Mike Appleby

Sustainable Future funds emit much less carbon dioxide than their benchmark

Mike Appleby

This article was first published by Alliance Trust Investments on 20 January 2017.

Mike Appleby, Investment Manager analyses how much carbon dioxide is emitted by our funds compared to the markets they invest in.

We have updated analysis on how much carbon dioxide is emitted by our funds compared to the markets they invest in. The Sustainable Future Funds continue to emit significantly less CO2 – on average emitting 64% less carbon dioxide from their operations than their benchmark.

Sustainable Future funds emit much less carbon dioxide than their benchmark

Source: MSCI ESG Carbon Analytics Report 25-Oct-2016

[*] 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.

This is consistent with previous analysis showing the funds emit relatively low amounts of carbon dioxide. While this kind of analysis has some short comings, for example, it does not capture the emissions from the use of products or services the companies provide, 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 that the funds have between 9% and 32% of the fund invested in clean technology solutions (combating climate change).

We construct our portfolios from the bottom up, based on fundamental analysis to identify well managed companies which are beneficiaries of structural changes, that have good prospects to remain profitable with a meaningful potential to be worth more in the future. We believe that 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:

Sustainable Future funds emit much less carbon dioxide than their benchmark

  • Actively avoiding carbon intensive businesses (as we believe their future profitability to be over estimated by the market) – we don’t 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 who are proactively managing their business to mitigate expected increased regulation to make big emitters pay; 
  • Actively looking for exposure to profitable businesses which 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 which are not just limited to carbon dioxide and climate change.

So what? By 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 societies more resilient (software security, resilient financial and communications systems)
  • Make people healthier (through what they eat, what they do and how they cope with being ill)

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.

 

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 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.

Some of the Funds managed by the Sustainable Future Equities team involve foreign currencies and may be subject to fluctuations in value due to movements in exchange rates.

Disclaimer

This content 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.  It contains information and analysis that 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 of this document, no representation or warranty, express or implied, is made by Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified. It should not be copied, faxed, reproduced, divulged or distributed, in whole or in part, without the express written consent of Liontrust. 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.
Friday, January 20, 2017, 12:00 AM