Liontrust Sustainable Investment team’s investment approach is one of full integration of ESG issues into investment decisions. The Sustainable team do not have separate fund management and ESG teams; instead every investment team member is responsible for all aspects of financial and ESG factors relating to the investment decision. Team members are responsible for clearly defined sectors and cover stocks within their respective sector. Each team member has responsibility for monitoring the major trends and themes in their sector, identifying investment opportunities, assessing the ESG performance of those opportunities, integrating that information into forecast earnings and valuation, submitting investment recommendations for our funds, engaging with companies and subsequently conducting all proxy voting for investee companies. Because of this integrated approach, investment team members engage with companies across a broad range of issues relating to steps in our investment process e.g. screening criteria, sustainable investment themes and company-specific environmental, social and governance issues.
The team have developed this approach over more than 18 years that they have been investing responsibly as they believe it is the best way to deliver investment performance. Their track record strongly supports this view.
The team’s main focus is always on superior investment performance and following our investment principles. In a fast changing world, the team believe the companies that will survive and thrive are those that focus on improving people's quality of life, be it through medical, technological or educational advances on driving efficiency in the use of our increasingly scarce resources and on building resilient, prosperous and stable societies.
Identifying emerging trends and long-term themes is the cornerstone of their process. From the development of personalised medicine to the transition to lower carbon fossil fuels, they are fascinated by the large scale growth trends that are changing the world and by the opportunities they create.
They look closely at companies in terms of their resilience, responsiveness and understanding of the world around them, actively seeking out those that understand and manage their environmental and social impacts as they believe they will deliver better returns for shareholders, with lower risk don't.
When they do decide to invest, it’s in high quality businesses with an attractive valuation, robust business fundamentals and strong management teams.
Ultimately they look for adaptors and innovators that, through their core products and the way they manage their operations, are capitalising on change, accessing new opportunities and outperforming their competitors. They invest in progressive companies that are creating real and lasting value for their shareholders and for society, now and in the future.
The team use a Sustainability Matrix to determine the eligibility of a company for inclusion in their funds. Their screening criteria are incorporated into the Sustainability Matrix rating for a company. Their Sustainability Matrix helps to analyse how sustainable and responsible a company is. They analyse the product sustainability and management quality of each investee company in which screening, thematic ESG incorporation are also factored in. Companies need to be categorised higher than C4 in order to gain access to our Sustainable Future funds (Institutional clients with segregated funds are able to tailor the Matrix cut-off according to their own thresholds). To help with the rating process, the analysts maintain a set of guidelines that provide further guidance on what influences how they rate companies using their sustainability matrix for each sector. The sector guidelines also highlight the potentially material environmental, social and governance issues that they expect management to be addressing and provide an indication of what they consider to be good practice. Product sustainability (rated from A to E): Assesses the extent to which a company's core business (the products or services it offers) helps or harms society and/or the environment. An 'A' rating indicates a company whose products or services contribute to sustainable development (e.g. renewable energy); an 'E' rating indicates a company whose core business is in a conflict with sustainable development (e.g. tobacco). Management quality (rated from 1 to 5): Assesses whether a company has appropriate structures, policies and practices in place for managing its environmental, social and governance risks/impacts. Management quality in relation to the risks and opportunities represented by potentially material social, environmental and governance issues are graded from 1 (excellent) to 5 (very poor). The Sustainability Matrix rating of the company is integrated to the valuation and fundamental analysis of the investee company.
Their research has identified 20 areas of long-term growth within our economies that fall under three trends identified as: Better resource efficiency, Improved health, and Greater safety and resilience, with a number of underlying themes as outlined below. They team believe that companies exposed to these themes are likely to see stronger and more persistent growth than those that are not, allowing the team to find growth even in an era of low economic growth.
Better resource efficiency
Improving the efficiency of energy use; improving the management of water; increasing electricity generation from renewable sources; improving industrial and agricultural processes; increasing waste treatment and recycling; making transportation more efficient.
Providing affordable healthcare globally; connecting people; delivering healthier foods; building better cities; providing education; enabling innovation in healthcare; enabling healthier lifestyles.
Greater safety and resilience
Increasing financial resilience; saving for the future; insuring a sustainable economy; leading ESG management; improving auto safety; enhancing digital security; better monitoring of supply chains and quality control.
All our other assets under management (i.e. those not run using the Sustainable Teams investment process detailed above) are run using an integration approach without screening or an ESG thematic approach. The teams incorporate ESG factors directly into their stock selection as part of their analysis of investment opportunities. The portfolio managers regularly engage with companies they own and all companies are actively voted.