The demand for sustainable investing

Demand for sustainable investing is growing as an increasing number of people care about how they make their money as well as how much money they make. This has been prompted by rising awareness about issues such as the climate crisis, plastic pollution and the impact of meat production.

Sustainable investing is not only for investors who want their money to “do good”, however, as there is a compelling case for all investors taking this approach. Long-term transformative developments, such as technological and medical advancements, that have positive impacts on society and the environment also have the potential to deliver returns for investors as well.

We focus on finding companies that are making our world cleaner, healthier and safer. This means we spend much of our time analysing problems across the globe, from climate change, through labour conditions in supply chains to the rise of so-called lifestyle diseases.

Day to day, this can lead to a mindset that all these challenges are intractable but, in general, our world has got much, much better over the past two decades. Many of these improvements have been achieved with the help of ingenious, efficient businesses whose profits have grown in line with the demand for their solutions.

Identifying emerging trends and long-term themes, therefore, is the cornerstone of our investment process. This is known as positive screening because funds focus on what they want to own rather than just what they want to avoid. We also avoid certain industries and companies because of the negative effects of their products, such as tobacco companies and producers of weapons, which is known as negative screening.

The third aspect of sustainable investing is engagement. Through this approach, we and other fund managers seek to encourage company management to change their strategy or operations.

Our investment process starts with a thematic approach in identifying the key structural growth trends that will shape the global economy of the future and then invest in well-run companies whose products and operations capitalise on these transformative changes and, therefore, may benefit financially.

The energy transition, including increasing energy from renewable resources, to mitigate climate change is one example. We believe this is a key trend for any fund to get right to generate attractive returns, with wind turbine manufacturers a clear beneficiary of this changing landscape.

We see huge risks to coal, which is effectively dead as it is the most carbon-polluting way to generate electricity. While natural gas will play a role in the future, it will find it hard to compete with an effective marginal cost of energy from renewables of close to zero. Nuclear, while low carbon, is economically uncompetitive and out of favour.

The dream of renewables, plus smarter grid plus storage, continues to get closer and we think this will be virtually impossible to compete against economically, maybe as soon as 2025.

The scale and persistence of such trends is underestimated by the market and we believe analysing them can provide an information advantage our team can use as we look to deliver returns. This has been our philosophy since we set up the Sustainable Future funds in 2001.

Important notice from Liontrust: Past performance is not a guide to future performance. Do remember that the value of an investment and the income generated from them can fall as well as rise and is not guaranteed, therefore, you may not get back the amount originally invested and potentially risk total loss of capital. Investments should always be considered as long term. Some of the Funds managed by the Sustainable Future Equities team involve foreign currencies and may be subject to fluctuations in value due to movements in exchange rates.

Issued by Liontrust Fund Partners LLP (2 Savoy Court, London WC2R 0EZ), authorised and regulated in the UK by the Financial Conduct Authority (FRN 518165) to undertake regulated investment business. This document should not be construed as advice for investment in any product or security mentioned, an offer to buy or sell units/shares of Funds mentioned, or a solicitation to purchase securities in any company or investment product. Always research your own investments and (if you are not a professional or a financial adviser) consult suitability with a regulated financial adviser before investing.