Investment Themes That are Here to Stay

Holly Black: Welcome to the Morningstar Series 'Why Should I Invest With You?' I'm Holly Black. With me is Harriet Parker. She is an investment manager at Liontrust. Hello.

Harriet Parker: Hello.

Black: So, you're on the sustainable team at Liontrust. There's a lot of ways to go about sustainable investing and it's quite a buzzword at the moment. But what does it mean at Liontrust? How do you go about it?

Parker: Well, for us, it's all about investing in companies that make a positive contribution to society and environment, alongside making strong investment returns.

Black: And you kind of argue, although it's crept up the news agenda, the idea of a sustainable economy is not actually anything new. You've been looking at it for a long time.

Parker: Yes, yes, we have. And I think really, yeah, we don't think it's anything particularly new, it's really just a continuation of some of the trends that we've seen over, many decades. And if we look at some of these trends, and as economies grow and develop, they develop become cleaner and healthier and safer. And these three kind of broad trends are very persistent. So, just taking – looking at kind of things like air pollution. In London, we're told the air quality is very bad, but actually if you look, the pollution levels are only a tenth of what they were say 25 years ago in London.

So, there has been quite a lot of improvement there. And also, when we look at metrics that had to do with people's quality of life, surviving cancer and rates there have got much more improved and as our childhood mortality figures, and there's lots of really positive stories there too, and in many areas things have got safer. So, driving a car now, there's a lot less road deaths and fatalities than they were say a couple of decades ago due to improved safety standards. So, I'm not trying to say that, everything is done, but at the same time we see that these are very persistent trends and that we think they're going to continue for decades to come.

Black: And as an investor, obviously, some companies are doing better at these things than others. How do you work with companies to make them change even more for the better?

Parker: I think it's about using our rights really as shareholders in companies to improve practices. It helps I think, if you're, you're a manager that understands the business. Well, so our integrated approach means that the analysts and fund managers on the teams are responsible for all aspects relating to an investment decision. So, that's looking at the theme behind the company that's looking at the sustainability characteristics, but also their financial modelling and predicting kind of future cash flows and things like that.

So, with that in mind, we think that we're well placed to be able to talk to a company. And what we try and do is, we try and have a good relationship with companies. And for us, we think there's very little that's ever happened in terms of engagement success on one particular meeting. And it's about talking to companies, building relationships with them so that they're more able to trust us and listen to suggestions that we have, and we understand they also are making in the context of the kind of the wider business strategy.

Black: So what are a couple of examples of engagements that have worked, that have been particular successes for you?

Parker: One company we've been engaging with over the last couple of years is a UK consumer company, and we were talking to them about their timber sourcing policies and engagement. Over the last couple of years is kind of really seeing a lot of positive progress. So, the company has done a lot with it suppliers and procurement policies. And it has worked with us and also kind of an expert NGO in the space to really have a much better policy in place and also to have more certified timber coming from their supply chains too.

Black: Do you ever threaten to divest as a way to encourage change?

Parker: It's not our first port of call, and very often we will try to use our voting policy. And so, for instance, we have a policy at the moment, where we will vote against the Chair of the Nominations Committee, where there is fewer than 15% females on the board, for instance. So, rather than saying, we're not going to invest in your company, because we don't think there's a strong female representation at the board, we will use our votes to do that. And we've also told to companies as well, but there are some instances where if we really don't think that the Company is listening to us, and we think that there's particular risks involved, then we will divest and we have divested in the past. And what we look at, is we look for strong management quality. And we feel that if a company is not looking at a particular issue that we think is pertinent and material, then perhaps it's not also looking at other issues of business relevance as well.

Black: Harriet, thank you so much for your time.

Parker: No problem. Thank you.

Black: And thanks for joining us.