Liontrust Sustainable Investment Annual Review 2022 - Flipbook - Page 26
Measuring sustainability 4: The climate change crisis
The science is telling us we need to accelerate the pace of
decarbonisation, as current progress and ambition both fall
considerably short of meeting internationally agreed goals to
limit average global temperature rises to less than two degrees
centigrade, and ideally less than 1.5, in line with the Paris Accord.
We have been thinking about how climate change will affect
our economy and how we can best position our investments for
this since our SF funds launched 21 years ago. We believe the
market continues to underestimate both the rate of change needed
to decarbonise and the magnitude of the positive impact on
companies helping this transition, as well as the structural decline in
businesses continuing with carbon-intensive products and services
where there are lower-carbon alternatives.
How does this affect our investment decisions?
First, we want to invest in companies helping to reduce emissions
as they will experience significant growth. Of our 20 sustainable
themes, all those associated with increasing resource efficiency
will benefit from, and contribute to, the shift towards an ultra-low
carbon economy. As well as using more renewables to generate
electricity, equally important is reducing the amount of energy we
waste, increasing recycling, improving how we manage water,
making industrial processes more efficient, ongoing transport shifts
and the way we heat and cool buildings. On average, the SF funds
have 26% invested in companies exposed to these better resource
efficiency themes.
40%
30%
30%
24%
21%
20%
17%
10%
Average
Bond
SF Corporate
Growth
SF Global
Growth
SF European
SF UK Growth
0%
Source: Liontrust/Factsheet, as at 31.12.22
Second, we want to ensure the companies we
own understand the magnitude of the energy transition
and are managing their businesses in a proactive way
that protects them from inevitably tightening regulations. We
launched our 1.5 Degree Transition Challenge in early 2020 to
engage with companies in our SF funds, encouraging them to
increase their ambition to decarbonise and capture the benefits of
doing so in an increasingly carbon constrained world.
26 - Liontrust Sustainable Investment: Annual Review 2022
Our 1.5 Degrees Transition Challenge
We are asking companies:
• To be more ambitious in emissions reduction targets to
make their pace of decarbonisation consistent with what
the science is telling us: requiring a 50% reduction in
absolute emissions this decade.
• To show front-loaded timely targets for this: for example,
a 50% reduction in direct emissions by 2030 based on a
suitable baseline and a 25% decrease by 2025.
• To concentrate on reducing absolute emissions before
considering offsetting at any large scale. We believe
offsetting can be a distraction, and there are not enough
legitimate carbon offsets of the scale required.
• To understand the largest sources of indirect (scope 3)
emissions for their business and identify opportunities to
reduce these aggressively.
SF funds’ exposure to better resource efficiency themes
30%
Finally, there are some industries, no matter how proactively
managed, on the wrong side of this transition and these will
experience secular decline in demand for their carbon-intensive
products or services. We choose to avoid areas such as fossil
fuel extraction and production, internal combustion engine car
manufacturers, airlines and energy-intensive businesses that are not
positioning themselves for a lower carbon world.