Liontrust Sustainable Future Funds - Annual Review 2019 - Page 14

Themes over two decades
Key to our Sustainable Investment process at Liontrust is looking
ahead, often years into the future, and making decisions based
on how we believe things will develop. We focus on the biggest
issues of our time, seek companies that can make money from
solving them and invest in the opportunities of maximum impact
for maximum returns – and this means getting ahead of the curve
by identifying major transition points across sectors is vital.
We have seen this in an area like energy, for example, where
the climate change crisis continues to drive a changing agenda
or in fashion where companies around the world have had to
address serious deficiencies in labour standards. One of the most
interesting areas since we launched the SF range in 2001 has
been the changing face of transport and the next two pages show
our own journey with the autos sector.
Looking beyond ‘peak car’
Looking to the future, we are again seeking
ways to get ahead of the regulatory and
societal curves in this area, with driverless
cars no longer the stuff of science fiction.
Short-term problems in our auto industry
are well known but we look beyond the
profit warnings of 2018 and trade war
tweets of 2019 to the underlying drivers
of change. Emissions controls have been
an issue for decades but we believe
something more fundamental is at work:
the problem is not should we buy a diesel,
petrol, hybrid or full electric car but rather
whether to own one at all.
Few would argue with the fact that the car defined the 20th century
in many parts of the world. But as we approach the third decade of
the 21st, we are at a tipping point in terms of humanity’s relationship
with the automobile. Once seen by teenagers the world over as the
ultimate passport to freedom, many now have serious issues with the
emissions profile of the car industry, and growing congestion in cities
has also put a major dent in the ‘fun and convenient’ image of driving.
of our themes back in 2018. This has long been a key tenet of our
investing but we are now keen not to distinguish cars from other
forms of transportation, especially with the advent of autonomous
vehicle fleets. As a result, we moved the theme into Making transport
more efficient. Improving auto safety remains a theme across our
portfolios but as stated, looking into the future, we feel our affiliation
with the car may be on the edge of fundamental change.
Highlighting how our thinking on autos has changed over the years,
we removed Improving the fuel efficiency of cars during a review
Here is how our thinking and investing in this area has evolved over
the past two decades:
Sustainable Future funds launched
We started our funds with a refusal to
invest in companies exposed to petrol or
diesel engines, believing the economics
of a sector that emits poison into the air
we all breathe were no longer viable. We
finally saw regulation shift in this direction
in 2009, with the EU introducing a 130g/
km C02 target for new passenger cars,
dropping to 95g/km by 2021.
Tyre safety
Beyond the emissions picture, the autos
industry has also had to face the problem
that cars are fundamentally dangerous:
while the number of deaths caused by
road accidents in the UK has been on an
improving trend since the 1960s, thousands
of people still die every year. This has
required more and more safety measures,
and we identified an opportunity in French
company Michelin, a world leader in the
development of energy-efficient and safer
tyres, in 2009.
Again, we were ahead of the curve, and,
in 2012, the EU Commission required tyre
manufacturers to comply with labelling
regulations to unify and clarify security
requirements and efficiency. These labels
provide accurate features based on seven
parameters, such as tread resistance
or break efficiency, as well as precise
specifications about noise level tread,
and are mandatory for all manufacturers
supplying or selling tyres in the EU.
14 - Liontrust Sustainable Investment: Annual Review 2019
Emissions limited to
130kg/km EU
The congestion so many of us face in
modern cities is not only unsustainable
from a human tolerance perspective,
it is also an economic waste. A 2013
study from the Centre for Economics and
Business Research estimated the fuel costs,
unnecessary expense and lost time from
city congestion cost the US, UK, France
and Germany 0.8% of GDP a year.
Autonomous emergency braking (AEB)
Better tyres was one of a raft of measures
to improve vehicle safety but the initial
focus remained very much on the people
within the car – and data on accidents
show that half of those dying in accidents
are either pedestrians or cyclists. We
saw this as a clear problem that needed
solving and identified several companies
innovating in areas such as smart sensors
and features for automated driving,
including autonomous emergency braking
(AEB). We invested in several companies
making the kit to improve safety including
Continental and semiconductor names
Infineon and ASML, and these have
proved to be among our most successful
investments in recent years.
Mandatory tyre
labelling announced
Another growth area is trains, and we
have added companies including Trainline
and Knorr-Bremse to our portfolios.
Convenience and ticketing are hurdles
to greater train use and Trainline has
significant impact on these. Another way
trains can take market share from aviation
lies in high speed rail, and Knorr-Bremse’s
braking systems can have a key impact on
safety, which unlocks speed.
from traditional internal combustion
engine and powertrain cars to auto safety,
multi-modal transport and trains. For our
own welfare and to reduce the pollution
and heat of the planet, we need to get out
of the model of single ownership cars in
clogged city streets, and this continues to
create opportunities for companies in the
electric transport space.
Overall, we see the
transport sector
shifting focus
Where, then, is the opportunity? If driving
is too energy and time intensive and
dangerous, what is the solution? This is
driving the notion of ‘peak car’, and we
feel analysts are missing what the public is
increasingly realising: driving is no longer
fun or convenient. We have gone from
half of Americans obtaining their driving
licenses as soon as they were able to in
the 1990s to just over a quarter doing
so in 2017. We are moving beyond car
ownership to new mobility solutions.
To capture this opportunity, we are
investing in a wide range of solutions.
We see battery manufacturing as one
such area, where declining prices are key
to future growth. We believe transport
options will proliferate, from electric buses
to microscooters, and favour companies
such as Umicore, which works across
Once more, we saw regulations embrace
these necessary changes, with Europe’s
New Car Assessment Programme (NCAP)
including AEB as part of the requirements
for its highest rankings from 2016.
materials and surface technology and
is investing now to close the loop with
recycling in the future.
Euro NCAP includes autonomous
emergency braking
Liontrust Sustainable Investment: Annual Review 2019 - 15


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