EXAMPLE PAGE - ANNUAL REPORT - LIONTRUST - Flipbook - Sida 28
We recognise that failure to comply, or ignorance of, developments in
this area could impact the valuation of our investee companies. We are
aware that our reputation could be negatively affected by continuing
to engage with companies that do not meet their legal or societal
obligations. This could potentially increase our legal risk by making us
party to lawsuits or other legal remedies brought by other stakeholders.
To mitigate this risk, we actively track controversies surrounding any of
our investments and engage with them to understand these issues and
encourage resolution in the interests of our clients.
Market: Climate change may have a negative impact on market
stability with higher earnings volatility and costs.
Liontrust participates in several working groups that are concerned
with the market impacts of climate change; for example, a member
of the Sustainable Investment team is on the PRI Investor Working
Group on the Just Transition.
Liontrust considers that, in many cases, a shift in consumer demand
for certain commodities, products, and services due to climate
change considerations represents an opportunity, particularly as
we anticipate that these consumer preferences for climate-friendly
products will accelerate over time. Our risk policies and procedures
ensure that we look at the market in which our identified risk sits. This
enables us to make balanced and informed decisions.
As our investors demand more climate-friendly investment options,
a key risk for us is not managing our exposure to holdings in
businesses that contribute to or are transitioning to a low-carbon
economy. A secondary risk for us is to remain invested in industries
or companies that have not adequately planned for the green
transition. However, both of these risks are mitigated to some extent
within the portfolios managed by our Sustainable Investment team
after the launch of their 1.5 Degree Transition Challenge. Liontrust
will continue to engage with our high carbon-emitting companies
across all investment teams to encourage them to transition to a low
carbon world.
Reputation: Failure to integrate climate change risk can have a
significant impact on our reputation and loss of reputation can have
a significant impact on our business.
We believe our commitment to, and disclosure of, our compliance
to various climate change initiatives meets our minimum
regulatory requirements, and also signals our greater commitment
to addressing the climate change issues before us. The Risk
Management framework highlights the key risks to management
and the Board that may lead to significant reputational loss as
one of its key obligations. The biggest reputational risk for us as
investors is being associated with investee companies that are
perceived as being undesirable due to sectoral, environmental,
political or societal factors.
We mitigate this risk as an investor by assessing whether a potential
investee has the appropriate measures to address these factors and
by focusing our engagement with those companies at highest risk.
All investment teams have access to MSCI ESG manager for ESG
ratings, carbon analytic reports and controversies reporting.
Physical Risks
Acute physical: Liontrust is engaging with external service providers
to understand how best to further integrate these risks into our
portfolio investment processes.
Climate change is already impacting many industries through more
extreme weather patterns and storm events. This can manifest as a
reduction of yield in some sectors or as uncertainty with respect to
expected earnings or planned yield for others. Both of these could
present a risk to Liontrust in our investments.
Liontrust carried out analysis on how extreme weather could affect
our prudential risks, with details within the Risk Management section
of this report.
Our existing or potential assets could be impacted by discrete
extreme weather events or rising sea levels resulting from climate
change. This could impact the valuation of our investment assets.
Our investment teams are increasingly including the impact of
potential physical risks into their analysis of companies and sectors
and is allowing us to better understand and then challenge our
investee companies on these risks and opportunities.
Chronic physical: Liontrust is engaging with external service
providers on how best to further integrate these risks into our
portfolio investment processes.
Sea level rise (SLR) due to climate change represents one of the
most pervasive chronic physical risks to coastal areas globally.
Some of the invested assets of Liontrust are located in areas that
are considered particularly vulnerable to physical risks such as SLR
due to climate change.
28 - Liontrust Sustainability Report 2021