Liontrust ESG Trust (ESGT) has issued an intention to float (ITF) this morning, in which has announced plans for a £150m IPO on the premium segment of the main market of the London Stock Exchange. ESGT is seeking to raise £150 million by means of a placing, offer for subscription and intermediaries offer, following which a placing programme will allow the Company to issue up to a further 250 million Ordinary Shares and/or C shares (this placing programme will be from ESG’s admission up until the first anniversary of the date of publication of its IPO prospectus). The launch comes at a time of rising interest in sustainability and demand for sustainable investments.
It is expected that the prospectus will be published in late May and that the Initial Issue will close in late June. Winterflood Securities Limited is acting as sponsor, financial adviser and placing agent to the Initial Issue. The Prospectus will be made available on the Company’s website at www.liontrust.co.uk/esgt-launch.
What will Liontrust ESG Trust invest in?
ESGT will invest in a diversified portfolio of sustainable companies. Sustainable companies are described as those that Liontrust believes:
- will capitalise on and help drive the key structural growth trends that will shape the sustainable global economy of the future;
- will provide or produce sustainable products and services; and
- have a progressive approach to the management of environmental, social and governance issues.
Concentrated portfolio – will utilise ESGT’s closed end structure
ESGT will maintain a concentrated portfolio of between 25 and 35 holdings in sustainable companies around the world. These will have the highest sustainability scores, as determined by the Liontrust sustainable investment team’s established investment process. ESGT says that the permanency of capital of an investment trust will enable the manager to be unconstrained by market capitalisation when selecting investments, and allow the Sustainable Investment Team to construct a high-conviction portfolio with less consideration of shorter-term volatility than when managing open-ended funds. It is expected that ESGT will have an exposure to small cap stocks that are not held by the open-ended funds they manage.
Who will be managing ESGT’s portfolio?
ESGT is to appoint Liontrust Fund Partners LLP as its Alternative Investment Fund Manager (“AIFM”), who in turn will delegate investment management to Liontrust Investment Partners LLP (the “Investment Manager”). The portfolio of ESGT will be managed by Peter Michaelis, Simon Clements and Chris Foster, who are part of the 13-strong Sustainable Investment team with a 20-year track record of managing sustainable funds.
Peter and Simon have managed sustainable global growth strategies since 2001 and 2010, respectively, with Chris becoming a co-manager in 2020, having joined the Sustainable Investment Team in 2015.
Key members of the Sustainable Investment Team were among the pioneers of sustainable investing, being founder members of the PRI (Principles for Responsible Investment) while at Aviva and leading on issues that are now central to mainstream investing such as not owning companies exposed to diesel engines, coal and oil (in 2001) and moving to exclude natural gas (from 2016).
Why sustainable investment?
The announcement highlights the following key reasons for focusing on sustainable investments:
- Creating a cleaner, safer and healthier future: Investing sustainably can help to tackle global crises such as climate change, pollution, habitat destruction, collapsing biodiversity and social inequality.
- Performance: The last two decades have demonstrated that integrating sustainability into stock selection can enhance investor returns.
- Greater awareness: An increasing proportion of investors care about how they make their money as well as how much money they make. 75 per cent. of consumers consider sustainability to be an important part of their everyday life. Of those who do not invest sustainably, 80 per cent. were aware of sustainable investment, showing the potential for growth.
- Increasing investment: Research conducted for Liontrust in December 2020 reveals that 78 per cent. of wealth managers and 71 per cent. of financial advisers have seen an increasing proportion of their clients investing sustainably over the past year.
- Growth in assets and funds: According to the Forum for Sustainable and Responsible Investment’s 2020 trends report, sustainable investment now represents 33 per cent. of the $51.4 trillion in total US assets under management, and the figure in Europe doubled over 2020 to hit €1.1 trillion.
Key features of the investment process
- Distinct, rigorous and repeatable process: The process seeks to generate strong returns from investing in companies aiming to deliver profits through positive social and environmental impacts. The Sustainable Investment Team looks at the world through the prism of three mega trends – Better resource efficiency (cleaner), Improved health (healthier) and Greater safety and resilience (safer) – and then 21 themes within these.
- Time arbitrage: By having a longer time horizon than most, the Sustainable Investment Team can patiently invest in businesses they believe have years of growth ahead and take advantage of dislocations in the market when these businesses are trading considerably below what the managers believe they are worth.
- Engagement: This is an integral part of how the Sustainable Investment Team invests. Engaging on key environmental, social and governance (ESG) issues gives the managers greater insight, helps to identify leading companies and is used as a lever to encourage better business practices.
Track record – performance and impact
- Strong performance: The Liontrust SF Global Growth Fund (which has the same investment process and a similar objective and mandate to ESGT) has outperformed the MSCI World Index over one, three, five and 10 years. The MSCI World Index is the Fund’s comparator benchmark.
- Investor perception: Liontrust is regarded as the best investment manager for sustainable investment among wealth managers and advisers (34 per cent.) and private investors (25 per cent.).
- Impact: Since 2015, the Sustainable Investment Team has shown how its funds’ themes and investments are contributing to the UN’s Sustainable Development Goals (“SDGs”). The Sustainable Investment Team has for many years published all holdings and the rationale for them.
- Mitigating CO2 exposure: Compared to the MSCI World Index, companies held in the Liontrust SF Global Growth Fund emit 88.3 per cent. less carbon dioxide while 28.8 per cent. of the portfolio is invested in stocks involved in technology that directly cut carbon emissions (at 31 December 2020).
Sustainable development goals that are hard to invest in
In the interests of diversifying and to impact a wide range of environmental and societal issues, ESGT’s investments will be spread across the Sustainable Investment Team’s range of 21 ESG themes which have been linked to the sustainable development goals (SDGs). However, there are some SDGs which are hard to impact through investment (SDG 1- No poverty, SDG 2 – Zero hunger, SDG 14 – Life below water and SDG 15 – Life on land) (“Uninvestable SDGs”). In these areas, there are currently very few opportunities to invest successfully while having a positive impact on these SDGs.
Management Fees and SDGs research
The AIFM is entitled to receive a fee of 0.65 per cent. per annum of the net assets of the Company. The AIFM is responsible for the payment of the Investment Manager’s fees. The Investment Manager will donate up to 10 per cent. of the management fees to fund research identifying and developing financial instruments covering the currently Uninvestable SDGs. When these instruments are developed, they will become available for the Company and other investors. The percentage of the fees allocated to research will be at the discretion of the Investment Manager. No performance fee is payable by the Company to the AIFM.
Comments from Richard Laing, Chairman of ESGT
“Whether it is David Attenborough’s TV documentaries, the impact of climate change, plastic and other pollution in the sea, overfishing or the destruction of biodiversity, it is impossible not to be aware of the urgency of the action we need to take to tackle these crises. There is also an increasing recognition of the key role that investment can play in all aspects of environmental, social and governance issues, and that sustainable investing can enhance investor returns compared to mainstream funds and indices.
ESGT will offer an Investment Manager with more than 20 years of experience of investing sustainably, with a track record demonstrating the positive impact of their process and with a vision of the development of a sustainable world, economy and society over the next two decades.”
Comments from Peter Michaelis, ESGT’s portfolio manager
“We are excited by the opportunities that ESGT offers in being able to construct a high conviction portfolio with companies from across the market cap spectrum and our sustainable investment themes.
“Key attractions include the wide opportunity set it provides as it is unconstrained by market capitalisation, a concentrated portfolio focused on the highest sustainability companies and the chance to invest a portion of the portfolio in small cap companies that we do not hold in our open-ended funds. These stocks fit perfectly with our focus on the long-term drivers of the sustainable economy of the future.
“Looking to the long-term benefit for investors, up to 10 per cent. of the management fee we receive from ESGT will be used to fund research to identify and develop financial instruments covering those UN Sustainable Development Goals that are currently uninvestable.
“When these financial instruments are developed, they will become available to ESGT and other investors.”
Comments from John Ions, Chief Executive of Liontrust
“This is a significant launch for Liontrust in expanding our offering into investment trusts.
“The launch of ESGT recognises the growing demand for sustainable investment as an increasing number of people want their investments to make positive contributions to society, the environment and the economy.
“Over the past two decades, the Sustainable Investment team has demonstrated the ability of its investment process to outperform mainstream funds and the impact of its funds on sustainable development.”
[QD comment: As with any capital raises, we would recommend that readers study the prospectus before making a decision to invest and, if you need to, seek the help of a professional. This said, a strong ESG focus is clearly of growing importance to investors and so this trust, which is to be manged by a team with a demonstrable track record, seems likely to find a warm reception. We wish it well.]