Alliance : Sustainable Future Newsletter

Alliance Trust Investments

July 2015

Shedding light on sustainable investments.

IN THIS ISSUE:

2 The importance of a healthy banking sector

3 Sub-si-dy 4 Fund in focus: The Alliance Trust

Sustainable Future Absolute Growth Fund

5 Five companies to watch

6 Best bits from the

Sustainable Future Hub

A misplaced belief in the

permanence of the present

Risk Warning

PETER MICHAELIS

Head of Equities

Despite all the historic evidence showing a rapid pace of change in technology and societies, when it comes to investment, the dominant thinking is that things
will stay as they are forever. Thus tobacco companies command valuations implying they will exist forever; oil companies trade as if fossil fuels will continue to provide four-fifths of our primary energy for centuries; and banks will act as if irresponsible
This newsletter is not intended as an investment recommendation and should not be treated as such. Instead it is intended as an example summary of
the work we do looking at longer-term changes we anticipate happening in the market which we analyse to inform our investment decisions. This analysis
forms only part of what is considered in making an investment decision.
The value of investments and any income from them can fall as well as rise. Your capital is at risk and you may not get
back what you originally invested.
Funds which undertake ethical screening to meet their investment aims are
unable to invest in certain sectors and companies. Our exclusion of some areas of the market (on ESG grounds) may result in periods of under-performance with respect to relevant benchmarks. For instance if tobacco stocks were enjoying extremely strong returns we would not be able to participate in their gains.
If you are unsure about an investment decision, please speak to your
financial adviser.
The information and opinions expressed in this newsletter represent our view at the date of publication and are subject to change without notice.
behaviour is a fact of life.
Apparently this misplaced belief in the permanence of the present is hard-wired into human thinking, from an investment perspective anyway. But it is a trait that is unhelpful when trying to decide which companies will be tomorrow's winners. This is why we have developed our four themed approach to highlight long-term growth trends within our economies as they become more sustainable - that is delivering a better quality of life from less resources. In the past this has guided us to invest ahead of the market into areas such as LED lighting, renewable technology, pollution control and innovative medical technologies and steered us away from companies that do more harm than good in society.
In this newsletter we highlight a few more future trends: on page 2 - how banks need to adapt if they are to provide the essential financial services we require; on page 3 - how fossil fuels enjoy (for the time being) subsidies that dwarf those of the renewable energy industry; and on page 6 - how we will move around more efficiently on our bicycles and safely in our cars (page 9).
In 2025, our economy will be very different and many of today's dominant companies will have been replaced by companies exploiting new knowledge, and providing services which improve quality of life, while using far less natural resources. Their success will look obvious with hindsight. The Sustainable Future approach is to identify these future success stories today, rather than waiting a decade!
Finally, we regularly promote our Sustainable Future funds to the Independent Financial Adviser (IFA) market and we were delighted to win the Business Green Marketing Campaign of the Year Award. It was one of the most competitive categories and we emerged victorious as the judges were impressed by the campaign's multi-platform approach, and the high approval rates we secured amongst IFAs. It is always encouraging to be recognised for the work we are doing to raise awareness in this exciting but sometimes challenging space.
I hope you find this newsletter informative and enlightening. As always we welcome any comments, suggestions or questions, so please feel free to get in touch.

General Enquiries: 01382 321 000

Broker support: 0808 234 1888

Email: ati@alliancetrust.co.uk
www.alliancetrustinvestments.com

Peter Michaelis

Head of Equities

The importance of a

healthy banking sector

Sophia Tickell, Founding Partner, Meteos

A healthy banking sector is vital to address the UK's economic challenges, as well as other priorities, including protection of society's most vulnerable members and de- carbonising the economy.
Reform of the sector has not yet achieved this goal. Problems such as LIBOR fixing, PPI miss-selling and the manipulation of foreign exchange markets happened after the banks had been bailed out and problems were known. The sector is a long way from regaining societal trust.
But much is being done. Since 2008, regulators have moved first to de-risk the banks and second to introduce measures to address serious and egregious misconduct (including fines for a range of crimes and transgressions, and criminal liability for institutional failure).
The challenge is, however, as much cultural as it is regulatory. Thoughtful, principled bank leaders still need to prevail
over a massive change in internal culture which transforms expectations, incentives and values.
It is also systemic. Despite their huge responsibility, the banks were not alone in causing the crisis; investors, regulators, policy- makers, and even customers, all played their part.
For reforms to stick and new leadership to gain traction we need more than strong regulators and visionary leaders. We also need citizens, policy-makers, customers, and investors to engage with - and articulate - what we, as a society, want and need from our banks.
To achieve this goal Leaders' Quest and Meteos* have convened a group of bank leaders, investors and sustainability
& governance experts to catalyse a vibrant public consultation on what is needed to rebuild a healthy UK banking sector. The BankingFutures Group has produced a public document of its initial findings for consultation with all banking stakeholders. The document will be the subject of roundtable discussions
from June to October 2015 and the process will culminate in the publication of a public report in December 2015.
Investors will be critical in this dialogue. The banks are operating in a fast-moving environment which they will need to navigate with the support of their investors. It is critical that forward- thinking investors help articulate how value creation can be made to work for shareholders, banks AND society. Only then will we have the banking sector we want and need.

* Leaders' Quest is a social enterprise that works with global leaders from all sectors to create a more inclusive and sustainable world. We are passionate about the role of business as a force for social good - alongside delivery of financial performance. Through our work, we challenge and support individuals to explore purpose and implement meaningful change in their organisations. http://www.leadersquest.org/quest/events/bankingfutures

Meteos is a not-for-profit company that undertakes cross-sector, multi-stakeholder dialogues. Our dialogues, focused on finance, health and the environment, provide a forum for senior figures in the corporate sector, civil society, public sector and

investment worlds to share different perspectives on the major trends that will shape market, regulatory and societal outcomes in coming years. http://www.meteos.co.uk/projects/bankingfutures/

2 | SF News | JULY 2015 | www.alliancetrustinvestments.com

David Osfield, Investment Manager

A short search for the dictionary definition of subsidy provides the following insight - "A sum of money granted by the state or a public body to help an industry or business keep the price of a commodity or service low". The word has longevity (late 14th century), effectively derived from Anglo-Norman French subsidie or Latin subsidium, implying assistance.
In today's context, subsidies continue to be used widely in order to encourage consumption of goods and services with positive benefits, particularly when part of that benefit accrues to society. At the simplest level, subsidies alter the supply & demand dynamics of a free market. The laws of economics state that, ceteris paribus, subsidising the cost of a good typically leads to an increase in consumption of that good.
A fossil fuel subsidy is any government action that lowers the cost of fossil fuel energy production, raises the price received by energy producers, or lowers the price paid by energy consumers. Fossil fuel subsidies can also come in many different forms, which can
lead to significant discrepancies in their estimates. For example, the International Energy Agency (IEA) focuses largely on subsidies that have a direct impact on the consumer, whereas the International Monetary Fund (IMF) includes those aimed at producers, such
as tax relief and the cost of carbon. That said, the majority of subsidies in emerging countries relates to consumption rather than exploration & production. Regardless, fossil fuels account for the majority of our total energy consumption, and hardly represent a fledgling industry in need of support.
In emerging nations, fossil fuel subsidies have proven to be one of the most difficult challenges to address by policymakers. Historically, fuel subsidies have been part of policy intervention mechanisms designed to protect the lower-income part of the population from highly volatile commodity prices. Perhaps surprisingly, IMF research suggests such policies on fossil fuel subsidies actually widen the gap between high and low income populations. Furthermore, IEA analysis indicates that only 8%
of the subsidy typically granted reaches the poorest income populations (IEA, 2011). A recent World Bank paper agrees - "in low and middle-income countries, the richest 20% received
six times as much from fossil fuel subsidies as the poorest 20%."
A fair conclusion is that as a social welfare tool, it is clearly failing.
The IEA's latest estimates (for consumption) indicate that fossil fuel consumption subsidies worldwide, amounted to $548 billion
- see graph opposite. This is the equivalent to four times the value of subsidies to renewable energy and more than four times the
subsidies has been estimated by the IEA at $1.3 trillion in 2011 -
or 2.5% of global GDP.
Clearly, the pervasiveness of fossil fuel subsidies brings about inefficient energy use leading to excessive carbon emissions. This costs governments dearly, in terms of exacerbating fiscal
deficits, but the social and chronic health issues resulting from the increased air pollution can be even more damaging.
On the positive side, there is potential for re-allocating the funding of these damaging policies to more productive, sustainable policies such as improving energy efficiency. The recent changes of government in Indonesia and India, have led to positive changes aided by the fall in oil price. Indonesia's decision to remove its extensive transport fuel subsidies is expected to save up to $8bn a year. Further progress on closing down expensive oil-based power plants would be well received. In India, the new Modi Government took positive steps to eliminate state controls on diesel prices, while introducing a new scheme to alleviate poverty through better administration of the LPG subsidy programmes. Spending on fossil- fuels in India is reportedly $42.8bn or c.2.3% of GDP according
to a 2012 IEA paper - double the public expenditure on health, estimated by the World Bank at 1.2%-1.3% of GDP.
In summary, reallocating state funding away from these damaging subsidies towards sustainable sources will, in our view, be more beneficial for both society and the economy in the future. In terms of stock specific exposure, companies that offer productive energy efficiency solutions, such as Daikin, have a strong opportunity to capture a portion of this reallocated budget.

References:

http://www.economicshelp.org/micro-economic-essays/marketfailure/subsidy-positive-ext/- subsidies - positive externalities

Global fuel subsidies, 2012

Oil

Electricity*

amount invested globally in energy efficiency improvements.
But there are greater distortions, as a study by the IEA in the South-East Asia (ASEAN) region in 2013 found that the payback period for energy efficiency measures doubled due to the presence of energy price subsidies. Such a distorted production and consumption pattern for resources has significant negative
environmental and social impacts. In terms of estimated footprint, the IMF has calculated that global carbon emissions would have

$135bn

$7bn

$124bn

$277bn

Natural Gas

Coal

been 4.5billion tonnes (13%) lower without these subsidies. The impact on carbon emissions is heightened by the fact that these subsidies stall the growth of cleaner fuels and new
energy technology. Taking these into account, the global cost of

Global fossil fuel subsidies $544bn

* Fossil fuels used to generate electricity

Source: IEA

Global renewable subsidies $101bn

3 | SF News | JULY 2015 | www.alliancetrustinvestments.com

Fund in focus:

The Alliance Trust Sustainable Future

Absolute Growth Fund

Simon Clements, Investment Manager Global Equities

Peter Michaelis, Head of Equities

Fund aim

• Long-only global growth fund with an emphasis on capital growth and capital protection through the cycle. It will only invest in companies that meet our rules for environmental and social responsibility.

Why should I buy?

• Consistently good performance against the sector average with an award-winning team and investment process.

• Concentrated portfolio of best ideas combined with the tactical use of cash and index options to protect capital gains.

• Geographic diversion allows the Fund to benefit

across markets and gain exposure to high growth markets.

• Process benefits from constructive dialogue with companies via active voting and engagement programmes.

Launch Date: 19 February 2001

Fund Size: £102m as at 30/06/2015

No. Stocks: 40-60*

IMA Sector: Flexible Investment

* Please read the fund factsheet for the actual number of stocks held at the most recent quarter end.

Outlook

• Economic growth continues to improve at the margin, with the US economy remaining relatively strong, and Japan and Europe improving.

• More liquidity from Central banks in China, Europe and Japan, this should continue to underpin strong equity markets.

• Greece presents near term risk but the start of the

US interest rate cycle at the end of 2015, or early
2016, is the clearest risk to global equity markets -
we plan to use options to protect capital.

Performance

180

155

130

105

SF Absolute Growth**

IA Flexible Investment

For further information about the Fund visit the Fund Centre on our website www.alliancetrustinvestments.com. Read on to find out why sustainable

80

Dec

10

Jun

11

Dec

11

Jun

12

Dec

12

Jun

13

Dec

13

Jun

14

Dec

14

Jun

15

stocks can generate stronger returns.

Year on Year Performance (%)

Retail - Share Class 1 8.4 6.0 23.5 -8.3 24.9

Institutional - Share Class 2* 9.3 6.9 24.5 -7.6 25.8

IA Sector** 7.0 7.8 15.3 -6.2 16.9

Quartile 2 3 1 3 1

Source: FE, performance data up to month end, bid to bid, net income reinvested.

* Availability of this share class is subject to a minimum investment level. Please see the relevant Key Investor Information Document ('KIID')

and the Supplementary Information Document 'SID') for more details.

** Share Class 1

Past performance is not a guide to future performance. Investments can go down as well as up. You may get back less than you originally invested.
The Fund has holdings which are denominated in currencies other than Sterling and may be affected by movements in exchange rates. Consequently the value of an investment may rise or fall in
line with the exchange rates. Investments in emerging markets may involve a higher element of risk due to less well regulated markets and political and economic instability. Funds which undertake ethical screening to meet their investment aims are unable to invest in certain sectors and companies. Our exclusion of some areas
of the market (on ESG grounds) may result in periods of under- performance with respect to relevant benchmarks. For instance if tobacco stocks were enjoying extremely strong returns we would not be able to participate in their gains. The Fund can invest in derivatives. Derivatives are used to protect against currencies, credit and interests rates move or for investment purposes. There is a
risk that losses could be made on derivative positions or that the counterparties could fail to complete on transactions.

4 | SF News | JULY 2015 | www.alliancetrustinvestments.com

Five companies to watch in the

Sustainable Future funds

Below are five companies the team has identified which demonstrate our investment philosophy in practice. This is not a recommendation to buy or sell. By Martyn Jones, Investment Analyst.

Wessanen (B1*)

Wessanen is a Dutch food company that manufactures and distributes a range of natural and organic food products. The majority of Wessanen products are nutritionally-focused (low sugar and salt content from natural unrefined sources). Furthermore, all of Wessanen's products are made with non-GMO ingredients and it only uses sustainable palm oil. The demand for healthy and natural foods is growing significantly faster than the rest of the market and Wessanen is a well-managed pure-play on this theme.

Crest Nicholson (B2*)

Crest Nicholson is a UK housebuilder focused largely in the South East of England. It has a strong focus on sustainability and the homes it builds are typically 25% more efficient than the current UK regulations require and the majority of new homes are fitted with smart meters. In 2013, Crest Nicholson was awarded the Sustainable Housebuilder of the Year award. Crest Nicholson continues to benefit from the UK's 'Help to Buy' scheme, a cheap mortgage market and an improving UK economy with unemployment decreasing and improving consumer confidence.

Hennes and Mauritz (B3*)

Hennes and Mauritz is a global clothing manufacturer and retailer based in Sweden.

It owns and operates the H&M, COS, Weekday, Cheap Monday, Monki, and H&M Home brands. Over the last five years H&M has made significant investments into its supply

chain, this includes the development of a stringent supplier audit programme and building long-term relationships with suppliers. We believe this is the right move, both ethically

and commercially, given the loss of life and brand damage resulting from the poor working conditions in developing countries.

4 3i is a leading private equity manager based in the UK. The company invests predominantly

How we identify sustainable companies

Our comprehensive 'Sustainability Matrix' helps us to pinpoint how well a company responds to our sustainability criteria and applies two evaluative criteria:

1 A product sustainability rating (rated from A to E): this assesses the extent to which a company's core business (the products or services it offers), helps or harms society and/or the environment. An 'A' rating indicates a company whose products or services provide solutions to sustainable development (e.g. renewable energy); an 'E' rating indicates a conflict with sustainable development (e.g. tobacco business).

2 A management quality rating (rated from 1 to 5): this assesses whether a company has appropriate structures, policies and practices in place for managing its environmental, social and governance risks. Management quality in relation to the impacts and opportunities represented by social, environmental and governance issues are graded from 1 (excellent) to 5 (poor).

3i (C2*)

in the Pan-Europe region, in a broad range of industries. From a sustainability perspective

the company has taken sustainable responsible investment seriously, with each Investment Manager responsible for the environmental, social and governance performance of their investments. 3i has demonstrated its commitment to sustainability by signing the United Nations Principles of Responsible Investment (UNPRI).

5 Alexion (A3*)

Alexion Pharmaceuticals is a biopharmaceutical company which engages in the

innovation, development, and commercialisation of therapeutic products for treating patients with severe and ultra-rare disorders. By way of context, in a population of

1 million people it is estimated 49,000 have diabetes (5%), 650 have a rare disease (0.065%) and fewer than 20 have an ultra-rare disease (

Please note these companies are held in the Sustainable Future equity funds, but are not necessarily represented in all of the funds. For example, the non-UK listed companies will not be held in the UK fund. A full list of all holdings in the funds is available in our Fund Centre on our website www.alliancetrustinvestments.com

✔ suitable for investment

✘ not suitable for investment

We use our influence and strength as a major investor to engage with companies which currently sit outside our investable area, based on our management and sustainability criteria. We work with these companies to enhance their ratings by suggesting improvements to processes, management structure and more. We believe this approach is mutually

beneficial, providing us with a more diverse range of companies in which we can invest for our customers, as well as assisting companies to develop their sustainability process which can ultimately have a positive effect on

financial performance.

5 | SF News | JULY 2015 | www.alliancetrustinvestments.com

SF HUB Sustainable Future Join the conversation

Best bits from the SF Hub

Jo Raven, Management Trainee (Published 7 July 2015)

The world is turning to cycling in an effort to include physical exercise into daily routines, as well as seeking cheaper
and more eco-friendly transport alternatives, amidst high transportation costs, worsening traffic congestion and time- constrained lifestyles.
The percentage of people who currently cycle regularly in Europe is 8% - this figure is much lower than the cycling levels in Denmark and the Netherlands, but it is still a 1% increase from
2010 levels. More importantly, there are now six other countries with cycling levels higher than the EU average - Hungary (22%), Sweden (17%), Finland (14%), Belgium (13%), Germany (12%) and Slovenia (9%).
The UK has some of the lowest levels of cycling at 3% - see figure

1 below, but the good news is that this is increasing, particularly in London, where cycling levels have risen by 150% since 2000, according to Transport for London.

Cycling levels in London are expected to increase further with the Mayor's 'Vision for Cycling' which expects to spend over
£900 million over the next 10 years to make London friendlier for cyclists. This will be done through purpose-built infrastructure,
a key enabler in the drive towards increasing the percentage of people who choose to cycle.
The USA is fairly similar to the UK, with only 2% of the population cycling regularly, but again levels have been rising and there was
a reported 76% increase in the number of people taking out USA Cycling licenses between 2002 and 20131.
China is somewhat different - bicycles were once a cultural symbol, but as the economy grew and disposable incomes increased, so did car ownership, at the expense of the bicycle. The situation has started to swing back however, with horrendous 62 miles, nine-day traffic jams and a severe deterioration in air quality, meaning people are beginning to re-think their travel options.

How big is the bicycle market?

The global bicycle industry in 2014 was estimated to be worth U$51 billion - see figure 2 below, with this figure expected to grow by 3.5% compound annual growth to around U$65 billion
by 2019 - compared to the global golf equipment industry which is forecasted to average 1.9% compound annual
growth to 20192.
China is the largest producer of bicycles, but the majority is low- end units which have an average selling price of less than U$1003.
The real winners in the industry are those who focus on the mid and high end of the market, where bicycles sell at a premium and can even cost thousands of dollars in some cases.
In our view, we believe that this segment of the bicycle industry will benefit as cycling becomes the preferred recreational activity and a lifestyle choice, particularly among wealthy professionals in both the US and Europe, as well as in China, where demand for high end bicycles is growing at 20%-30%.

Figure 1: EU cycling modal share

%

40

35

30

25

20

15

10

5

0

Figure 2: Global bike industry expected to record 3.5% CAGR during 2012-19

US$bn

70.0

65.0

60.0

55.0

50.0

45.0

40.0

35.0

30.0

2012 2013 2014 2015E 2016E 2017E 2018E 2019E

Source: The European Commission, Quality of Transport Report 2014

Source: Research and Markets, NPD Group

Continued overleaf >>

6 | SF News | JULY 2015 | www.alliancetrustinvestments.com

SF HUB Sustainable Future Join the conversation

Best bits from the SF Hub

Cycling: secular growth continued

Figure 3: European e-bike market

Millions

1,400,000

1,200,000

1,000,000

800,000

600,000

400,000

200,000

0

2010 2011 2012 2013 2014

Europe Germany The Netherlands

Source: Accell Group, 2014

What about e-bikes?

Electric bicycles (or e-bikes) have an integrated motor to assist with pedalling, allowing greater distances to be travelled with less physical effort. E-bikes are not a new thing; however, thanks to innovation and technological development in the reduction
of battery size and the release of trendier models, e-bikes have become increasingly popular.
According to Navigant Research, global annual sales of e-bikes in
2014 were approximately 32 million and this figure is expected to exceed 40 million units by 2023. China leads the way with an estimated 170 million people using e-bikes daily. In Europe, growth has been mainly concentrated in Germany and the Netherlands, which account for over 50% of the European
e-bike market - see figure 3 above.

The US has yet to significantly embrace this new trend and it is still very much a novelty. It is also worth noting that future mass adoption of this trend could be limited in the US due to regulation - in New York all e-bikes are regulated in the same

Figure 4: Percentage of global population living in urban areas, 1960-2015

Global population (%)

72

60

48

36

24

12 Urban population Rural population

0

Source: World Urbanizations Prospects 2014

way as motorbikes, whereas in the EU, e-bikes can go up to 25km p/hour before motorbike regulations kick in.

Why are people cycling more?

A lifestyle choice - it is increasingly becoming the preferred recreational and fitness activity, even being referred to by Reuters and Business Insider Magazine as the new golf. This is largely due to the changing demographics of cyclists; about a third of cyclists have household incomes above U$100,000 a year, which is 63% more than 10 years ago and are therefore able and willing to pay more for a bicycle4.

Urbanisation - more people living and working in urban areas

- see figure 4 opposite, meaning shorter distances between the home and the workplace - cycling to work therefore becomes a more efficient, convenient and cheaper form of transport.
Traffic Congestion - a traffic index by TomTom5 estimated that the average driver loses eight working days per year due to traffic congestion.

Government and Legislation - cycling is becoming an important part of the package of measures being used by governments

to help improve air quality, particularly in urban areas. In some cases it is even being used to help combat obesity. Such is the case in Boston where doctors are able to 'prescribe-a-bike' to low-income patients to get a discounted year membership to the city's bike sharing schemes. Bike-sharing schemes have

Continued overleaf >>

7 | SF News | JULY 2015 | www.alliancetrustinvestments.com

SF HUB Sustainable Future Join the conversation

Best bits from the SF Hub

Cycling: secular growth continued

increased globally since 2000 and there are currently 712 cities operating schemes - see figure 5 below.

High transport costs - 14% of total weekly expenditure in the

UK is spent on transport - see figure 6 below. It is a large component of total household expenditure, just after housing, fuel and power.

Key challenges

Air pollution in China - the illustrated map in figure 7 opposite

shows levels of air pollution in China with red indicating
'moderate' air pollution, purple and dark red indicate 'heavy' and 'severely heavy' respectively. China's air quality has become so bad that people are choosing not to go outside and take
part in outdoor activities such as cycling. However, the Chinese government is currently embarking on a number of initiatives aimed at improving air quality, including promoting cycling as a mode of transport. Research shows that cycling is still better

for your health, even after factoring in exposure to pollution and the risk of an accident. The air quality won't improve overnight, but steps are already being taken to improve it and cycling will benefit from this challenge in the long term.

Figure 5: Bike-share schemes by region

Number of programmes

400

Figure 7: China air pollution levels

Source: AQI (Air Quality Index)

Chinese competition - bicycle manufacturing companies in China compete aggressively on price rather than on quality and average selling prices can be 20%-25% lower than Taiwanese brands. A potential risk is that Chinese manufacturers will start to produce better quality bicycles as this would result in increased competition for the already well-established players in this middle market, i.e. neither the cheap end nor the higher end of the market. We believe this is unlikely to happen in the short term; in order to get to this point, Chinese manufacturers will need serious

300

200

100

0

Europe

Asia-Pacifc North America Middle East Latin America

investment to develop components and the technology that the
established players already have, which is around 40 years ahead in terms of research and development.

Chinese economic slowdown - Slower growth in China and weaker consumption power is weighing on demand.

Potential winners

Although we are not currently exposed to this theme within the Sustainable Future funds, there are a number of stocks we are watching which fall under one of our main themes, quality of life.

2000 2002 2004 2006 2008 2010 2012

Source: Earth Policy Institute, 2012

Figure 6: Breakdown of average total household expenditure (£s per week)

These include bicycle manufacturers Accell Group, Giant, Merida,
Samchuly Bicycle and bicycle component manufacturer Shimano as well as KMC, which is a roller chain manufacturer. Although these companies are set to benefit from a boom in cycling, before investing we undertake rigorous price analysis of each stock, to ensure there is value to be gained. We are currently in the process of doing this, and expect to invest later in the year.

Housing(net), fuel & power

Transport

Recreation & culture

Food & non-alcoholic drinks

Restaurants & hotels

Miscellaneous goods & services Household goods & services Clothing & footwear

Communication Alcoholic drinks, tobacco & narcotics Education

Health

0

10 20 30 40 50

60 70

80 90

References

1 UK Business Insider (2015). Millionaire entrepreneur explains why cycling - and not golf- is the new sport of choice for young professionals http://uk.businessinsider.com/cycling-is-the-new-golf-2015-2?r=US

2 Yahoo Finance (2015) Reportlinker: Golf Equipment in Markets in the World to 2019

- Market Size, Trends and Forecast http://finance.yahoo.com/news/golf-equipment-markets-world-2019-224500616.html

3 The Financialist, Credit Suisse (2014) Taiwan: The Bicycle Kingdom http://www.thefinancialist.com/taiwan-the-bicycle-kingdom/

4 Reuters (2015) As popularity of golf wanes, fund managers bet on cycling http://www.reuters.com/article/2015/02/13/us-funds-cycling-idUSKBN0LH1VD20150213?irpc=932

5 CNN Money, World's 10 worst cities for traffic: http://money.cnn.com/gallery/

Source: Office for National Statistics, 2013

news/2013/11/06/global-traffic-congestion/index.html

8 | SF News | JULY 2015 | www.alliancetrustinvestments.com

SF HUB Sustainable Future Join the conversation

Best bits from the SF Hub

Auto safety

Adrien Bommelaer, Investment Manager (Published 8 July 2015)

We see Auto Safety as an important theme for investors in 2015. This stems from the quantity of lives that are taken every year as a result of road accidents. As seen in figure 1 below, it is the eighth leading source of death behind birth asphyxia & trauma, AIDS and ahead of lung disease and malaria.

Figure 1: The 20 leading causes of YLL (years of lost lives) - globally, 2012

1. Ischaemic heart disease

2. Lower respiratory infections

3. Stroke

4. Preterm birth complications

5. Diarrhoeal diseases

6. HIV/AIDS

7. Birth asphyxia and birth trauma

8. Road injury

9. Chronic obstructive pulmonary disease

10. Malaria

11. Congenital anomalies

12. Neonatal sepsis and infections

Figure 3: Casualties in the EU are declining -

2001-2020

60,000

54,900

50,000

40,000

31,500

30,700

13. Self-harm

14. Trachea, bronchus, lung cancers

15. Diabetes mellitus

16. Tuberculosis

17. Cirrhosis of the liver

18. Interpersonal violence

19. Meningitis

20. Protein-energy malnutrition

0 1 2 3 4 5

6 7 8 9

30,000

20,000

10,000

28,100

26,000

Male

Female

Proportion of total YLL (%)

2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

Source: World Health organisation

Source: CARE (EU road accident database)

More importantly, this problem has not improved over the last ten years, with road injuries increasing by 14% between 2002 and 2012 shown in figure 2 below.

Figure 2: Changes in YLL due to leading causes - globally - 20012-2012

Measles (-79%) Diarrhoeal diseases (-40%) Malaria (-32%) Tuberculosis (-32%)

Lower respiratory infections (-30%) Birth asphyxia and birth trauma (-29%) Neonatal sepsis and infections (-21%)

Preterm birth complications (-14%)

For example, it is much more dangerous to drive in India and China than it is in Europe or the USA. In our view, this all comes down to regulation and safer cars. These regulatory initiatives stem from either the public sector or the private sector: NHTSA (National Highway Traffic Safety Administration), Euro NCAP standards, UN decade for road safety, EU standards etc. If we look at figure 4 below data has shown that the implementation

of stricter safety rules has achieved significant results.

Figure 4: Total number of road deaths per

100k vehicles (2010)

HIV/AIDS (-12%) Self-harm (-12%)

Congenital anomalies (-7%) Chronic obstructive pulmonary disease (-5%) Stroke (+12%)

Road injury (+14%)

Ischaemic heart disease (+16%)

Road deaths +14%!

2002-2012

India China Brazil Mexico

Argentina

139

64

54

370

1,035

2002 2012

Source: World Health organisation

0 50 100 150

Total YLL due to each cause (millions)

USA 14

Italy 11

France 10

Canada 10

However, there is hope, as shown in figure 3 above, the data for
the European Union shows casualties have come down due to stricter regulation, suggesting that lives can be saved.
Looking into more detail, unsurprisingly there are significant differences in the number of road casualties by region.

Japan 9

Germany 8

United Kingdom 6

Source: World Health organisation

Emerging markets Developed markets

Continued overleaf >>

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Auto safety: continued

Auto safety is, in our view, at a turning point and that provides investors with a number of opportunities. During the last

Figure 5: Active safety - next step to save lives (Fatalities per 100M miles)

6

forty years, increased auto safety has been driven essentially by regulation, forcing improvements in passive safety such as seatbelts, airbags or anti-lock brakes. Going forward, the
improvements are now expected to come from active safety - see figure 5 opposite, which aims to prevents car crashes from happening in the first place.
The auto industry is still in the early stages of implementing

Seat belts

5

4

3

2

Seat belt mandates

Energy- absorbing bumpers

Airbags

Anti-Lock

Brakes

Child seats

Side/curtain airbags

ESC

Active suspensions

Active safety

active safety and what it will encompass exactly is not clear.
Today, the active safety measures currently implemented in cars include emergency steering assist or blind spot detection as seen in figure 6 below.
Tomorrow, the automotive industry will benefit from more processing power. Cars will be connected to themselves

1

1965

Source: Delphi (2015)

Occupant detection

1985 2005 2025

and their environment. The next step will be the emergence

Figure 7: Automotive semiconductor growth

of the autonomous car. Cars will have more electronic and semiconductor content, so large quantities of data can be collected by a number of sensors and cameras, which will be used to assist driving. As a result, the automotive industry will be the only industry to see growth in semiconductor content per device in the future as seen in figure 7 opposite.

Growth in Semiconductor Content

Per Device (2014-2018)

%

4

2.9%

2

0

-0.3%

-2

Automotive Semiconductor Value

Total Revenue (US$)

40

30

20

There are a number of ways for investors to play this theme.
Companies exposed to this theme include auto parts suppliers such as Harman, Continental or Dephi, as well as

-4

-4.9%

-2.4%

-2.5%

-2.0%

10

-5.1%

semiconductor or technology suppliers such as Ambarella,
Mobileye or Linear Technology.

-4.8%

-6 0

Source: Bernstein

Figure 6: Active safety today

Traffc Sign Assist

Lane Keeping

Blind Spot Detection

Adaptive Cruise Lane Change Assist

Collision Mitigation Braking

Emergency Steering Assist

Emergency Brake Assist

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A fashion revolution has

Sarah Ditty, Fashion Revolution

Foreword by Neil Brown, Investment Manager (Published 15 May 2015)

Two years on from the collapse of the Rana Plaza complex
in Bangladesh it appears we may be reaching a watershed in global clothing production. The Fire and Safety Accord, set up in the aftermath of the Rana Plaza collapse, has published the first inspections on its website, The Alliance, which was founded by
a group of North American apparel companies who have joined together to develop and launch the Bangladesh Worker Safety Initiative, is showing similar progress. Also the Modern Slavery Act has now become law in the UK.
One of the key issues throughout this process has been the need for transparency. We want to invest in companies that stand to gain from increased transparency; companies whose sales forecast are not at risk when their customers know how their clothes are made, companies whose costs will not need to rise to provide
safe, decent work in their supply chains.
Sarah Ditty, Head of Policy at Fashion Revolution Day, discusses the impact they have had in encouraging consumers to ask the simple question of their favourite brands; "Who Made My Clothes?"
24th April 2015 marked two years since 1,133 people died in the Rana Plaza catastrophe in Dhaka, Bangladesh. A further 2,500 people were injured. They were killed while working for familiar fashion brands in one of the many 'accidents' that plague the garment industry. On this day, thousands of people took to the internet and
to the streets to challenge the way the fashion industry works.
'Fashion Revolution Day' was launched to keep the most vulnerable people in the supply chain in the public eye and to make sure a tragedy like the Rana Plaza collapse never happens again. By asking consumers, designers, brands, and all those who care to ask a simple question "Who Made My Clothes?" Fashion Revolution aims to change the narrative around clothing and to inspire a permanent and positive change in the fashion industry.
If this activity showed us anything, it's that a revolution has been sparked. There were over 1,000 blogposts and articles written about Fashion Revolution Day circulating the internet in April - from CNN, Forbes, and Entrepreneur to Elle, Vogue and Glamour. The media reach was staggering, figures show that Fashion

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A fashion revolution has been sparked: continued

Revolution content was viewed over 14 billion times. In digital marketing land, this reach would equate to a cost of at least $60 million. Fashion Revolution reached millions of people without costing a single dollar. Clearly, the world wants to know that what it wears has not been made at the expense of the people who made it.
Governments are beginning to pay more attention too. Responsibility in garment supply chains has been put on
the agenda at both the regional and international level. The European Commission has launched a multi-stakeholder forum on responsible management of the supply chain in the garment sector, with a mixed representation of business, civil society, and
Member States. The G7 also recently held a high level meeting to discuss putting sustainable supply chains on the agenda for June's Summit in Germany. Members of Fashion Revolution, including me, have been involved in those talks.
An Italian MEP called upon the European Commission just last week for new EU rules on traceability and transparency in the textiles and clothing sector, including legislation that would require businesses to conduct due diligence with regard to human rights. One thing has become clear: the time to agree a set of global common standards has finally come and these standards ought to be made legal requirements.
Both the European Commission and G7 Foreign Ministers want to be seen to be tackling these issues, but of course, they've got to do more than just be seen to be doing something. Governments have to put their words into action if they're going to convince the millions of people who took part in Fashion Revolution Day.
Next year, Fashion Revolution Day is set to reach even more people. Brands, retailers and governments should expect to keep facing this pivotal question: "Who Made My Clothes?" And we'll keep asking until we all get real answers.
Sarah Ditty is the Editor-in-Chief of SOURCE Intelligence, the B2B magazine run by the Ethical Fashion Forum. Sarah's work focuses on covering social, environmental
and commercial best practice for the fashion sector. As a writer and speaker, Sarah has covered issues of sustainability and fashion for the likes of BBC, CNN, ITV, The Guardian, Time Out, Just-Style, Fibre2Fashion,
London College of Fashion and the City of Seoul. Sarah is also a member of the UK government's Sustainable Clothing Action Plan steering committee, the EU's Stakeholder Group on Responsible Supply Chains in the Garment Sector and has done freelance consulting on a number of projects for clients from Bombe Surprise to Nike. Sarah heads up the Framework
& Policy group for Fashion Revolution.

"We want to invest in companies that stand to gain from increased transparency; companies whose sales forecast are not at risk when their customers know how their clothes are made, companies whose costs will not need to rise to provide safe, decent work in their supply chains."

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We have nine funds in our Sustainable Future fund range - a comprehensive suite encompassing options for those seeking income, growth or a combination of the two from their investment. You can find further information on each fund in the Fund Centreat

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For further information on what we invest in, please see our document 'Position on Sustainability and Ethical Issues'which is available on our website www.alliancetrustinvestments.com

Alliance Trust Investments Limited is a subsidiary of Alliance Trust PLC and is registered in Scotland No. SC330862, registered office, 8 West Marketgait, Dundee DD1 1QN; is authorised and regulated by the Financial Conduct Authority, firm reference number 479764. Alliance Trust Investments gives no financial or investment advice. ATI SRI MAG 0006

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