Fund Name SRI Style Product Region Asset Type Launch Date
Aviva Liontrust Sustainable Future Corporate Bond Pn Sustainability Select Pension UK Fixed Interest 06/04/01

Objectives

The Fund aims to deliver income with capital growth over the long term (5 years or more) through using the Sustainable Future investment process.

 

Fund Size: £156.03m

As at: 30/04/23

ISIN: GB0030293368, GB00B8DTZ262, GB0030545098, GB00B3D6C103


Contact: clientservices@liontrust.co.uk

Sustainable, Responsible &/or ESG Overview

This pension product is linked to the "Liontrust Sustainable Future Corporate Bond" fund. The following information refers to the primary (OIEC) fund.

 

The Liontrust Sustainable Future Corporate Bond aims to deliver income with capital growth over the long term (5 years or more) through using the Sustainable Future investment process.

 

In managing corporate bonds, we invest in a focused portfolio of bonds that are attractively valued and also take into consideration environmental, social and governance (ESG) factors by investing in companies that manage these exposures to minimise risk.

 

We aim to deliver strong outperformance for our clients. As active managers, we believe in a high conviction approach to ensure we develop a thorough understanding of our portfolio and the factors that influence its long-term value.

 

Primary fund last amended: 29/08/23 09:49

Information received directly from Fund Manager

Please select what you would like to read:
  • Fund Filters

    Sustainability

    Environmental policy

    Sustainability policy

    Limits exposure to carbon intensive industries

    Resource efficiency policy or theme

    Sustainable transport policy or theme

    Sustainability theme or focus

    Favours cleaner, greener companies

    Waste management policy or theme

    Sustainability focus

    Report against sustainability objectives

    Encourage more sustainable practices through stewardship

    Circular economy theme

    Nature & Biodiversity

    Deforestation / palm oil policy

    Plastics policy / reviewing plastics

    Unsustainable / illegal deforestation exclusion policy

    Avoids genetically modified seeds/crop production

    Biodiversity / nature policy

    Genetic engineering exclusion

    Climate Change & Energy

    Nuclear exclusion policy

    Coal, oil & / or gas majors excluded

    Climate change / greenhouse gas emissions policy

    Invests in clean energy / renewables

    Fracking and tar sands excluded

    Clean / renewable energy theme or focus

    Arctic drilling exclusion

    Fossil fuel reserves exclusion

    Energy efficiency theme

    Require net zero action plan from all/most companies

    Encourage transition to low carbon through stewardship activity

    Fossil fuel exploration exclusion - direct involvement

    Targeted Positive Investments

    Invests >25% of fund in environmental/social solutions companies

    Invests >50% of fund in environmental/social solutions companies

    Human Rights

    Human rights policy

    Child labour exclusion

    Responsible supply chain policy or theme

    Oppressive regimes (not free or democratic) exclusion policy

    Social / Employment

    Health & wellbeing policies or theme

    Diversity, equality & inclusion Policy (fund level)

    Favours companies with strong social policies

    Meeting Peoples' Basic Needs

    Water / sanitation policy or theme

    Demographic / ageing population theme

    Invests > 5% in social bonds

    Invests > 5% in social housing

    Healthcare / medical theme

    Ethical Values Led Exclusions

    Ethical policies

    Animal welfare policy

    Tobacco production avoided

    Armaments manufacturers avoided

    Alcohol production excluded

    Gambling avoidance policy

    Pornography avoidance policy

    Animal testing - excluded except if for medical purposes

    Civilian firearms production exclusion

    Banking & Financials

    Predatory lending exclusion

    Exclude banks with significant fossil fuel investments

    Governance & Management

    Governance policy

    Anti-bribery and corruption policy

    Avoids companies with poor governance

    Encourage board diversity e.g. gender

    Encourage TCFD alignment for banks & insurance companies

    Encourage higher ESG standards through stewardship activity

    Fund Governance

    ESG integration strategy

    Employ external (fund) oversight or advisory committee

    Asset Size & Metrics

    Invests mostly in large cap companies

    How The Fund Works

    Strictly screened ethical fund

    Positive selection bias

    Negative selection bias

    Significant harm exclusion

    SRI / ESG / Ethical policies explained on website

    Assets mapped to SDGs

    All assets (except cash) meet published sustain'y criteria

    Impact Methodologies

    Aims to generate positive impacts (or 'outcomes')

    Positive environmental impact theme

    Positive social impact theme

    Invests in environmental solutions companies

    Invests in social solutions companies

    Aim to deliver positive impacts through engagement

    Over 50% in assets providing environmental or social ‘solutions’

    Labels & Accreditations

    RSMR rated (OEIC funds only)

    Intended Clients & Product Options

    Intended for investors interested in ESG / sustainability

    Available via an ISA (OEIC only)

    Multiple SRI / ESG portfolio options available (DFMs)

    Fund management company information

    About The Business

    Responsible ownership policy for non SRI funds (AFM company wide)

    Diversity, equality & inclusion engagement policy (AFM company wide)

    Vote all* shares at AGMs / EGMs (AFM company wide)

    Invests in newly listed companies (AFM company wide)

    Resources

    In-house responsible ownership / voting expertise

    Employ specialist ESG / SRI / sustainability researchers

    Collaborations & Affiliations

    PRI signatory

    UKSIF member

    Climate Action 100+ or IIGCC member

    Fund EcoMarket partner

    Investment Association (IA) member

    Accreditations

    UK Stewardship Code signatory (AFM company wide)

    Engagement Approach

    Encourage responsible corporate taxation (AFM company wide)

    Engaging on biodiversity / nature issues

    Engaging on human rights issues

    Engaging to encourage a Just Transition

    Company Wide Exclusions

    Review(ing)carbon / fossil fuel exposure for all funds (AFM company wide)

    Climate & Net Zero Transition

    Encourage carbon / greenhouse gas reduction (AFM company wide)

    Net Zero commitment (AFM company wide)

    Carbon offsetting - offset carbon as part of our net zero plan (AFM company wide)

    Net Zero - have set a Net Zero target date (AFM company wide)

    Transparency

    Publish full voting record (AFM company wide)

    Publish responsible ownership / stewardship report (AFM company wide)

    Full SRI policy information on company website

    Sustainability transition plan publicly available (AFM company wide)

  • Sustainable, Responsible &/or ESG Policy:

    Our Sustainable Future investment process is a high-conviction, bottom-up approach whereby sustainability is explicitly integrated throughout.

    The 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 invests in well-run companies whose products and operations capitalise on these transformative changes and, therefore, may benefit financially. The Sustainable Investment team invests in three transformative trends (Better resource efficiency, Improved health and Greater safety and resilience) and 20 themes within these trends as described below:

     

    • Better resource efficiency (Cleaner)

    Better resource efficiency focuses on companies helping the world make better use of scarce resources, driving improvements in areas as diverse as energy, industrial processes and transport.

     

    Improving the efficiency of energy use

    We see many ways of making energy cheaper by reducing waste, as well as emissions, through more efficient usage. This cuts across many areas of the economy and includes building insulation, efficient lighting, energy efficient climate control, travel and industrial processes.

     

    Improving the management of water

    Water is essential for life. Companies that can manage waste water treatment, or produce products or services that improve the efficiency of water distribution, are vital and in demand. Sanitation is a first line of defence from disease, much of which comes from contaminated water. We like companies that improve sanitation and give affordable access to clean water.

     

    Increasing electricity generation from renewable sources

    Electricity generation is a major emitter of carbon dioxide. Substituting carbon-intensive fossil fuel electricity generation (especially coal) with renewable power sources reduces carbon emissions as well as providing a cost-effective means to connect people to cleaner power sources. We like wind and solar and some biomass (using waste streams as opposed to feedstock grown on agricultural land).

     

    Improving the resource efficiency of industrial and agricultural processes

    We like companies providing products or services that help to make industrial processes more resource efficient, as well as safer for workers and users. We see investment opportunities in software and systems that help implement life-cycle design (including disposal of products) and manage supply chains, as they modernise and improve industry. We are looking for companies driving real improvements in energy and material use.

     

    Delivering a circular materials economy

    With finite resources on earth, recycling remains a huge part of the shift to a more sustainable world. But to make better use of materials, we need to consider the whole life cycle rather than just the ‘waste’ stage, moving beyond the current take-make-waste model towards a more circular economy. This is based on three core principles – designing out waste and pollution, keeping products and materials in use, and regenerating natural systems – and we believe companies built on these lines should benefit from this trend.

     

    Making transportation more efficient

    Urban transport systems are improved by reducing congestion as well as emissions (which make the local air quality toxic), as the mode of transport shifts from self-driven cars to public systems such as trains, tubes and buses.

     

    • Improved health (Healthier)

    The team is seeking to invest in companies helping to extend life expectancy and enable people to be fit and healthy enough to reap the benefits of an improving world.

     

    Enabling innovation within healthcare

    Companies whose products or services help promote innovation within healthcare are helping to achieve this goal. They do this by either coming up with new, more effective ways to treat diseases (creating a significant step change in the mechanism used to treat a given disease) or by providing essential equipment, services (such as measuring equipment, genetic sequencing equipment or high-quality consumables for research) or software to help to make treatments more effective.

     

    Delivering healthier foods

    There is a trend in the food industry where consumers are changing their preferences and demanding healthier foods. We have identified companies that provide reformulation services to change the recipe of foods to make them healthier (less fat, sugars and salts) while maintaining the taste. These companies are a beneficiary of this demand for healthier food as their customers (many of which are the big incumbent food producers) respond to changing consumer preferences. This improved diet has positive health impacts: helping to reduce non-communicable diseases such as obesity and cardiovascular disease, for example.

     

    Building better cities

    Shelter is a basic human requirement and companies that build quality affordable homes are helping to provide this. We like well designed and built homes that are energy efficient and safe.

     

    Providing education

    Education brings important benefits, including longer life expectancy, increased job opportunities and helping to stimulate economic growth, as well as leading to overall higher satisfaction in life. Companies providing education services offer vital knowledge and skills, which help to improve people’s lives.

     

    Providing affordable healthcare globally

    Currently, the costs of healthcare are very high and we need more effective ways of delivering better patient outcomes. Companies that help to deliver affordable, positive patient outcomes in managing disease help to achieve this goal.

     

    Enabling healthier lifestyles

    Companies that promote healthier lifestyles, principally through increasing activity, taking exercise and sport, help to improve health. These include positive leisure activities such as gym operators and companies providing sports clothing and equipment.

     

    Connecting people

    We believe access to easy communication tools and the ability to access information, increasing amounts of which are online, is a positive requisite of a more sustainable economy.

     

    Encouraging sustainable leisure

    For most people in the twenty-first century, we are lucky enough to be living in an era where there is a natural progression to spend more time on leisure and these activities are increasingly seen as both a fundamental human need and a key part of mental health. Activities as diverse as going to a concert, to the cinema, having dinner at a restaurant or playing a video game all have clear externalities but the social experience is positive and we are looking to invest in companies involved in this growing part of a more sustainable future.

     

    • Greater safety and resilience (Safer)

    The underlying themes include transport safety, with a focus on the rapid developments in such areas as Automatic Emergency Braking (AEB).

     

    Increasing financial resilience

    We believe a resilient financial services sector is necessary for economic well-being through utility-like provision of banking and lending. This does not mean any company in the financial sector is automatically investable, but we do see positive ways that certain financial companies contribute to society when appropriately and proactively managed.

     

    Saving for the future

    This is a positive trend that will persist. As people live longer and as governments and corporations retreat from providing long-term cover and pensions, so individuals will need to take control of their own affairs. Savings rates will have to increase and companies providing suitable products will see strong growth. For instance, in the UK, pension contributions are predicted to grow at 10% a year to £3.3 trillion by 2030.

     

    Insuring a sustainable economy

    This recognises that insurance, when done well, allows risk to be spread across a community. This lessens the impact of any single event, providing greater peace of mind and encouraging greater risk taking and innovation. Economic development and insurance penetration are well correlated, a function, we believe, of the positive social impact of insurance services.

     

    Leading ESG management

    How a business is managed operationally, particularly in how it deals with the Environmental Social and Governance challenges, can provide a competitive advantage over peers. This includes how the company interacts with society.

     

    Improving transport safety

    We have identified companies whose products improve the safety of travel and reduce accidents. Much of our work has focused on autos, in areas such as collision avoidance, active braking and semi-autonomous driving, but we should not assume cars will remain dominant, particularly with safe, efficient mass transport key to reducing emissions. Whatever the mode of travel, we concentrate on the specialist companies making the kit to improve safety, from better lighting to more efficient braking.

     

    Enhancing digital security

    As more of our lives and critical services are carried out online, we need to trust these systems and protect the data from theft. Digital security helps to make this growing area of the economy secure.

     

    Better monitoring of supply chains and quality control

    Companies cannot outsource responsibility for the environmental and social impacts of their supply chains and we see an opportunity in businesses improving their monitoring of these areas.

     

     

    Exclusion of controversial or unsustainable businesses

    We have identified a number of controversial business activities or those we believe to be inconsistent with sustainable development. We exclude companies with more that 5% of group sales from these controversial industries. A detailed explanation of what businesses activities we exclude, why and how we measure them is shown in the Sustainable Investment Screening Criteria which is published on our website, under Process and Literature  as follows: https://www.liontrust.co.uk/fund-managers/sustainable-investment/sustainable-documents

     

     

     

     

  • Process

    Sustainable Future Fixed Income Investment Process

    In managing corporate bonds, we invest in a focused portfolio of bonds that are attractively valued and also take into consideration environmental, social and governance (ESG) factors by investing in companies that manage these exposures to minimise risk.

     

    We aim to deliver strong outperformance for our clients. As active managers, we believe in a high conviction approach to ensure we develop a thorough understanding of our portfolio and the factors that influence its long-term value.

     

    Within the fixed income team, individuals specialise in their areas of expertise with a focus on generating investment ideas and recommendations for their particular segment of the market. All investment decisions are discussed by the team in a structured way, ensuring that our process is rigorous and replicable. We also benefit from being part of a single wider investment team, combining both bond and equity investing.

     

    We use a modern investment framework that we have developed and honed over years of successful investing for our clients. There are two main stages to this:

     

    Stage 1: Identifying superior bonds

    Stage 2: Constructing resilient portfolios and controlling risk

     

    First we select the bonds that we believe will generate superior investment performance. We focus on high-quality issuers and believe this can enable us to reduce bond specific risk.

     

     

    Stage 1: Identifying superior bonds

    a. Finding high quality bonds

    Our assessment of quality is a distinctive part of our process. We combine credit analysis with in-depth analysis of issuer specific factors, including ESG factors and macro-economic analysis. Our in-house research includes the following:

     

    ESG analysis

    For each company, we determine the key environmental, social and governance factors that are important indicators of future success and assess how these are managed. We do this through our proprietary sustainability matrix, which is used by both our bond and equity teams. Where relevant, we aim to identify companies whose core products or services are making a positive contribution to society or the environment in some way. We believe that evidence of excellent company management is instrumental in avoiding issues where tail risk is under-priced. Reducing tail risk is a key element that drives long-term returns in our bond portfolios. 

     

    Our Sustainability Matrix

    Every company held in the portfolio 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 (e.g. renewable energy); an ‘E’ rating indicates a company whose core business is in a conflict with sustainable development (e.g. tobacco).
    • Management quality (rated from 1 to 5): Assesses whether a company has appropriate structures, policies and practices in place for managing its environmental, social and governance risks and impacts. Management quality in relation to the risks and opportunities represented by potentially material social, environmental and governance issues are graded from 1 (excellent) to 5 (very poor). Companies must score C3 or higher to be considered further for inclusion in the SF Corporate Bond Fund (SFCB) and the SF European Corporate Bond Fund (SFECB).

     

    Credit analysis

    This involves a fundamental review of the Company to identify its ability to meet its debt obligations, including assessing the following factors:

     

    • The Company’s management in terms of its track record, its consistency, level of cross involvement, level of control exercised and make up of non-executives.
    • Company performance from earnings stability to growth patterns to relative performance and pricing power.
    • The business strategy such as its investment strategy, funding and FX policy, type of growth (e.g. M&A versus organic) and the business risk.
    • Industry factors including the barriers to entry, what its capped rating would be as well as industry threats and patterns.

     

    Macro-economic analysis

    Here we formulate strategy by looking at the interest rate positioning, asset allocation and aggregate credit rating exposure based on macro views. This approach ensures that the investment process remains balanced, incorporating top-down views as well as bottom-up analysis.

     

    We also incorporate other macro influences in our analysis, including political factors, economic analysis, regulatory issues and ESG analysis. For government bonds, this involves a review of the sovereign from an ESG perspective in order to assess its suitability for investment. MSCI Sovereign rating data is used as an input to the process, overlaid with our own analysis. We specifically focus on the following:

     

    • Environment – Fossil & Nuclear usage, Water usage, energy management and C02 & GHG emissions
    • Social – Education & Technology, Provision of Basic Needs and the Economic Environment
    • Governance – Financial Capital & Management, Political Governance and Democratic Rights
    • Controversies – General controversies, Involvement in armed conflicts and international sanctions

     

    This information is distilled into a Sovereign rating (completed annually) and presented to the broader team for discussion and approval.

     

    b. Assessing returns versus downside risk

    The fund managers assess individual bonds for whether they believe the bonds offer attractive long-term returns. However, given the asymmetric risk associated with corporate bond investing, the probability of default is fully assessed alongside a view of recovery values for each individual investment.

     

    c. Valuing the bond

    Valuations are assessed on the basis of both absolute and relative returns. Simply put, there is no point in investing in a bond merely because it is cheap relative to other bonds in the sector if we believe that the total returns are not attractive to the end investor. As such, we look for opportunities across the capital structure of an issuer and across markets, specifically the UK, US and European markets. We also evaluate the value of a bond relative to both other corporate and government bonds. This approach is consistent with our principal aim of delivering attractive long-term returns to our clients.

     

     

    Stage 2: Constructing resilient portfolios and controlling risk

    From the available buy recommendations identified in stage 1, we select the best combination of 60 to 100 bonds for inclusion in focused portfolios that are constructed to aim to safeguard against sustained downside risk. Investment managers look to deliver positive investment performance relative to a relevant performance measure over the medium term while adhering to defined risk parameters and fund-specific investment restrictions.

     

    Portfolio construction is reviewed continually to ensure that it reflects the high-level strategy of the team and is consistent with the policy objective. The portfolios are also assessed to ensure that it has appropriate levels of diversification and to identify correlation within the portfolios, with consideration given to factors such as asset allocation, duration and yield curve, sector positioning and stock selection. Portfolio positioning is reviewed by an independent performance and risk team via both daily analysis and a more formal review cycle.

     

    Active management

    The portfolios are actively managed using a high conviction approach with a focus on access to market liquidity. We believe that having a more concentrated, lower turnover approach improves investment performance.

     

    Risk controls

    The team ensures that it minimises unwanted risk, but will use risk where there is a high level of conviction in a particular bond or theme. The team considers the risk/return potential of each position and aims to deliver a return that is commensurate with the level of risk undertaken. In addition, consideration is given to the risk profile of the portfolio as a whole and each holding’s contribution to the overall risk.

     

    Derivatives, dealing and counterparty permissions

    Where permitted, derivatives are used for the purposes of hedging and/or to implement strategic and tactical overlays

    in accordance with efficient portfolio management guidelines. The use of derivatives is subject to Liontrust’s derivative policy. All derivative positions are reconciled and collateralised on a daily basis to ensure all relevant systems are accurately reflecting positions and market valuations.

     

     

    Sustainable Investment team

    Sustainability is at the heart of the Sustainable Future investment process. Every member of the Sustainable Future investment team (17 investment professionals) is responsible for understanding all aspects of financial and ESG risks and opportunities – including factors linked to climate change, relating to the investment decision.

     

    • the major trends and themes in their sector
    • identifying investment opportunities and the ESG performance of those opportunities
    • integrating that information into forecast earnings and valuation
    • submitting investment recommendations for our funds
    • engaging with companies and conducting all proxy voting for investee companies

     

    Because of this integrated approach, investment team members engage with companies across a broad range of issues relating to steps in our investment process, such as screening criteria, sustainable investment themes and company-specific environmental, social and governance issues.

     

    The Sustainable Future investment team conduct their own proprietary research however there are multiple and diverse sources of additional research:

     

    • Advisory Committee: guides on themes and new challenges and opportunities facing companies.
    • Academic Institutions: for example; Cambridge Institute for Sustainability Leadership to develop longer term thinking and to refine the set of themes or Government agencies and audit reports.
    • ESG Research Providers: currently we use MSCI ESG Manager and Ethical Screening to provide initial analysis of sustainability factors. For independent validation, we commission MSCI to perform analysis on our portfolios to assess the quality of ESG and carbon intensity relative to relevant benchmarks. These reports consistently demonstrate that all of our funds have significantly higher quality ESG and lower carbon intensity (circa 60% less) than benchmark.
    • Meetings with company management and site visits: we aim to meet with investee company management at least twice a year to discuss longer term strategy, this involves travelling to the region the company is headquartered in and conducts additional research and analysis from NGO reports and websites.
    • Expert networks: We use Guidepoint to arrange calls with independent experts in a particular sector (e.g. cyber-security purchasers to develop a view on Palo Alto)
    • Independent research providers: We pay for research from selected research providers who are unconnected with corporate finance or broking.
    • Sell-side research: Selected research is purchased to develop a broader understanding of industry sectors and to provide financial models of companies under analysis.

     

    It must be emphasised though that these research inputs provide a foundation to the assessment by each analyst. The analysis and recommendation itself is always formed by the relevant team member.

     

  • Resources, Affiliations & Corporate Strategies

    Liontrust Initiatives /Affiliations:

     

    • Financial Reporting Council (FRC) Stewardship Code

    Liontrust Investment Partners LLP is a signatory to the FRC’s 2022 Stewardship Code.

     

    • The United Nations Principles for Responsible Investment (UNPRI)

    Liontrust became a signatory to the PRI on 24 April 2018. Liontrust’s PRI Assessment report for 2021 is available on our website together with our transparency report Corporate sustainability | Liontrust Asset Management PLC

     

    • Taskforce on Climate-Related Financial Disclosure (TCFD)

    Liontrust became supporters of the TCFD in September 2018. Liontrust reported against the TCFD recommendations in its annual report and financial statements (p.60-73) as per the FCA listing rules Annual Report | Liontrust Asset Management PLC

     

    • Net Zero Asset Managers Initiative (NZAMI

    Liontrust joined NZAMI on 25 May 2022. We have 12 months (until end May 2023) to submit our plan and our initial % of AuMA to be covered by the commitment. We plan to meet this deadline and provide details on several points including our 5-year targets for our funds, our engagement outline for our highest emitters, as well as our plan for the Plc to become carbon neutral (the Group is currently carbon neutral due to offsetting.)

     

    • Institutional Investor Group on Climate Change (IIGCC)

    Liontrust became a member of the IIGCC in April 2022. The mission of the IIGCC is to support and enable the investment community in driving significant and real progress by 2030 towards a net zero and resilient future. This will be achieved through capital allocation decisions, stewardship and successful engagement with companies, policy makers and fellow investors.

     

    • CDP (formally Carbon Disclosure Project)

    Liontrust has supported CDP since July 2017. CDP is a not-for-profit charity that runs the global disclosure system for investors and companies to manage their environmental impacts from climate, forests and water.

    Liontrust reported to the CDP on its climate disclosures in 2022 scoring a ‘D’ rating. Liontrust submitted its 2022 report to the CDP in July, we expect to receive our rating in November.

    Liontrust also supported two CDP campaigns, which included encouraging non-disclosure companies to disclose and encourage high carbon emitting companies to report science based targets.

     

    • The Montréal Carbon Pledge

    Liontrust became signatory to the Montréal Pledge in 2021. By signing the Montréal Carbon Pledge, investors commit to measure and disclose the carbon footprint of their investment portfolios on an annual basis.

     

    • Workforce Disclosure Initiative (WDI)

    Liontrust Investment Partners LLP became supporters to the WDI in May 2019.  The WDI aims to improve corporate transparency and accountability on workforce issues, provide companies and investors with comprehensive and comparable data and help increase the provision of good jobs worldwide.

     

    • UK Sustainable Investment and Finance Association (UKSIF)

    Liontrust became a member of UKSIF in July 2017. UKSIF exists to bring together the UK’s sustainable finance and investment community and support our members to expand, enhance and promote this key sector.

     

    Endorsed Statements:

     

    • 2022 Global Investor Statement to Governments on the Climate Crisis - Endorsed statement
    • PRI Statement of Investor Commitment to Support a “Just Transition” on Climate Change - Endorsed statement
    • PRI Statement to support the SEC’s reporting changes – Endorsed Statement
    • Global Investor Statement to Governments on Climate Change - Endorsed statement
    • PRI Investor statement on deforestation and forest fires in the Amazon- Endorsed statement
    • Access to Medicine - Global Investor Statement in support of an effective, fair and equitable global response to Covid-19
    • CDP Science Based Target Campaign – endorsed campaign
    • CDP Non-Disclosure campaign – endorsed campaign

     

    Sustainable Investment team historic involvement:

    • PRI Listed Equity Advisory Committee
    • PRI Sustainable Palm Oil Investor working Group
    • PRI Global Investor Taskforce on Tax & the PRI Tax Advisory Committee
    • PRI Cyber Security
    • PRI SDG and Active Ownership Committee
    • PRI Investor Working Group on the Just Transition
    • Access to Nutrition Index

     

     

  • Fund Holdings

    Voting Record

    Disclaimer

    Investment in the Fund involves foreign currencies and may be subject to fluctuations in value due to movements in exchange rates. The value of fixed income securities will fall if the issuer is unable to repay its debt or has its credit rating reduced. Generally, the higher the perceived credit risk of the issuer, the higher the rate of interest. The Distribution Yield is also the Underlying Yield for this fund.

     

     

Fund Name DS SRI Style Product Region Asset Type Launch Date
Aviva Liontrust Sustainable Future Corporate Bond Pn Sustainability Select Pension UK Fixed Interest

Fund Size: £156.03

Total screened & themed / SRI assets: £

Total Responsible Ownership assets: £

Total assets under management: £

As at: 30/04/23

Sustainable, Responsible &/or ESG Policy:

Our Sustainable Future investment process is a high-conviction, bottom-up approach whereby sustainability is explicitly integrated throughout.

The 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 invests in well-run companies whose products and operations capitalise on these transformative changes and, therefore, may benefit financially. The Sustainable Investment team invests in three transformative trends (Better resource efficiency, Improved health and Greater safety and resilience) and 20 themes within these trends as described below:

 

  • Better resource efficiency (Cleaner)

Better resource efficiency focuses on companies helping the world make better use of scarce resources, driving improvements in areas as diverse as energy, industrial processes and transport.

 

Improving the efficiency of energy use

We see many ways of making energy cheaper by reducing waste, as well as emissions, through more efficient usage. This cuts across many areas of the economy and includes building insulation, efficient lighting, energy efficient climate control, travel and industrial processes.

 

Improving the management of water

Water is essential for life. Companies that can manage waste water treatment, or produce products or services that improve the efficiency of water distribution, are vital and in demand. Sanitation is a first line of defence from disease, much of which comes from contaminated water. We like companies that improve sanitation and give affordable access to clean water.

 

Increasing electricity generation from renewable sources

Electricity generation is a major emitter of carbon dioxide. Substituting carbon-intensive fossil fuel electricity generation (especially coal) with renewable power sources reduces carbon emissions as well as providing a cost-effective means to connect people to cleaner power sources. We like wind and solar and some biomass (using waste streams as opposed to feedstock grown on agricultural land).

 

Improving the resource efficiency of industrial and agricultural processes

We like companies providing products or services that help to make industrial processes more resource efficient, as well as safer for workers and users. We see investment opportunities in software and systems that help implement life-cycle design (including disposal of products) and manage supply chains, as they modernise and improve industry. We are looking for companies driving real improvements in energy and material use.

 

Delivering a circular materials economy

With finite resources on earth, recycling remains a huge part of the shift to a more sustainable world. But to make better use of materials, we need to consider the whole life cycle rather than just the ‘waste’ stage, moving beyond the current take-make-waste model towards a more circular economy. This is based on three core principles – designing out waste and pollution, keeping products and materials in use, and regenerating natural systems – and we believe companies built on these lines should benefit from this trend.

 

Making transportation more efficient

Urban transport systems are improved by reducing congestion as well as emissions (which make the local air quality toxic), as the mode of transport shifts from self-driven cars to public systems such as trains, tubes and buses.

 

  • Improved health (Healthier)

The team is seeking to invest in companies helping to extend life expectancy and enable people to be fit and healthy enough to reap the benefits of an improving world.

 

Enabling innovation within healthcare

Companies whose products or services help promote innovation within healthcare are helping to achieve this goal. They do this by either coming up with new, more effective ways to treat diseases (creating a significant step change in the mechanism used to treat a given disease) or by providing essential equipment, services (such as measuring equipment, genetic sequencing equipment or high-quality consumables for research) or software to help to make treatments more effective.

 

Delivering healthier foods

There is a trend in the food industry where consumers are changing their preferences and demanding healthier foods. We have identified companies that provide reformulation services to change the recipe of foods to make them healthier (less fat, sugars and salts) while maintaining the taste. These companies are a beneficiary of this demand for healthier food as their customers (many of which are the big incumbent food producers) respond to changing consumer preferences. This improved diet has positive health impacts: helping to reduce non-communicable diseases such as obesity and cardiovascular disease, for example.

 

Building better cities

Shelter is a basic human requirement and companies that build quality affordable homes are helping to provide this. We like well designed and built homes that are energy efficient and safe.

 

Providing education

Education brings important benefits, including longer life expectancy, increased job opportunities and helping to stimulate economic growth, as well as leading to overall higher satisfaction in life. Companies providing education services offer vital knowledge and skills, which help to improve people’s lives.

 

Providing affordable healthcare globally

Currently, the costs of healthcare are very high and we need more effective ways of delivering better patient outcomes. Companies that help to deliver affordable, positive patient outcomes in managing disease help to achieve this goal.

 

Enabling healthier lifestyles

Companies that promote healthier lifestyles, principally through increasing activity, taking exercise and sport, help to improve health. These include positive leisure activities such as gym operators and companies providing sports clothing and equipment.

 

Connecting people

We believe access to easy communication tools and the ability to access information, increasing amounts of which are online, is a positive requisite of a more sustainable economy.

 

Encouraging sustainable leisure

For most people in the twenty-first century, we are lucky enough to be living in an era where there is a natural progression to spend more time on leisure and these activities are increasingly seen as both a fundamental human need and a key part of mental health. Activities as diverse as going to a concert, to the cinema, having dinner at a restaurant or playing a video game all have clear externalities but the social experience is positive and we are looking to invest in companies involved in this growing part of a more sustainable future.

 

  • Greater safety and resilience (Safer)

The underlying themes include transport safety, with a focus on the rapid developments in such areas as Automatic Emergency Braking (AEB).

 

Increasing financial resilience

We believe a resilient financial services sector is necessary for economic well-being through utility-like provision of banking and lending. This does not mean any company in the financial sector is automatically investable, but we do see positive ways that certain financial companies contribute to society when appropriately and proactively managed.

 

Saving for the future

This is a positive trend that will persist. As people live longer and as governments and corporations retreat from providing long-term cover and pensions, so individuals will need to take control of their own affairs. Savings rates will have to increase and companies providing suitable products will see strong growth. For instance, in the UK, pension contributions are predicted to grow at 10% a year to £3.3 trillion by 2030.

 

Insuring a sustainable economy

This recognises that insurance, when done well, allows risk to be spread across a community. This lessens the impact of any single event, providing greater peace of mind and encouraging greater risk taking and innovation. Economic development and insurance penetration are well correlated, a function, we believe, of the positive social impact of insurance services.

 

Leading ESG management

How a business is managed operationally, particularly in how it deals with the Environmental Social and Governance challenges, can provide a competitive advantage over peers. This includes how the company interacts with society.

 

Improving transport safety

We have identified companies whose products improve the safety of travel and reduce accidents. Much of our work has focused on autos, in areas such as collision avoidance, active braking and semi-autonomous driving, but we should not assume cars will remain dominant, particularly with safe, efficient mass transport key to reducing emissions. Whatever the mode of travel, we concentrate on the specialist companies making the kit to improve safety, from better lighting to more efficient braking.

 

Enhancing digital security

As more of our lives and critical services are carried out online, we need to trust these systems and protect the data from theft. Digital security helps to make this growing area of the economy secure.

 

Better monitoring of supply chains and quality control

Companies cannot outsource responsibility for the environmental and social impacts of their supply chains and we see an opportunity in businesses improving their monitoring of these areas.

 

 

Exclusion of controversial or unsustainable businesses

We have identified a number of controversial business activities or those we believe to be inconsistent with sustainable development. We exclude companies with more that 5% of group sales from these controversial industries. A detailed explanation of what businesses activities we exclude, why and how we measure them is shown in the Sustainable Investment Screening Criteria which is published on our website, under Process and Literature  as follows: https://www.liontrust.co.uk/fund-managers/sustainable-investment/sustainable-documents

 

 

 

 

Sustainable, Responsible &/or ESG Process:

Sustainable Future Fixed Income Investment Process

In managing corporate bonds, we invest in a focused portfolio of bonds that are attractively valued and also take into consideration environmental, social and governance (ESG) factors by investing in companies that manage these exposures to minimise risk.

 

We aim to deliver strong outperformance for our clients. As active managers, we believe in a high conviction approach to ensure we develop a thorough understanding of our portfolio and the factors that influence its long-term value.

 

Within the fixed income team, individuals specialise in their areas of expertise with a focus on generating investment ideas and recommendations for their particular segment of the market. All investment decisions are discussed by the team in a structured way, ensuring that our process is rigorous and replicable. We also benefit from being part of a single wider investment team, combining both bond and equity investing.

 

We use a modern investment framework that we have developed and honed over years of successful investing for our clients. There are two main stages to this:

 

Stage 1: Identifying superior bonds

Stage 2: Constructing resilient portfolios and controlling risk

 

First we select the bonds that we believe will generate superior investment performance. We focus on high-quality issuers and believe this can enable us to reduce bond specific risk.

 

 

Stage 1: Identifying superior bonds

a. Finding high quality bonds

Our assessment of quality is a distinctive part of our process. We combine credit analysis with in-depth analysis of issuer specific factors, including ESG factors and macro-economic analysis. Our in-house research includes the following:

 

ESG analysis

For each company, we determine the key environmental, social and governance factors that are important indicators of future success and assess how these are managed. We do this through our proprietary sustainability matrix, which is used by both our bond and equity teams. Where relevant, we aim to identify companies whose core products or services are making a positive contribution to society or the environment in some way. We believe that evidence of excellent company management is instrumental in avoiding issues where tail risk is under-priced. Reducing tail risk is a key element that drives long-term returns in our bond portfolios. 

 

Our Sustainability Matrix

Every company held in the portfolio 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 (e.g. renewable energy); an ‘E’ rating indicates a company whose core business is in a conflict with sustainable development (e.g. tobacco).
  • Management quality (rated from 1 to 5): Assesses whether a company has appropriate structures, policies and practices in place for managing its environmental, social and governance risks and impacts. Management quality in relation to the risks and opportunities represented by potentially material social, environmental and governance issues are graded from 1 (excellent) to 5 (very poor). Companies must score C3 or higher to be considered further for inclusion in the SF Corporate Bond Fund (SFCB) and the SF European Corporate Bond Fund (SFECB).

 

Credit analysis

This involves a fundamental review of the Company to identify its ability to meet its debt obligations, including assessing the following factors:

 

  • The Company’s management in terms of its track record, its consistency, level of cross involvement, level of control exercised and make up of non-executives.
  • Company performance from earnings stability to growth patterns to relative performance and pricing power.
  • The business strategy such as its investment strategy, funding and FX policy, type of growth (e.g. M&A versus organic) and the business risk.
  • Industry factors including the barriers to entry, what its capped rating would be as well as industry threats and patterns.

 

Macro-economic analysis

Here we formulate strategy by looking at the interest rate positioning, asset allocation and aggregate credit rating exposure based on macro views. This approach ensures that the investment process remains balanced, incorporating top-down views as well as bottom-up analysis.

 

We also incorporate other macro influences in our analysis, including political factors, economic analysis, regulatory issues and ESG analysis. For government bonds, this involves a review of the sovereign from an ESG perspective in order to assess its suitability for investment. MSCI Sovereign rating data is used as an input to the process, overlaid with our own analysis. We specifically focus on the following:

 

  • Environment – Fossil & Nuclear usage, Water usage, energy management and C02 & GHG emissions
  • Social – Education & Technology, Provision of Basic Needs and the Economic Environment
  • Governance – Financial Capital & Management, Political Governance and Democratic Rights
  • Controversies – General controversies, Involvement in armed conflicts and international sanctions

 

This information is distilled into a Sovereign rating (completed annually) and presented to the broader team for discussion and approval.

 

b. Assessing returns versus downside risk

The fund managers assess individual bonds for whether they believe the bonds offer attractive long-term returns. However, given the asymmetric risk associated with corporate bond investing, the probability of default is fully assessed alongside a view of recovery values for each individual investment.

 

c. Valuing the bond

Valuations are assessed on the basis of both absolute and relative returns. Simply put, there is no point in investing in a bond merely because it is cheap relative to other bonds in the sector if we believe that the total returns are not attractive to the end investor. As such, we look for opportunities across the capital structure of an issuer and across markets, specifically the UK, US and European markets. We also evaluate the value of a bond relative to both other corporate and government bonds. This approach is consistent with our principal aim of delivering attractive long-term returns to our clients.

 

 

Stage 2: Constructing resilient portfolios and controlling risk

From the available buy recommendations identified in stage 1, we select the best combination of 60 to 100 bonds for inclusion in focused portfolios that are constructed to aim to safeguard against sustained downside risk. Investment managers look to deliver positive investment performance relative to a relevant performance measure over the medium term while adhering to defined risk parameters and fund-specific investment restrictions.

 

Portfolio construction is reviewed continually to ensure that it reflects the high-level strategy of the team and is consistent with the policy objective. The portfolios are also assessed to ensure that it has appropriate levels of diversification and to identify correlation within the portfolios, with consideration given to factors such as asset allocation, duration and yield curve, sector positioning and stock selection. Portfolio positioning is reviewed by an independent performance and risk team via both daily analysis and a more formal review cycle.

 

Active management

The portfolios are actively managed using a high conviction approach with a focus on access to market liquidity. We believe that having a more concentrated, lower turnover approach improves investment performance.

 

Risk controls

The team ensures that it minimises unwanted risk, but will use risk where there is a high level of conviction in a particular bond or theme. The team considers the risk/return potential of each position and aims to deliver a return that is commensurate with the level of risk undertaken. In addition, consideration is given to the risk profile of the portfolio as a whole and each holding’s contribution to the overall risk.

 

Derivatives, dealing and counterparty permissions

Where permitted, derivatives are used for the purposes of hedging and/or to implement strategic and tactical overlays

in accordance with efficient portfolio management guidelines. The use of derivatives is subject to Liontrust’s derivative policy. All derivative positions are reconciled and collateralised on a daily basis to ensure all relevant systems are accurately reflecting positions and market valuations.

 

 

Sustainable Investment team

Sustainability is at the heart of the Sustainable Future investment process. Every member of the Sustainable Future investment team (17 investment professionals) is responsible for understanding all aspects of financial and ESG risks and opportunities – including factors linked to climate change, relating to the investment decision.

 

  • the major trends and themes in their sector
  • identifying investment opportunities and the ESG performance of those opportunities
  • integrating that information into forecast earnings and valuation
  • submitting investment recommendations for our funds
  • engaging with companies and conducting all proxy voting for investee companies

 

Because of this integrated approach, investment team members engage with companies across a broad range of issues relating to steps in our investment process, such as screening criteria, sustainable investment themes and company-specific environmental, social and governance issues.

 

The Sustainable Future investment team conduct their own proprietary research however there are multiple and diverse sources of additional research:

 

  • Advisory Committee: guides on themes and new challenges and opportunities facing companies.
  • Academic Institutions: for example; Cambridge Institute for Sustainability Leadership to develop longer term thinking and to refine the set of themes or Government agencies and audit reports.
  • ESG Research Providers: currently we use MSCI ESG Manager and Ethical Screening to provide initial analysis of sustainability factors. For independent validation, we commission MSCI to perform analysis on our portfolios to assess the quality of ESG and carbon intensity relative to relevant benchmarks. These reports consistently demonstrate that all of our funds have significantly higher quality ESG and lower carbon intensity (circa 60% less) than benchmark.
  • Meetings with company management and site visits: we aim to meet with investee company management at least twice a year to discuss longer term strategy, this involves travelling to the region the company is headquartered in and conducts additional research and analysis from NGO reports and websites.
  • Expert networks: We use Guidepoint to arrange calls with independent experts in a particular sector (e.g. cyber-security purchasers to develop a view on Palo Alto)
  • Independent research providers: We pay for research from selected research providers who are unconnected with corporate finance or broking.
  • Sell-side research: Selected research is purchased to develop a broader understanding of industry sectors and to provide financial models of companies under analysis.

 

It must be emphasised though that these research inputs provide a foundation to the assessment by each analyst. The analysis and recommendation itself is always formed by the relevant team member.

 

Resources, Affiliations & Corporate Strategies

Liontrust Initiatives /Affiliations:

 

  • Financial Reporting Council (FRC) Stewardship Code

Liontrust Investment Partners LLP is a signatory to the FRC’s 2022 Stewardship Code.

 

  • The United Nations Principles for Responsible Investment (UNPRI)

Liontrust became a signatory to the PRI on 24 April 2018. Liontrust’s PRI Assessment report for 2021 is available on our website together with our transparency report Corporate sustainability | Liontrust Asset Management PLC

 

  • Taskforce on Climate-Related Financial Disclosure (TCFD)

Liontrust became supporters of the TCFD in September 2018. Liontrust reported against the TCFD recommendations in its annual report and financial statements (p.60-73) as per the FCA listing rules Annual Report | Liontrust Asset Management PLC

 

  • Net Zero Asset Managers Initiative (NZAMI

Liontrust joined NZAMI on 25 May 2022. We have 12 months (until end May 2023) to submit our plan and our initial % of AuMA to be covered by the commitment. We plan to meet this deadline and provide details on several points including our 5-year targets for our funds, our engagement outline for our highest emitters, as well as our plan for the Plc to become carbon neutral (the Group is currently carbon neutral due to offsetting.)

 

  • Institutional Investor Group on Climate Change (IIGCC)

Liontrust became a member of the IIGCC in April 2022. The mission of the IIGCC is to support and enable the investment community in driving significant and real progress by 2030 towards a net zero and resilient future. This will be achieved through capital allocation decisions, stewardship and successful engagement with companies, policy makers and fellow investors.

 

  • CDP (formally Carbon Disclosure Project)

Liontrust has supported CDP since July 2017. CDP is a not-for-profit charity that runs the global disclosure system for investors and companies to manage their environmental impacts from climate, forests and water.

Liontrust reported to the CDP on its climate disclosures in 2022 scoring a ‘D’ rating. Liontrust submitted its 2022 report to the CDP in July, we expect to receive our rating in November.

Liontrust also supported two CDP campaigns, which included encouraging non-disclosure companies to disclose and encourage high carbon emitting companies to report science based targets.

 

  • The Montréal Carbon Pledge

Liontrust became signatory to the Montréal Pledge in 2021. By signing the Montréal Carbon Pledge, investors commit to measure and disclose the carbon footprint of their investment portfolios on an annual basis.

 

  • Workforce Disclosure Initiative (WDI)

Liontrust Investment Partners LLP became supporters to the WDI in May 2019.  The WDI aims to improve corporate transparency and accountability on workforce issues, provide companies and investors with comprehensive and comparable data and help increase the provision of good jobs worldwide.

 

  • UK Sustainable Investment and Finance Association (UKSIF)

Liontrust became a member of UKSIF in July 2017. UKSIF exists to bring together the UK’s sustainable finance and investment community and support our members to expand, enhance and promote this key sector.

 

Endorsed Statements:

 

  • 2022 Global Investor Statement to Governments on the Climate Crisis - Endorsed statement
  • PRI Statement of Investor Commitment to Support a “Just Transition” on Climate Change - Endorsed statement
  • PRI Statement to support the SEC’s reporting changes – Endorsed Statement
  • Global Investor Statement to Governments on Climate Change - Endorsed statement
  • PRI Investor statement on deforestation and forest fires in the Amazon- Endorsed statement
  • Access to Medicine - Global Investor Statement in support of an effective, fair and equitable global response to Covid-19
  • CDP Science Based Target Campaign – endorsed campaign
  • CDP Non-Disclosure campaign – endorsed campaign

 

Sustainable Investment team historic involvement:

  • PRI Listed Equity Advisory Committee
  • PRI Sustainable Palm Oil Investor working Group
  • PRI Global Investor Taskforce on Tax & the PRI Tax Advisory Committee
  • PRI Cyber Security
  • PRI SDG and Active Ownership Committee
  • PRI Investor Working Group on the Just Transition
  • Access to Nutrition Index

 

 

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