Liontrust Sustainable Investment Annual Review 2022 - Flipbook - Page 15
Sustainable investment themes
We continue with our sustainability theme analysis to understand where we can find
positive longer-term growth as a result of demand for products and services that are less
damaging to the environment and more equitable to society. The purpose of this analysis
is to identify companies exposed to the theme. This doesn’t mean we necessarily buy these
companies, but we will work on them to analyse how well they are managed, their business fundamentals and valuation, which will all inform our investment decisions. Highlights
of this work in 2022 include the following:
Making transportation more efficient or safer
We look for companies whose products and services improve our
transport system or make travel safer. We look for:
• Modal shift away from private car usage to public transport
systems such as bus and rail. Urban transport systems are
improved by reducing congestion as well as transport emissions
(which make the local air quality toxic), as the mode of transport
shifts from self-driven cars to public transport systems such as
trains, tubes and buses as well as active transport.
• Reducing negative impacts of travel: Companies that produce
equipment that reduces pollution from cars, or that improve safety,
are set to benefit from structural growth (higher than that of the autos
industry) by helping meet tightening global regulations to reduce
emissions from travel. To respond to tightening global regulation to
reduce emissions from cars, we see rapid electric vehicle adoption
as an area with many potentially interesting investments.
• Asset sharing: We like systems that facilitate the sharing of transport
(bicycles or cars) as this can increase utilisation and reduce
materials intensity in transport. For example, rental of efficient
vehicles and technology that facilitates journey sharing.
• Battery manufacturing is dominated by a huge build out of
capacity in Asia (dominated by CATL in China). However, it is
yet to be seen which battery chemistries will dominate. Both these
observations make us cautious about investing in this area, despite
the expectations of phenomenal growth.
• Pureplay electric vehicle companies are another potential beneficiary
of this trend. The leader, Tesla, (which we don’t invest in given the
concerns around governance) has made a huge contribution in
putting the passenger car industry on notice and blazing the trail for
electric vehicles. Other pureplay electric vehicle manufacturers such
as Rivian and Lucid seemed to be on highly inflated valuations on
recent listings in the US market. Again, we are happy to watch and
observe how this part of the value chain progresses.
• Electric vehicle charging infrastructure (used to charge the electric
vehicles) is another area of growth we identified. We have
been following a number of companies in this area, including
Alfen in Holland, and Podpoint in the UK. Our concerns around
commoditisation of this charging infrastructure and potential
competition from the bigger vehicle manufacturers mean we have
yet to get comfortable on the business fundamentals (competition,
and visibility on profitability).
Public transport: The Covid pandemic and resulting
lockdowns were a major handbrake on use of public
transport and the share prices of many companies
involved in public transport were volatile and suffered as
a result. But we still see this as a major structural change
in reducing congestion, emissions and improving
safety. Companies exposed to this theme in our UK
funds include Trainline (digital ticketing company) and
National Express (public transport bus company).
Moving away from the internal combustion engine:
The shift away from internal combustion engine driven
transport to lower carbon alternatives (especially
electric vehicles) is well underway. We retain our
conviction that the longer-term structural growth in
electric vehicles (at the expense of diesel and petrol
cars) is still underestimated by the market. Shorter
term headwinds such as supply chain constraints (in
chips) pushing out lead times for new EV vehicles and the
super-high electricity costs from the energy crisis we believe
are short term and receding.
Liontrust Sustainable Investment: Annual Review 2022 - 15