Neil Brown discusses how Liontrust's Sustainable Future Funds benefit from investing in businesses that are profiting from the 'Fossil Free' movement.
While no investor can completely avoid exposure to fossil fuels, as all companies use electricity, we invest in businesses that profit from changes under way in our energy system.
We look for companies reducing costs through energy efficiencies, selling products that drive efficiencies for others or generating and transmitting renewable energy. Naturally, we avoid companies that stand to lose from these positive trends - the fossil fuel sectors.
Burning fossil fuels currently provides the majority of energy used for generating electricity, transport and industrial processes. It is also the largest source of greenhouse gas emissions, which
countries and companies are working hard to reduce against clear and challenging targets.
The three fossil fuels are coal, oil and natural gas and they have different emissions profiles and carbon intensities.
Coal looks the least attractive for many reasons, not least the fact it emits the most carbon dioxide per unit of energy. We believe regulation will continue to discourage the building of coal-fired electricity generation and the outlook for investments in this area is severely challenged.
Oil is mainly used for transport (petrol, diesel and jet fuel) as well as the petrochemicals that make plastics. As reserves have become harder to find, there has been a shift into new types of oil, known as unconventionals, including tar sands, ultra-deep water and shale. These have higher footprints in terms of energy and water inputs and we believe the economics of unconventional projects have been overstated.
Natural gas exhibits different characteristics to coal and oil, primarily how little carbon dioxide it emits when burnt and can assist in transition but only when used as a direct substitute for coal.
The ‘Fossil Free' movement calls for asset owners to end support for the industry by freezing new investment in fossil fuels and selling positions in equities or corporate bonds within five years. Our Liontrust Sustainable Future Funds have long taken a more positive approach:
- Invest in companies profiting from accelerating the decarbonisation of our economies
- Invest in companies with low exposure to carbon risk
- Avoid investment in coal, oil, tar sands and natural gas
Our thematic investment ideas continue to evolve rapidly but currently include insulation providers, vehicle battery components and power semiconductors.
In summary, there are global commitments to transition away from fossil fuels and meeting those commitments presents challenges. We believe there are profits to be made in meeting those challenges and risks for companies on the wrong side. By providing capital to companies that are leaders in these fields, we believe we can continue to profit from a credible pathway to a lower carbon economy.
Further reading
- To learn more about sustainable investment and Liontrust's offering: http://www.liontrust.co.uk/sustainable
- Investing for tomorrow, today: http://www.liontrust.co.uk/what-we-think/blogs/investing-for-tomorrow-today
- The investment case for "doing good" http://www.liontrust.co.uk/what-we-think/blogs/the-investment-case-for-doing-good
- Road to prosperity http://www.liontrust.co.uk/what-we-think/blogs/road-to-prosperity
Important information
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.
• Past performance is not a guide to future performance. • Do remember that the value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested. • 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.
• The information and opinions provided should not be construed as advice for investment in any product or security mentioned. • Always research your own investments and consult with a regulated investment adviser before investing.
