Liontrust Responsible Capitalism Report 2024 - Flipbook - Page 70
Sustainability Matrix
Every corporate debt issuer identified for inclusion in the portfolio is given
a Sustainability Matrix rating, which analyses the following aspects:
• Product sustainability (rated from A to E): Assesses the extent to
which a company’s core business 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 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 ESG risks and impacts. Management
quality in relation to the risks and opportunities represented by
potentially material ESG issues are graded from 1 (excellent)
to 5 (very poor). Companies must score C3 or higher to be
considered further for inclusion in the funds.
STAGE 2: CONSTRUCT RESILIENT PORTFOLIOS AND
CONTROL RISK
Portfolio construction
From the available “buy” recommendations identified in Stage 1,
the team selects the best combination of 60 to 100 bonds for
inclusion in a focused portfolio that is constructed to safeguard
against sustained downside risk. Investment managers are expected
to deliver positive investment performance relative to a relevant
performance measure over the medium term while adhering to
defined risk parameters and fund-specific investment restrictions.
Portfolio construction is reviewed continually to ensure that it
reflects the high-level strategy of the team and is consistent with
the policy objective. The portfolio is also assessed to ensure that it
has appropriate levels of diversification and to identify correlation
within the portfolio, with consideration given to factors such as
asset allocation, duration and yield curve, sector positioning and
stock selection. Portfolio positioning is reviewed by an independent
performance and risk team via both daily analysis and a more
formal review cycle.
Active management
The portfolio is actively managed using a high-conviction approach
with a focus on access to market liquidity. The team believes that
having a more concentrated, lower turnover approach improves
investment performance.
Risk controls
The team ensures that it minimises unwanted risk, but will use risk
where there is a high level of conviction in a particular bond or
theme. The team considers the risk return potential of each position
and aims to deliver a return that is commensurate with the level of
risk undertaken. In addition, consideration is given to the risk profile
of the portfolio as a whole and each holding’s contribution to the
overall risk.
Screening
All holdings must adhere to the funds’ screening criteria.
These can be found at https://www.liontrust.co.uk/
search?query=screening%20criteria&page=1&take=10& for the
Sustainable Future fund and the Liontrust UK Ethical Fund.
Sustainable Investment team’s approach to Engagement (equity and fixed income)
Engagement is integral to how the Sustainable Investment team ensures
it invests in high-quality companies. Engaging with companies on
key ESG issues gives the team greater insight and helps it to identify
leading companies and bond issuers and encourage better business
practices. Through making specific requests for change and raising
ESG issues, the team challenges and encourages companies to
proactively manage the wider aspects of their businesses, which, in
turn, protects their longer-term prospects.
The team has actively engaged in this way for 23 years on a range
of issues including: driving membership of and disclosure under the
70 - Responsible Capitalism Report 2023
UN Global Compact; promoting decent work within supply chains;
seeking the end of modern slavery; and a range of collaborative
engagements around palm oil, tax and nutrition.
Engagements
Over 2023, the team met and corresponded with companies
relating to four proactive engagement initiatives and company
specific issues. It made 153 specific requests for change with 125
companies on a number of key ESG issues, raising 420 ESG issues
with companies. The success of its 2023 activity is assessed in the
team’s Annual Engagement and Voting Review.