SUSTAINABILITY is an increasingly important theme for today’s consumers, who want what they wear, eat and even drive to both benefit themselves and have a positive impact on the world around them.

This is fundamentally changing businesses, from the high street retailer through the industrials and even down to commodity producers. There are significant investment opportunities for companies that can meet these changing demands.

Sustainable investment is a broad term - it can cover ethical or socially responsible - but at its heart is the very simple belief that companies can be more successful than their peers by hitting these trends.

Loading article content

In our fast-changing world we believe the companies that will thrive are those that improve people’s quality of life, increase the efficiency of resource use and create safer economies.

Current examples include the companies making our food healthier, our cars more durable and less likely to be involved in accidents, and our online activities safer through cybersecurity.

Companies with products or services that provide such solutions are likely to grow and, where these positive attributes are overlooked by the market, they can be good investments.

In contrast, we feel companies whose interests are misaligned with those of society and the environment will simply not last the course, leading to steep losses for those invested in them.

As well as not investing in such firms, we believe actively encouraging companies to change and improve their practices via shareholder engagement is key.

So how can investors go about discerning which companies are, indeed, sustainable? At Liontrust, we use a thematic approach to identify and invest in the key structural growth trends that will shape the global economy of the future. We do this by looking at broad sustainable themes such as climate change and energy efficiency, quality of life (including education and life-saving healthcare), sustainable consumption (eco-efficiency including water, waste and pollution reduction) and resilience.

Key factors influencing the way business is done and driving a greater shift toward more sustainable and responsible corporate behaviour include:

• Consumer pressure – With individuals increasingly aware of the impact of their decisions, demand for sustainable products is increasing. Companies capable of providing sustainable goods, produced in an ethical manner are well placed.

• Financial sense – Regulations and legislation increase costs for polluting companies, thereby providing significant impetus for efficiency improvements. Companies creating less pollution and those providing pollution reduction and efficiency technologies should continue to prosper.

• Political climate and regulation – The environment and related social impacts are now widely regarded as mainstream political issues with policy decisions increasingly made with sustainability in mind. This political will has a marked effect on regulation, as seen in the banking sector, energy policy and emissions regulation, which in turn affects competitive landscape for businesses. Regulation influences company behaviour and typically favours more sustainable or resilient companies.

Ultimately, we believe investors will do well to seek out well-managed companies that are set to benefit from any or all of these changes, and can profit from swimming with the tide of sustainability.

Neil Brown is co-manager of the Liontrust Sustainable Investment Team.