The Sustainable Future strategies have existed for 24 years. They have always aimed to deliver strong returns by backing sustainable companies. We write regularly about those investment returns and how over the longer term we have shown that this strategy is a credible approach to active management.
However, in this series of articles we want to focus on the other vitally important aspect of sustainable investment: how it helps improve our world. Our existing economies remain far from perfect; but they can change to become much more sustainable. Sustainable investing plays an important part in accelerating this change. Here, in the third of six articles, we explore how it can drive higher standards in global supply chains − protecting human rights, improving environmental outcomes, and strengthening long-term business resilience..
Headlines have been full of the to and fro on tariffs on goods between US and its trading partners. These stories remind us of how interconnected our world is and how reliant we are on the chains of factories, transport links, and finance across the world. This chain emerges from the background into our consciousness when disrupted. This can be by those tariffs but also wars, pandemics, natural disasters and canal blockages.
Why do we follow this globalised model of production? Economics teaches us that if each region specialises on its area of strength, or comparative advantage, then everyone ends up better off. This is why there has generally been support over the decades for World Trade Organisation (WTO), General Agreement on Tariffs and Trade (GATT), North American Free Trade Agreement (NAFTA) and European Union (EU) policies to open up global trade. As a consequence, global trade has risen from 25% of global GDP in 1970 to 58% in 20231.
We design clothes in Paris, produce them in Morocco, and sell them in New York – each location brings its own strengths. But the global outsourcing model, whether for clothing, smartphones, batteries, or packaging, comes with serious challenges. For while Bangladesh can be a great place to manufacture clothing because the average labour costs there are lower (<50p per hour vs. £12 in the UK), it should not be made cheaper still by cutting corners on working conditions or environmental protection. The horrific collapse of the Rana Plaza factory in 2013 – where over 1,000 people died while making clothes for the likes of Benneton and Primark – is the most graphic example of what happens when standards slip. And on the environmental side another example is the pollution of the Citarum River in Indonesia from textile factories making clothes for developed world high streets.
And it is not just clothes where the problems arise. Supply chain problems have emerged with the long list of wars over oil, the use of child labour in mining for gold and rare earth metals, modern slavery in agriculture, and deforestation for food production.
How sustainable investors can play an important role
This does not mean that long complex supply chains are necessarily a bad thing, just that they need exceptional oversight to ensure that standards are upheld. Sustainable investors have an important role here.
Sustainable investors challenge company management to provide evidence of policies, audits, reporting and remedial actions. It is the right thing to do, but it also assures longer term shareholder value. Brand value can be diminished by revelations of poor supply chain practices. A company that manages its supply chain responsibilities well will tend to have better management all round.
Examples of our interventions include:
- Puma – The German-based producer of fitness clothing in 2022 faced an allegation of use of cotton from Xinjaing, a region of China associated with human rights abuses. We raised these concerns with the company. It commissioned further analysis and set up its own laboratory to test for cotton origination. Puma reaffirmed it is trying its very best not to source from the area.
- Smurfit Westrock – One of the largest cardboard packaging companies in the world, the company faced allegations of disregarding indigenous land rights in its Colombian forestry operations. We engaged with experts, the company, and fellow shareholders to understand the situation and support a fair resolution. Both parties are now in independent mediation, which we welcome. Overall, the company benefits from strong supply chain visibility thanks to legacy Smurfit Kappa’s high vertical integration – key to its leadership in Europe’s circular economy through extensive recycling operations. We encourage the now merged Smurfit Westrock to maintain and build on this integrated approach.
- Trex – We asked the manufacturer of recycled plastic and waste wood fibres decking to disclose the source of the wood fibre and how much was certified as sustainable. After the company investigated and looked deeper into its supply chains, it was able to confirm that 98% is from certified sources. We were also reassured to hear this included waste wood from orchards that would have otherwise been incinerated.
- DFS – We have engaged with the company, the number one producer and retailer of sofas in the UK, over many years to improve disclosure and performance of its material sourcing especially of wood and leather and have seen great progress. DFS now targets 100% certified wood in 2025 and is working to source all leather from certified suppliers. Policies and governance are also very clear and ambitious.
- 3i Group – The private equity company’s largest holding is Action, a discount retailer in Europe. We wanted to ensure that the great value of Action’s products was not due to corner cutting on environmental or social standards. We met with the company and were encouraged by the clear auditing process and inspections (scheduled and non-scheduled). Importantly, it disclosed when remedial action has had to be taken. We are also pleased to see that this large buyer has responsible sourcing policies for timber, cocoa, cotton and palm oil.
These examples demonstrate how sustainable investors, in collaboration with non-governmental organisations and consumer advocacy groups, can play a pivotal role in maintaining and even raising standards across today’s increasingly complex global supply chains. By applying pressure, sharing insights, and pushing for greater transparency, stakeholders help ensure that environmental and social concerns are addressed proactively. In doing so, investors are not only driving positive change but also identifying and backing companies that are ahead of the curve – businesses that prioritise sustainability, adapt to regulatory shifts, and respond to evolving consumer expectations. These are often the companies best positioned for long-term success, making them attractive and resilient investment opportunities.
KEY RISKS
Past performance does not predict future returns. You may get back less than you originally invested.
We recommend this fund is held long term (minimum period of 5 years). We recommend that you hold this fund as part of a diversified portfolio of investments.
The Funds managed by the Sustainable Investment team:
- Are expected to conform to our social and environmental criteria.
- May hold overseas investments that may carry a higher currency risk. They are valued by reference to their local currency which may move up or down when compared to the currency of a Fund.
- May invest in smaller companies and may invest a small proportion (less than 10%) of the Fund in unlisted securities. There may be liquidity constraints in these securities from time to time, i.e. in certain circumstances, the fund may not be able to sell a position for full value or at all in the short term. This may affect performance and could cause the fund to defer or suspend redemptions of its shares. May invest in companies listed on the Alternative Investment Market (AIM) which is primarily for emerging or smaller companies. The rules are less demanding than those of the official List of the London Stock Exchange and therefore companies listed on AIM may carry a greater risk than a company with a full listing.
- May encounter liquidity constraints from time to time. The spread between the price you buy and sell shares will reflect the less liquid nature of the underlying holdings.
- May invest in companies predominantly in a single country which maybe subject to greater political, social and economic risks which could result in greater volatility than investments in more broadly diversified funds.
- Outside of normal conditions, may hold higher levels of cash which may be deposited with several credit counterparties (e.g. international banks). A credit risk arises should one or more of these counterparties be unable to return the deposited cash.
The risks detailed above are reflective of the full range of Funds managed by the Sustainable Investment team and not all of the risks listed are applicable to each individual Fund. For the risks associated with an individual Fund, please refer to its Key Investor Information Document (KIID)/PRIIP KID.
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.
DISCLAIMER
This material is issued by Liontrust Investment Partners LLP (2 Savoy Court, London WC2R 0EZ), authorised and regulated in the UK by the Financial Conduct Authority (FRN 518552) to undertake regulated investment business.
It 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. Examples of stocks are provided for general information only to demonstrate our investment philosophy. The investment being promoted is for units in a fund, not directly in the underlying assets.
This information and analysis 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, no representation or warranty is given, whether express or implied, by Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified.
This is a marketing communication. Before making an investment, you should read the relevant Prospectus and the Key Investor Information Document (KIID) and/or PRIIP/KID, which provide full product details including investment charges and risks. These documents can be obtained, free of charge, from www.liontrust.com or direct from Liontrust. If you are not a professional investor please consult a regulated financial adviser regarding the suitability of such an investment for you and your personal circumstances.
