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Liontrust Investment Partners LLP

PRI reporting framework 2019

You are in Direct - Fixed Income » ESG incorporation in actively managed fixed income » Implementation processes

Implementation processes

FI 01. Incorporation strategies applied

Indicate (1) Which ESG incorporation strategy and/or combination of strategies you apply to your actively managed fixed income investments; and (2) The proportion (+/- 5%) of your total actively managed fixed income investments each strategy applies to.
SSA
0 Screening alone
0 Thematic alone
0 Integration alone
0 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
30 All three strategies combined
70 No incorporation strategies applied
100%
Corporate (financial)
0 Screening alone
0 Thematic alone
0 Integration alone
0 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
87 All three strategies combined
13 No incorporation strategies applied
100%
Corporate (non-financial)
0 Screening alone
0 Thematic alone
0 Integration alone
0 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
76 All three strategies combined
24 No incorporation strategies applied
100%
Securitised
0 Screening alone
0 Thematic alone
0 Integration alone
0 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
93 All three strategies combined
7 No incorporation strategies applied
100%

01.2. Describe your reasons for choosing a particular ESG incorporation strategy and how combinations of strategies are used.

The Sustainable Fixed Income investment team manage the majority of the fixed income assets within Liontrust, they believe that a combination of all 3 ESG incorporation strategies: screening, thematic and integration is the best way to apply their investment philosophy.

Within the fixed income funds managed by the team, the combination of strategies is slightly different. There is a greater degree of screening applied in the Sustainable Future Corporate Bond Fund relative to the Monthly Income Bond Fund (MIBF), which despite having a broader investable universe still incorporates all 3 strategies. This reflects the difference in the primary focus of the two fund strategies.

MIBF pre-dates the acquisition of the sustainable team and funds brought over from Aviva.  Initially MIBF was managed out-with the sustainable remit but over the years it has moved closer to the sustainable funds adopting a similar but less stringent screening process. 

Their investment process and screening criteria are available at https://www.liontrust.co.uk/handlers/DownloadDocumentsHandler.lion?itemids=8ef3fc44-bcd3-45f5-92f1-4daf758b254a; https://www.liontrust.co.uk/handlers/DownloadDocumentsHandler.lion?itemids=fc1bfe8f-110d-495b-8051-f448e9602d98 

Liontrust’s Global Fixed Income team consider ESG-related risks as part of their bottom up investment process, but do not screen, filter or engage with individual companies on ESG factors. 

All Liontrust funds have no or very limited exposure to securitised debt.

01.3. Additional information [Optional].

The Sustainable Fixed Income investment team investment approach is one of full integration. Each member of the team is an investment analyst or investment manager with responsibility for all aspects of traditional and ESG investment relating to the companies they cover. Coverage is divided by iBoxx sectors. Each analyst/manager is responsible for monitoring the major trends of their sector(s), identifying investment opportunities, assessing the ESG performance of those opportunities, integrating that information into traditional fundamental credit analysis to deliver recommendations for the funds, as well as engaging with these companies. The team works closely with the Equity analysts and managers where companies are covered across both asset classes.

Their main focus is always on superior investment performance and following their investment principles. In a fast changing world, they 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.

The team 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 stability and lower risk for bondholders. When they do decide to invest, it's in high quality businesses with an attractive valuation, robust business fundamentals and strong management teams.

Ultimately we 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. We invest in progressive companies that are creating real and lasting value for investors and society, both now and in the future.

The Sustainable Investment 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. The 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 and thematic ESG incorporation are also factored in. 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). Companies need to be categorised C3 or higher in order to gain access to our Sustainable Future Corporate Bond Fund, whilst anything rated D3 and above is eligible for the Monthly Income Bond Fund (Institutional clients with segregated funds are able to tailor the Matrix cut-off according to their own thresholds). To help with the rating process, their 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 we consider to be good practice. The Sustainability Matrix rating of the company is integrated into the fundamental analysis of the investee company.

The teams’ research has identified 20 areas of long-term growth within our economies. They believe that companies exposed to their themes (More efficient; Safer and more resilient; Healthier and with higher quality of life) tend to be better managed, exhibiting greater stability and lower risk, which they believe are key drivers of long term bond returns.

More efficient

Improving the efficiency of energy use; Increasing electricity from renewable sources; Improving management of water; Improving industrial processes and food production; Increasing waste treatment and recycling; Making transport more efficient.

Safer and more resilient

Enhancing digital security; Assuring better supply chains; Improving auto safety; Leading ESG management; Saving for the future; Insuring a sustainable economy; Increasing financial resilience.

Healthier and with higher quality of life

Providing affordable healthcare; Enabling innovation in healthcare; Building better cities; Providing education; Enabling healthier lifestyles; Connecting people; Delivering healthier foods.

Liontrust’s Global Fixed Income team consider ESG-related risks as part of their bottom up investment process, but do not screen, filter or engage with individual companies on ESG factors. For credit decision-making, they use their PRISM research template. The ‘S’ in PRISM stands for ‘Sustainability’ and the ‘M’ stands for ‘Motivations’. In these sections, they explore how ESG-related risks might impact the credit quality of individual borrowers. This assist to form a view around the risk versus reward characteristics of the individual investment. They believe the priorities within their PRISM template, gives something of a quality bias. For example, they prefer listed over non-listed business due, in part, to greater likelihood of transparency and better governance standards.

Their investment process is available at https://www.liontrust.co.uk/-/media/LionTrust/files/fund-literature/process-documents/global-fixed-income-process.ashx?la=en&hash=92A074CE00E11A4C6AB1A3D88F7CB59D44FF071A 


FI 02. ESG issues and issuer research (Private)


FI 03. Processes to ensure analysis is robust

03.1. Indicate how you ensure that your ESG research process is robust:

03.2. Describe how your ESG information or analysis is shared among your investment team.

03.3. Additional information. [Optional]

For the Sustainable Investment team all their research, investment decision documentation, meeting notes, engagement is held in a centralised database commissioned from Factset. As they are an integrated team all correspondence is available to all members of the team.

Liontrust are currently in the process of engaging an ESG research provider with the aim to receiving research covering our investment universe thus we shall be in a better position to have a more centralised database accessible to all investment staff.  


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