Liontrust Asset Management plc

06/09/2021 | Press release | Distributed by Public on 06/09/2021 04:22

Accessing those hard-to-reach SDGs

Peter Michaelis is Head of the Liontrust Sustainable Investment team and a Portfolio Manager of Liontrust ESG Trust PLC, whose IPO is planned for early July.

One of several ways we highlight the impact of our investments is showing how our themes are aligned to the United Nation's 17 Sustainable Development Goals (SDGs). Each theme is limited to one main SDG although, in reality, there are overlaps and most companies in our portfolios are exposed to areas helping to meet more than one SDG.

We have consistently found, however, gaps where our themes do not have significant exposure to particular SDGs. This is not surprising given the fact we designed the themes specifically for investment, whereas the SDGs involve civil society, governments and other aspects of human endeavour. Nevertheless, we believe it is important to examine whether investment could have a positive impact on these areas and will donate a portion of the management fee from Liontrust ESG Trust PLC (ESGT) to projects that explore potential for instruments relating to four of these harder-to-access SDGs:

  • SDG 1: End Poverty: via provision of access to loans at fair rates for those in poverty
  • SDG 2: End Hunger: via investment in food production and distribution in developing regions
  • SDG 14: Life Below Water: via development of bonds in blue carbon (marine sequestration of carbon dioxide) or to back marine protected areas
  • SDG 15: Life on Land: via bonds to back biodiversity or carbon and biodiversity enhancement through reforestation

Any investment instruments that are developed may be appropriate for ESGT to support but not necessarily. Our view is that early-stage funding of these projects could, in time, lead to a wider set of themes and we believe shareholders should therefore view the allocation of a portion of the management fee as an investment in the long-term future of sustainable investment and, by association, ESGT itself.

Case study: SDG 1: End Poverty in all its forms everywhere

Globally, the number of people living in extreme poverty declined from 36% in 1990 to 10% in 2015 but the pace of change is decelerating and the Covid-19 crisis risks reversing decades of progress. New figures published by the UNU World Institute for Development Economics Research warn the economic fallout from the pandemic could increase global poverty by as much as half a billion people, or 8% of the total population, which would be the first time the figure has increased globally in 30 years.

Despite huge improvements, more than 700 million people, or 10% of the global population, still live in extreme poverty today, struggling to fulfil the most basic needs like health, education, and access to water and sanitation. The majority of people living on less than $1.90 a day are found in sub-Saharan Africa and worldwide, the poverty rate in rural areas is 17.2%, more than three times higher than in cities. Meanwhile, having a job does not guarantee a decent living with 8% of workers and their families worldwide living in extreme poverty in 2018. One out of five children in developing countries also live in extreme poverty and ensuring social protection for vulnerable groups is critical to reducing this.

As an example of how we can help to improve this, Liontrust intends to work with Fair Finance to develop investment instruments to provide access to capital for those excluded from traditional banking services. Currently, these people have to resort to payday lending or expensive lenders, often paying a poverty premium and making financial services unnecessarily expensive, leading to a debt spiral. We believe appropriate finance should be enabling and fairly priced, encouraging entrepreneurship and allowing people to avoid illegal or high-cost lenders for essential purchases.

Case Study: SDG 14 Life below the waves - Conserve and sustainably use the oceans, seas and marine resources

The ocean provides natural systems that make the earth habitable for humankind. Our climate, weather, drinking water, essential protein for over a billion people and half the oxygen we breathe are all ultimately provided and regulated by the sea. The ocean is also the biggest carbon sink on the planet, absorbing nearly half our CO2.

Better management of this essential resource is key to a sustainable future and yet life in the ocean is under threat from overfishing, agro-chemical, plastic and noise pollution, climate change and acidification. Much of the ocean's biomass and biodiversity, which plays such a complex climate regulating function, is being fished out; ironically, this is also negatively impacting the fishing industry, particularly small-scale fisheries.

Marine biodiversity is critical to the health of people and our planet: we need more marine protected areas (at least 30%) and for them to be effectively managed and monitored. Meanwhile, overfishing and habitat destruction must be tackled and sustainable methods of fishing encouraged.

The recent Dasgupta Review highlights that much of the social progress over recent years has been at the expense of natural capital, describing an 'impact inequality' and calling for better balance between what humanity takes from nature and what we leave behind for our descendants. Liontrust's Sustainable Investment team has been engaging on biodiversity-related issues for 20 years, focusing on areas including palm oil, timber and plastics. But while we can be sure our clients have avoided the worst-polluting and damaging-causing companies, palm oil has caused 39% of forest loss in Borneo since 2000. Deforestation elsewhere is still rampant and there are over five trillion pieces of plastic in oceans.

Greater effort is imperative as biodiversity loss poses a systemic risk; more than half of the world's GDP is dependent on nature and its services, so this unprecedented loss places us all in danger. It is critical for the asset management industry to engage with companies to limit damaging activities, not least because this is also vital to tackling climate change.

Through conversations with expert organisations such as ZSL (Zoological Society of London), we can get a better grasp of complex issues, make more targeted requests for change and continue to drive better treatment for one of the planet's greatest natural resources.

For a comprehensive list of common financial words and terms, see our glossary here.



Key Risks

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. The majority of the Liontrust Sustainable Future Funds have holdings which are denominated in currencies other than Sterling and may be affected by movements in exchange rates. Some of these funds invest in emerging markets which may involve a higher element of risk due to less well-regulated markets and political and economic instability. Consequently the value of an investment may rise or fall in line with the exchange rates. Liontrust UK Ethical Fund, Liontrust SF European Growth Fund and Liontrust SF UK Growth Fund invest geographically in a narrow range and has a concentrated portfolio of securities, there is an increased risk of volatility which may result in frequent rises and falls in the Fund's share price. Liontrust SF Managed Fund, Liontrust SF Corporate Bond Fund, Liontrust SF Cautious Managed Fund, Liontrust SF Defensive Managed Fund and Liontrust Monthly Income Bond Fund invest in bonds and other fixed-interest securities - fluctuations in interest rates are likely to affect the value of these financial instruments. If long-term interest rates rise, the value of your shares is likely to fall. If you need to access your money quickly it is possible that, in difficult market conditions, it could be hard to sell holdings in corporate bond funds. This is because there is low trading activity in the markets for many of the bonds held by these funds. Mentioned above five funds can also invest in derivatives. Derivatives are used to protect against currencies, credit and interests rates move or for investment purposes. There is a risk that losses could be made on derivative positions or that the counterparties could fail to complete on transactions.

Disclaimer

The information and opinions provided 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.

Wednesday, June 9, 2021, 10:11 AM