Liontrust Sustainable Future Funds - Annual Review 2017 - Page 32



2018 engagement priorities
We prioritise a number of proactive engagement
initiatives in collaboration with our Advisory Committee
at the beginning of each year. We assess how our
holdings are positioned on these specific issues and,
where appropriate, define target lists of companies for
engagement.
For 2018, as well as continuing our efforts to increase
corporate disclosure on ESG impacts, mitigation efforts
and performance, we have the following priority initiatives:
••Impact and Sustainable Development Goals:
We continue to prioritise our efforts to quantify the
main impacts (good and bad) from the companies
in which we invest. We will engage with companies
to disclose their main impacts so we can report on
these. This is an evolving field and we are keen to
build on the work we have already done in this area.
••Encouraging sustainable use of plastics:
We are looking for companies providing solutions
to plastic pollution as potential investments as well
as encouraging companies to reduce the amount of
single use plastics they introduce to the environment.
••Anti-Bribery & Corruption:
Corruption is bad for people and ultimately bad
for business. We want to better understand how
companies can reduce the chances of being complicit
in corruption and encourage them to manage
potential conflicts to the best of their ability as ideas
for how best to do this continue to evolve.
••Responsibility in apparel supply chains:
Low cost apparel often comes at a high price to
workers in global supply chains.
••Promoting gender diversity:
We believe companies that are more gender diverse
are better able to prosper over the long term so we
are engaging to encourage greater gender diversity,
looking at gender balance at a board level and
senior positions, and looking at efforts to reduce any
gender pay gaps.
••Encouraging corporate tax responsibility:
Tax is not just a cost to be minimised and aggressive
tax minimisation is a concern for investors as it can be
a risk to earnings and can damage reputation. We
are engaging with companies to better understand
tax risks and to encourage better disclosure of tax
policies and strategies.
••Ensuring privacy and data security:
Companies’ data security and management have
come under intense scrutiny following cyber security
breaches in recent years. We are engaging with
companies to better understand how they manage
and mitigate these risks and to ensure they are
prepared for upcoming European General Data
Protection Regulation (GDPR).
••Value creation in the healthcare system:
We are engaging with companies to request more
information that can help us determine whether their
products truly deliver value to patients and to wider
healthcare systems.
Outlook for 2018
In the coming year and beyond, we are anticipating
a positive economic backdrop. Unemployment across
the globe is low and, for the most part, there is steady
expansion of overall economic activity.
We will begin to see increases in inflation and gradual
hikes in interest rates, which we welcome as a return
to more normal conditions after a decade of recovery
from the financial crisis. In this environment, we are
much more interested in the dynamics within the
economy than the aggregate increase in GDP number.
We believe there are areas of strong structural growth
linked to sustainable development with exciting
prospects. These are in the categories of resource
efficiency, improving health and increasing safety and
resilience. To paraphrase, we focus on the quality of
economic development not just the quantity.
The linkage between being a good company (a good
corporate citizen) and financial success is strong,
supported by more and more examples of the opposite
(from VW and Diesel-gate, PPI mis-selling in the banking
sector and BP’s Gulf of Mexico disaster to name the
most prominent).
We anticipate this linkage will continue to strengthen
through 2018 and beyond as companies begin to see
strong sustainability performance as the critical element
in their growth strategy.
All 22 of our themes have strong prospects but we
believe that Providing affordable healthcare globally and
Enabling innovation within the healthcare system are
at a very interesting juncture. The advent of sub $1000
genome sequencing and a new approach to efficiency
in healthcare using data and networks will lead to clear
differentiation between companies aligned and those not.
We also predict even more dramatic changes in
transport technology as the intelligence integrated
into cars makes them more efficient and safer, along
with the parallel move to greater automation and
increased electrification.
The deflation in the cost of renewables will continue,
seeing wind and solar maintain their majority share in
32 Liontrust Sustainable Future Funds: Annual Review 2017
new capacity
globally.
The
revolution
in
electricity generation
is also definitely under way.
Less
advanced
is
the
revolution in the way in which
we use materials but we do see signs of
progress in the management of materials in our
economy and a beginning of the end for the linear
(aka chuck away) model.
A decision by China to ban the import of plastics will
force exporting countries to instead manage their own
waste, improving resource efficiency and leading to
less plastic waste in our oceans.
Within our equity Funds, we will maintain our exposure
to the best companies aligned with our themes and the
Sustainable Development Goals. We believe these
companies can continue to deliver strong investment
returns over the coming years across UK, European
and Global strategies.
Within our bond Funds, we expect stock and sector
selection to be the key driver of returns over the course
of 2018. Specifically, we see value in insurance
(sustainable investment policies, strong solvency and
benefits from a rising yield environment), telecoms
(regulated cashflow, reduced M&A and bonds with
attractive covenants) and the housing association
sector (stable credit metrics, attractive valuations and
a positive impact to society through the provision of
social housing).
Added to this, given we expect the Bank of England to
continue to raise rates in 2018, we remain significantly
underweight interest rate risk within our bond portfolios
to protect investors against the headwind of rising yields.
Our managed Funds reflect the same views, currently
overweight equities and credit while remaining
underweight Gilts.
We remain confident that our strategy of investing in
sustainable companies offers the potential to deliver
strong investment returns over the coming years.
Liontrust Sustainable Future Funds: Annual Review 2017 - 33





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