By Peter Michaelis, Head of the Sustainable Investment team at Liontrust
Interest in sustainable investing and ESG (environmental, social and governance) has never been greater with the Covid-19 pandemic adding to concerns such as the climate crisis and the dumping of plastic in the sea.
It is impossible not to be aware of the urgent action needed to tackle a range of social and environmental issues, with goals including the reduction of greenhouse gas emissions to net zero by 2050. Everyone’s investment decisions are a key way to help achieve such objectives and we believe demand for sustainable investment will continue as people increasingly care about how they make their money, as well as how much they make.
Research conducted by Liontrust with wealth managers and financial advisers reveals 78% expect their clients to invest more in sustainable funds over the next 12 months. But while 73% of consumers say sustainability is an important part of their life, just 43% currently invest sustainably (Source: Research in Finance, August 2020), highlighting the ongoing growth potential.
The top reason for not translating sustainable lifestyles into financial decisions is the belief it could hinder performance, with 32% citing this factor. To counter this, performance of sustainable funds has actually shown this approach can deliver superior returns to conventional funds over different time periods and through different market environments. This is not a short-term phenomenon and performance is one of the key drivers behind increased demand for sustainable funds.
Given this backdrop, it is vital the investment industry maintains high standards and is transparent about the products offered, and greenwashing is a troubling trend where asset managers claim to take a sustainable or ESG approach to investing when they do not. In our research, 66% of wealth managers and 42% of advisers say they are concerned about greenwashing and we have identified five things investors should look for when identifying whether funds, and the teams behind them, are capable of meeting their sustainable expectations: transparency, experience and resource, knowledge and ongoing training, activism, and evidence.
At Liontrust, our Sustainable Investment team has been managing funds with this approach for two decades and our process is based on a belief that sustainable companies have better growth and are more resilient than the market gives them credit for. We begin with 21 themes, all focused on the shift towards a more sustainable economy, and use these to find structural growth.
Covid-19 has enforced massive change around the world, with years of behavioural shifts squeezed into weeks. But despite its impact on our health, livelihoods and economies, one thing this crisis has not altered is our belief that companies exposed to sustainable themes will see strong growth in coming years. Crises also accelerate changes already in action and this is evident across many of our themes.
Our Connecting people theme, for example, looks at how we can be better connected through the infrastructure that helps us communicate. Increased communication is important for the development of a sustainable economy and global cohesion, but the challenge is to decouple this growth from its environmental impacts. We believe recent changes mark the beginning of a permanent shift in communication; now so many of us have shown we can work from home, it would be disappointing to see a return to widespread unnecessary travel.
This is just one way in which we cannot afford to go back to ‘normal’ when this crisis is over. The world should feel emboldened by our collective efforts in response to the virus and go further to make our economy cleaner, healthier and safer, as well as fairer. We will continue to invest in businesses at the vanguard of such changes.
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Key Risks and disclaimer
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 issue of units/shares in Liontrust Funds may be subject to an initial charge, which will have an impact on the realisable value of the investment, particularly in the short term. 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. It contains information and analysis that is believed to be accurate at the time of publication but is subject to change without notice. Whilst care has been taken in compiling the content of this document, no representation or warranty, express or implied, is made by Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified. It should not be copied, faxed, reproduced, divulged or distributed, in whole or in part, without the express written consent of Liontrust. 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.