Sustainable investing is no longer a choice between morals and profit. ESG considerations have proven to maximise investor returns; whether it is tapping into a thematic economic driver, or avoiding losses associated with scandal. Asset managers including Hermes, Investec and Liontrust have been vocal in their commitment environmental, social and governance investment considerations.
Liontrust’s sustainable investment strategies were devised 18 years ago, when the team was working for Aviva Investors. Since launch in 2001, its trio of equity offerings have all more than doubled unitholders’ cash.
“We have seen some really good, positive trends in making our world cleaner, healthier and safer,” explains Peter Michaelis, co-manager on the fund range.
For example, in 2001 you had a 50/50 chance of finding a beach in the UK where the water was fit to swim in. Now, 92% of the UK’s beaches are deemed “exceptionally clean”. Air emissions have fallen dramatically across the developed world; New York’s air is the cleanest it has been since monitoring began.
Smoking rates have fallen from more than a quarter of the population 18 years ago to just 17% today, while cancer sufferers are much more likely to survive than before. Infant mortality rates have fallen 40% in the UK in that time, while, incredibly, China’s rate is down fourfold. Moreover, the number of road fatalities and workplace accidents have both halved.
“These statistics are of real relevance to investment because many of these changes have been delivered by businesses which have generated massive profits by providing the innovative solutions required,” explains Michaelis.
The team continues to back these innovators. “We find companies that are becoming incredibly successful, generating strong returns for shareholders by delivering a cleaner, healthier and safer world," he adds.
Below, the team picks out a quartet of firms around the globe they invest in.
Aquafil (ECNL)
Plastic pollution is one of the top concerns for the British public, particularly after David Attenborough tackled the issue in his BBC documentary Blue Planet.
While plastic will can never be eradicated entirely due to the usefulness of the material, a significant portion of the 400 million tonnes produced each year globally can be substituted. Public awareness and demand for single-use plastics is heightened; the next challenge is to raise awareness on industrial manufacturing lines, claims Parker.
“We’re going to have to move from this linear, extractive economy where we make and dispose to a more circular one, where products are made to be made again and again,” she explains.
Plastic pollution is not solely about plastic bottles. Fishing nets account for nearly half of all the plastic found in the stretch of water that lies between California and Hawaii, is three times the size of Paris and has been dubbed The Great Pacific Garbage Patch.
This is where Aquafil comes in. The Italian textile manufacturer rescues hundreds of tonnes of plastic from the sea in the form of fishing nets and other nylon-based products like old carpets. It recycles this into a yarn it calls Econyl.
Econyl is used by big brands like Adidas, Breitling and Speedo in their apparel products as well as makers of carpets and other interiors products.
The team believes that the Econyl brand will continue to become recognised and used by other larger firms, allowing Aquafil to “capture more of the end-product margin”. The Liontrust Sustainable Future European Growth fund first invested in the Milan-listed company in June 2018 before topping up during the sell-off in the fourth quarter.
“Our analysis indicates that the market is underestimating just how strong and obtainable its growth will be,” says Liontrust's Harriet Parker.
Kingspan (KGP)
Irish manufacturer Kingspan has been held by the strategies for a decade or more, says another member of the ESG team, Mike Appleby. In that time, the share price has grown from a couple of cents to almost €40 today.
It’s delivered average total shareholder returns over the past 10 years of around 17% per annum. That is “very impressive and nearly double that of the global stock market”, Appleby continues.
The stock has paused for breath in the past year, though, and is currently trading at the same level it was at the start of 2018. Appleby thinks “it looks like a compelling investment at these levels”.
The firm plays into the team’s energy efficiency theme. It says it is the global leader in high-performance insulation and building envelope solutions. Essentially, explains Appleby, 85% of their sales come from smart, more efficient ways to heat and cool buildings.
It makes insulated panels, environmental management systems and renewable energy solutions for businesses across the UK, mainland Europe and the Americas.
Appleby concludes that Kingspan is “well-positioned to benefit from this tailwind of demand for their products which enable us to use energy more efficiently, cut emissions and save money”.
CSL (CSL)
While impressive, Kingspan’s average total shareholder return for the past 10 years is trumped by another decade-long holding the team has. Australian biotech company CSL has delivered over 20% returns on an annual basis – “incredible performance”, coos Appleby.
With society ageing rapidly, biotechnology companies are more and more in vogue. “As our knowledge of how the body works increases, this enables us to come up with much better, more cost-effective ways of treating disease and getting good patient outcomes,” says Appleby.
CSL is taking advantage of growing demand for blood plasma products, which are increasingly being used to save lives and treat things like burns, trauma and shock.
Blood plasma proteins are naturally occurring in the human body and are being used to successfully treat immune disorders and haemophilia. It is also extremely cost-effective. In fact, the World Health Organisation recently included blood plasma products on its list of essential medicines. This makes them a minimum requirement for any basic healthcare system.
Despite its impressive returns, which have seen the share price surge from AU$36 to AU$195 since 2009, Appleby reckons there’s some way to go still “We think the market still underestimates the continued profitable growth that this company will be exposed to and we think it’s still a very compelling investment.”
CSL has been held in the Liontrust Sustainable Future Global Growth fund for more than 10 years.
