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 fourth of six articles, we examine how it can help us to improve resilience to natural events.
Natural events: extreme weather and disruptive natural events
Climate change, driven by human activity, will affect the water cycle and is expected to result in more frequent extreme weather events including, droughts, floods and extreme sea level events[1]. It is clear that we will have to adapt to a warming climate as the probability of keeping below 1.5C is slim.
Infrastructure
Critical infrastructure such as transport, telecoms, energy and water grids are all subject to this increased incidence of extreme weather and often experience far higher extremes than expected when they were built. An example is the Thames Barrier, which began construction in 1974, and was completed in 1982. This barrier was expected to be used two to three times a year. By the mid-2000s the barrier was closed six to seven times a year. In 2013-14 over a period of 13 weeks, the barrier had to be closed 50 times[2].
In the Liontrust Sustainable Investment team, we look for companies that have products and services that can help us manage the more frequent natural events that are disruptive to our economy such as the increasing incidence of extreme weather events and wild fires which are being driven by climate change.
One area is controlling water run-off and storm overflows where huge amounts of water accumulate in extreme rainfall. Advanced Drainage Systems (ADS), a company based in the US, makes plastic piping. The majority of this plastic comes from recycled sources. These pipes are used to channel water and provide storm overflows which slow down water run-off. This encourages water to
slowly percolate into the soil as opposed to run-off quickly into the waterways and cause potential flooding downstream. This is linked to upgrading ageing infrastructure as well as helping ensure new buildings don’t exacerbate flooding. These plastic pipes replace the alternative concrete pipes which are carbon intensive to make and heavy to transport and install. Another example is Genuit PLC, the UK's leading provider of sustainable water, climate and ventilation management solutions for the built environment. As weather events become more extreme, and urbanisation increases, Genuit's water management solutions are important in managing surface water to prevent flooding.
Another key infrastructure asset that is ageing and subject to increased extreme weather events are electricity grids. Investing in National Grid as well as electrical distribution operators such as South Eastern Power Networks in the Sustainable Future bond strategies is a way of improving this as they are investing significantly to update and improve the resilience of our ageing electricity infrastructure.
Our water infrastructure is another key area that is subject to extreme weather events. This ageing infrastructure is in desperate need of upgrading and requires investment to make it more resilient to extreme weather and a complex of pollution sources including agriculture, transport and industry. It also requires integrated planning to ensure the system can provide water in stressed areas where population demands are growing. We want to be part of the solution and are invested in debt of some of the better managed water utilities in the UK such as Severn Trent. These debt instruments are not taking capital in the form of dividends out of these businesses. We are also invested in a number of companies that provide specialist testing equipment to be able to monitor, often invisible, pollution such as nitrates and phosphates or disruptive man-made pollutants such as PFAS (Perfluoroalkyl and Polyfluoroalkyl Substances or ‘forever chemicals’) – click here to read our recent update. An example of this is Veralto which specialises in water recycling and contamination testing for industrial and municipal clients.
Improving the built environment: Building better cities
Climate change will cause wider extremes of temperature, higher winds and greater flooding. Cities will be particularly sensitive to these. We look for companies whose products help us control the built environment. This can be in improved efficiency due to smarter heating and cooling within buildings. Trane Technologies is a leader in the manufacture and servicing of energy efficient Heating, Ventilation, and Cooling (HVAC) products. In addition, Genuit PLC has a significant business in innovative solutions for efficient central heating, underfloor heating and better indoor air quality helping us to better control the built environment.
We also look for companies that encourage modal shifts in transport away from polluting internal combustion engine cars towards faster, safer and healthier alternatives such as public transport. Rail for example emits substantially less CO2 than flying or driving. We therefore have invested in Trainline, a train ticketing business making it easier and more convenient to book and use trains in a cost effective way from your phone.
Affordability of quality housing is another area we are invested, for example, in our bond strategies through Clarion Housing Group which is a housing association in the UK managing 98,383 homes at a 57% discount to market rents.
Insurance helps mitigate rising risks and provides resilience
Insurance can spread the risk faced by an individual or corporation among many other actors. The benefits of good insurance include providing a safety net (at a relatively small cost) to mitigate material loss from natural disasters as well as personal disasters for medical emergencies amongst others; mitigating financial impact for individuals or corporations; as well as lowering the capital needed to operate and reduce risk. But not all insurance is good as poor oversight can lead to mis-selling (e.g. PPI). We look for well-managed companies providing good insurance products which effectively mitigate and manage their customers’ risk. Examples include Admiral Group PLC, which provides motor and home insurance, primarily in the UK and other parts of Europe which is held in our UK and European equity strategies. Our European bond strategy is invested in Swiss Re, a company specialising in reinsurance and insurance linked financial products which we regard as a leader in this area.
Conclusion
We need to invest to become more resilient to a warming world, through companies that are:
- either investing in key infrastructure to make it more resilient to increased extreme weather events; or
- making equipment used to better monitor or control the increasing extremes in our environment; or
- providing good insurance that helps mitigate these risks effectively;
The Liontrust Sustainable Future funds are contributing to making the critical systems we depend on more reliable.
[1] Climate Change 2021: The Physical Science Basis. Contribution of Working Group I to the Sixth Assessment Report of the Intergovernmental Panel on Climate Change. Climate change widespread, rapid, and intensifying – IPCC — IPCC accessed 24-Mar-2025
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.
