Liontrust Sustainable Future Funds - Annual Review 2019 - Page 6

ESG management quality: While a company might have
significant exposure to a theme, we also have to check
how sustainable the rest of its activities are. For each
company, we determine the key environmental, social and
governance (ESG) factors that are important indicators of future
success and assess how well these are managed via our proprietary
sustainability matrix.
Every company held in our portfolios 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 (such
as renewable energy); an E rating indicates a company whose
core business is in a conflict with sustainable development (such
as 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 for inclusion
in our funds.
Business fundamentals and valuation: Companies
04 in which we invest have robust business
fundamentals with a proven ability to deliver high
returns on equity (RoE) through sustaining margins and asset turnover.
Typically, these companies have a maintainable competitive
advantage through scale, technology or business model.
We predict the likely sales, earnings and other financial returns we
expect to see from these companies over the next three to five years,
integrating our view of their quality into these.
Applying the relevant valuation multiple to these allows us to derive
a price target achievable in the next three years. When this shows
significant upside, the investment is recommended as a buy and
available to be included in our funds.
Our belief, therefore, is that identifying these powerful
themes and investing in exposed companies can make for
attractive and sustainable investments.
Well-run companies whose products
and operations capitalise on these
transformative changes can
benefit financially.
Avoiding greenwash
We believe interest in sustainable investment can only grow as
consumers and governments expect companies to adopt more
socially responsible behaviour.
With popularity comes proliferation, and as we continue to see more
and more asset management companies launching into this market, it
is important to identify ‘greenwashing’ in practice. Greenwashing is
when asset managers say they take a sustainable or ESG approach
to investing when they do not.
Here are five attributes that will show you whether funds, and the
teams behind them, are capable of meeting investors’ sustainable
1. Transparency. Genuinely sustainable fund managers should
be transparent about how they invest, as well as being open to
be challenged. This should include clear and simple information
explaining how the team manages funds: what companies they
look for under the sustainable approach and what they avoid. It
should not be generic greenwash, with little more than meaningless
‘brochure’ comments like “sustainability is in our DNA”.
2. Experience and resource. We believe the experience and depth
of a team is important when it comes to sustainable investing. There
is nothing to say a new fund will not be a good investment and
there are interesting products coming to market. But to use a simple
analogy, if you need a plumber, you are likely to choose one with
experience over a novice.
3. Knowledge and ongoing training. Sustainable investing is a
specialist area and subjects like climate change are fast moving
so investors need to be confident that their chosen managers have
the required knowledge to run money in this way. This can be
anything from members of the team having specialist qualifications
to a general focus on training to ensure people understand the latest
sustainability trends. Again, if managers cannot display this, that
represents a red flag.
4. Activism. We believe managers should be able to highlight a
track record of holding companies to account and encouraging them
to improve. Fund managers should be able to talk in detail about
their engagement priorities – whether diversity, tax transparency or
plastic pollution – rather than just making sweeping statements. It is
also worth looking at managers’ AGM voting records: do they just
vote with company management or actually challenge the businesses
in which they invest to improve?
5. Evidence. Ultimately, you are looking for all this
knowledge and experience in sustainability being
applied to investment decisions – giving meaningfully
different exposure compared to more conventional funds.
Are fund managers able to show how their sustainability
views are reflected in their decisions: is it simply ESG data
and reporting for the sake of it or is it actually making a
difference to investments? Can they provide
concrete examples of where, if you removed
the sustainability aspects from a business, they
would not have invested in it?
Meet the team
We have a 14-strong Sustainable Investment team (plus a specialist
governance and stewardship manager) that has been managing
funds in this way for nearly 20 years. The team comprises experienced
investors and younger talent who have joined more recently.
an investment decision. Because of this approach, our team engages
with companies across a broad range of issues relating to stages
in our process, including screening criteria, sustainable investment
themes and company-specific ESG issues.
A key differentiator for us is the fact that all the sustainable elements
are integrated within a single team. We do not have separate fund
management and ESG divisions, for example. Instead, every team
member is responsible for all aspects of financial and ESG relating to
We also have a five-strong external Advisory Committee to provide
another layer of expertise in key areas of social and environmental
impact: Jonathon Porritt, Sophia Tickell, Tony Greenham, Tim Jackson
and Valborg Lie.
Peter Michaelis
Head of Sustainable Investment team
-- Improving the efficiency of energy use
-- Enhancing digital security
-- MA in physics from Oxford University
-- MSc in Energy & Environmental
Engineering from Sussex University
-- PhD in Environmental Economics from
the University of Surrey
-- 20 years / 19 years
Theme and other responsibility
Academic background
Simon Clements
Investment Manager
Industry tenure / Team tenure
Neil Brown
Investment Manager
-- Improving the management of water
-- Improving industrial and
agricultural processes
-- Building better cities
-- Making transportation more efficient
-- Improving auto safety
-- BSc in Economics from the University of
Newcastle, Australia
-- Graduate Diploma in Applied Finance
& Investment from Securities Institute
of Australia
-- CFA Charterholder
-- BA in Economics from
Manchester University
-- MSc in Development Economics from
SOAS London
-- 18 years / 12 years
-- 24 years / 11 years
Mike Appleby
Investment Manager
Harriet Parker
Investment Manager
Laurie Don
Investment Manager
-- Increasing waste treatment
and recycling
-- Increasing electricity generation
from renewable sources
-- Business development
-- Connecting people
-- Leading engagement activities
-- Providing affordable healthcare globally
-- Enabling innovation in healthcare
-- BSc in Economics & Management from
the University of Bristol
-- BSc (Hons) in Computer Science from
Durham University
-- CFA Charterholder
-- BSc (Hons) in Biological Sciences
from the University of Edinburgh
-- MSc in Environmental Management
from Imperial College London
-- 16 years / 16 years
-- 12 years / 5 years
-- 20 years / 16 years
6 - Liontrust Sustainable Investment: Annual Review 2019
Liontrust Sustainable Investment: Annual Review 2019 - 7


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