Mike Appleby

Investing towards a net zero emissions world

Mike Appleby

Investing towards a net zero emissions world

The UK Committee on Climate Change (CCC) has issued its latest report today, including the target to reduce greenhouse gas emissions to net zero by 2050.

We welcome the report, which brings a further sense of urgency to act now on climate change and further impetus to move away from a high to low carbon economy. We think the timeframe proposed to act and reduce emissions if anything should be shorter and more aggressive.

It reinforces our belief that climate change will have a very material impact on investment returns over the next decade and beyond; particularly in the difference between businesses set to win from capitalising on the opportunities presented by combating climate change as opposed to those for whom this is a threat to their business. We have positioned our portfolios accordingly.

The CCC’s report clearly lays out that the world is facing a crisis in climate change, but it is important we also celebrate the improvements that have already been made and can be achieved in the future. Air quality in cities across the world, for example, has improved and in London, Sulphur oxide (SOx) and Nitrogen oxide (NOx) and particulates are a fraction of their levels in 2000. This shows the positives that can be achieved.

Clearly, the sooner we reduce carbon emissions the better the outcome for everyone. It is becoming easier to meet these targeted reductions in CO2 emissions as a result of the impressive falls in the costs of renewables.

Government legislation and action will play a significant role in us going further and reaching net zero emissions. There is also much we as consumers and individuals can do, such as focusing on the amount and type of energy we use in our homes, the types of transport we use, and how we consume and dispose of our waste.

The other way we can reach the target is through the investments we make and the Liontrust Sustainable Investment team focuses on finding companies that are making our world cleaner, healthier and safer. Improvements have come, and will continue to be achieved, through the help of ingenious, efficient businesses whose profits have grown in line with demand for their solutions.

There are already implications for investors due to attempts to reduce our greenhouse gas emissions and this will become increasingly acute over the next decade as consumer preferences are felt and regulation tightens.

We continue to expect companies whose products or services reduce emissions to benefit from secular demand and find substantial investment opportunities in stocks on the right side of this energy transition. This includes those providing renewable energy, energy efficiency and more efficient transport, as well as waste sorting, treatment and recycling to reduce the carbon intensity of industrial processes.

In contrast, companies that produce carbon-intensive products or services where there are lower-carbon alternatives will increasingly find themselves on the wrong side of regulation to reduce emissions. In electricity generation, we see huge risks to coal for example, which is effectively dead as it is the most carbon-polluting way to generate electricity. In transport, we see incumbent car manufacturers struggling to meet tightening pollution targets without severe margin pressure.

We believe the magnitude and pace of this change is underestimated by the market and will be a major driver of returns over the next decade and beyond.

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.


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.

Thursday, May 2, 2019, 12:02 PM