Liontrust Sustainable Future Funds - Annual Review 2019 - Page 21



Impact measurement
We continue to work on better ways to measure and disclose the
environmental and social performance of our investments.
This extra-financial investment performance has been called ‘impact’
and has grown in importance as people want to understand the
contribution their money makes to the development of a more
sustainable economy. It is a challenge as there is no standard
framework currently and measuring impact is therefore a rapidly
moving discipline.
In our 2018 Annual Review, we outlined the difference between
the strict ‘classical’ definition of impact investing – designed to
generate positive, measurable and typically pre-determined social
and environmental impacts alongside a financial return – and the
broader definition of impact measurement. We adopt the latter due
to the difficulty in attributing ‘additionality’ to the companies in which
we invest.
We mentioned how impact is also used to describe making positive
changes in investee companies through engagement. We continue
to engage with companies to improve how they are managed, as
well as finding ways for them to disclose the impacts, both good and
bad, that their business has.
But we believe the terminology used to describe environmental and
social performance is not actually that important; call it impact or not
as it continues to change. What is important is how we communicate
it and how it guides our investment process.
Over the course of 2019, we assessed a number of different
frameworks for disclosing and communicating the impacts of
the investments in our SF funds. While there are many initiatives
emerging, our conclusion was that none of the frameworks we tried
was useful – yet.
For the frameworks we reviewed, they were a useful starting point
but too blunt a tool for our funds. They missed the nuances due
to mapping entire industries to the United Nations’ Sustainable
Development Goals (SDGs), which fails to capture the divergence
between companies within industries. It is exactly this divergence
that helps us to make investment decisions and find those companies
on the right side of investment themes that are quality, profitable
businesses which we believe are undervalued.
We appreciate these impact reporting frameworks are still being
developed and refined and look forward to seeing them improve
and become increasingly useful in the future.
In the meantime, our funds continue to contribute to sustainable
development and we want to quantify this and communicate it to our
clients and stakeholders. We believe the best way to communicate
the impacts from the SF funds is to:
• Engage with companies in which we are invested to measure and
communicate the primary impacts of the products or services the
business provides as well as how it is managing the main impacts
from operations.
• Be transparent and disclose this information to investors in the
Liontrust SF funds.
Going through these in turn, we already disclose thematic weights
and how these are exposed to the SDGs. Our engagement to get
better impact data from individual companies is ongoing but we
have yet to disclose these results so we are not there yet.
Engagement to gain company-specific impact data is resource
intensive and takes time but we believe we will be able to provide
much more meaningful data that will be more informative than we
get from the aggregated portfolio frameworks in their current form.
We plan to start disclosing more of these company-specific impacts
as they become available in the latter half of 2020.
Other impact measurements
We will continue to disclose information on environmental and social
impacts such as:
• Independent analysis of carbon and how the Liontrust SF funds
compare to the markets in which they are invested, in terms of
carbon emitted, investments in solution providers and information
on exposure to fossil fuels (which is zero). This is in line with our
commitment to do so in 2012.
• We are assessing a more sophisticated portfolio carbon tool that
looks at climate goals and different average global temperature
rise scenarios, which we hope will augment the simple carbon
foot-printing.
• The investment ideas in our equity portfolios are driven by finding
companies exposed to our 20 themes. We will continue to engage
with companies to disclose the impacts of these positive themes
and share these as we progress.
• We will continue to disclose how we are engaging with companies
and where we are affecting positive change in how companies
are managed (see pages 30-35).
• Measuring impact is a challenging and evolving area but we are
committed to developing
this and to meeting the
increasing demand from
clients who want to know
what impact their investments
are having on the real world.
• Clearly articulate our 20 sustainable investment themes.
• Clearly show how these themes directly contribute to the SDGs at
the specific performance indicator level of the goal for those who
want to use this vocabulary.
20 - Liontrust Sustainable Investment: Annual Review 2019
Liontrust Sustainable Investment: Annual Review 2019 - 21

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