goal.

Enabling innovation in healthcare: Companies whose products or services help to promote innovation within healthcare are helping to achieve this goal. They do this by either coming up with new, more effective ways to treat diseases (creating a significant step change in the mechanism used to treat a given disease), by providing essential equipment or services for biotechnology research (such as specialist measuring equipment, genetic sequencing equipment or high quality consumables for research) or through software to help make treatments more effective.


Affordable and clean energy (SDG #7)

We have three main themes aligned with achieving this SDG to ensure access to affordable, reliable, sustainable and modern energy for all.

Increasing electricity generation from renewable sources: Substituting coal-intensive fossil fuel electricity generation with renewable power sources reduces carbon emissions as well as provides a cost effective means in some off-grid situations to connect people to cheaper, more reliable power sources.

Improving the efficiency of energy use: We see many ways of making energy cheaper by reducing wasted energy while also reducing emissions through more efficient use. This cuts across many areas of the economy and includes building insulation, efficient lighting, energy-efficient climate control, travel and industrial processes. Companies that provide services or equipment, particularly in upgrading the power grid network to be able to deal with changing production and consumption patterns of electricity, are an important requirement to achieve affordable clean energy.

Decent work and economic growth (SDG #8)

We have three themes aligned to this development goal to promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all.

Increasing financial resilience: We believe a resilient financial services sector is necessary for economic well-being through utility-like provision of banking, lending and effective ways of appropriately saving for the future as well as mitigating risks through insurance. This does not mean any company in the financial sector is automatically investable, but we do see positive ways that these companies contribute to society when appropriately and proactively managed. This is aligned with the SDG Key Performance Indicator 8.3 to encourage growth of business through access to financial services.

Insuring a sustainable economy: We believe insurance can spread the risk faced by an individual or corporation and makes a beneficial contribution to society.

Saving for the future: We believe there is a real need for people to be able to get good advice and choose appropriate investments to ensure they have saved up for their retirement. Failing to invest for the future and relying on state-funded pension schemes will result in a significant drop in quality of life as government finances come under increasing financial pressure, exacerbated by demographic shifts with a higher proportion of people past working age. Again, not every company involved in financial services is exposed to this theme, but we look for what we consider the best-managed businesses catering for people’s needs.

Industry, innovation and infrastructure (SDG #9)

We have three themes aligned with this SDG to build resilient infrastructure, promote inclusive and sustainable industrialisation and foster innovation.

Improving industrial and agricultural processes: We like companies providing products or services that help make industrial processes more resource efficient, as well as safer for workers and users. These improved industrial processes help to reduce the negative impacts on people and the environment and are making a positive contribution. We see investment opportunities in software and systems that help to implement life-cycle design (including disposal of products), help to manage supply chains as well as opportunities in automation of factory processes to remove repetitive or dangerous mechanical tasks as they all help to modernise industry and meet this SDG.

Enhancing digital security: As more and more of our lives and critical services are carried out online, we need to protect the data from theft. Digital security helps to make this growing area of the economy secure.

Connecting people: We believe access to easy communication tools and the ability to access information, increasing amounts of which are online, is a positive requisite in a more sustainable economy.


Sustainable cities and communities (SDG #11)

We have two themes aligned with achieving this SDG to make cities and human settlements resilient and sustainable.

Making transport more efficient: Urban transport systems are improved by reducing congestion as well as transport emissions (which make the local air quality toxic) as the mode of transport shifts from self-driven cars to public transport systems such as trains, tubes and buses.

Building better cities: Shelter is a basic human requirement and companies that build quality affordable homes or key infrastructure needed in cities are helping to provide this.

 

How companies manage their business is also important in meeting the SDGs

Companies we hold contribute positively to SDGs mainly through the products and services they provide. The way companies manage their operations and how they treat and pay their staff, however, also has an obvious impact on the quality of the work (SDG #8) they provide and is relevant to all the stocks we own.

Which Environmental, Social and Governance (ESG) challenges are most material varies depending on the industry in question. For example, this can include quality of work (through working conditions, fair pay, working conditions in supply chains) as well as equality and diversity in the workforce and on the board.

This is an area where our engagement to promote proactive management of the ESG issues, and the SDGs to which they are aligned, can help to achieve the goals and we intend to explore and report on this further. We encourage you to get in contact if you have any questions about this analysis of how the SF funds are aligned with the SDGs and look forward to hearing from you.

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 26, 2019, 2:05 PM