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ESG: Why investors need a new way to engage with companies

Engaging with investees is at the core of ESG. But the issues are now so complex that we need another approach. Regnan’s ALISON EWINGS explains

COLLABORATION and co-ordination among all parts of society are needed if sustainability goals are to be achieved, says Alison Ewings.

Company-specific engagement remains important for driving direct outcomes. But many aspects of meaningful change can only come when businesses, not-for-profits, researchers and governments share information and co-ordinate action.

That’s the approach Regnan’s head of engagement Alison Ewings is increasingly taking.

Sustainable investing leader Regnan last month hosted its first Director Roundtable on Sustainable Agriculture, bringing together senior executives and directors to identify barriers to sustainable agricultural and food production.

“There’s still a role for company-specific engagement, but the complexity of many of the ESG issues we’re facing means there are a host of instances where this approach is limited,” says Ewings.

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Part of the problem is that individual companies are constrained in the sustainability outcomes they can achieve acting alone, she says.

Case study: agriculture

Agriculture is a case in point, with complex sustainability issues across the value chain including climate change, soil health, pollution, water scarcity, food waste and biodiversity and eco-system loss.

Growers can be limited in what they can do because they need to meet the specifications of supermarkets and food manufacturers.

There is evidence they are struggling to invest in sustainability because lenders and investors may not ascribe a value to improvements, says Ewings.

“You can go to a lot of effort to improve your soil health, but if that doesn’t show up in the value of your asset then you might question the investment,” she says.

Sustainability is further complicated by the many small companies operating in agriculture.

By their nature, many small companies also have lower capacity to invest in sustainability and may not benefit from the same technology and advice that scale allows larger companies enjoy.

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“And of course, not all of these entities exist in the listed space, so engagement sometimes means going beyond your investment universe, for instance engaging with private companies or industry associations representing these smaller groups,” says Ewings.

The waste industry is another example, requiring partnership across industry, regulators and academia to understand the full lifecycle impacts of the waste cycle.

Laws, regulations and practices differ from state to state and even between local councils, says Ewings.

“A system-wide approach is going to be required in order to change complex value chains,  that stretch across our entire economic and social system. For instance energy, finance and manufacturing.”

What needs to change

So, what are the barriers stopping Australia taking such an approach?

For starters, different levels of government are posing a challenge.

“There can be a need to harmonise state and local legislation where it creates inefficiencies or barriers to scale for solutions. The recycling space, for instance, comes up quite a lot.”

But business also needs forums away from the competition of business-as-usual where executives and directors can reflect and collaborate with suppliers and customers.

“A good example is the steel sector and ResponsibleSteel, an association across the supply chain that acknowledges the R&D challenge for low carbon steel are significant and therefore difficult for any single company to be able to invest enough to bring the change that is needed.

“Many of these challenges are multidisciplinary and so require a multi-stakeholder response, within and across sectors, as well as from consumers, governments and the right scientific minds.

About Regnan

Regnan is a responsible investment leader with a long and proud history of providing insight and advice to investors with an interest in long-term, broad-based or values-aligned performance.

Building on that expertise, in 2019 Regnan expanded into responsible investment funds management, backed by the considerable resources of Pendal Group.

The Regnan Global Equity Impact Solutions Fund invests in mission-driven companies we believe are well placed to solve the world’s biggest problems.

The Regnan Credit Impact Trust (available in Australia only) invests in cash, fixed and floating rate securities where the proceeds create positive environmental and social change. Both funds are distributed by Pendal in Australia.

Visit Regnan.com

Find out about Regnan Global Equity Impact Solutions Fund

Find out about Regnan Credit Impact Trust

For more information on these and other responsible investing strategies, contact Head of Regnan and Responsible Investment Distribution Jeremy Dean at jeremy.dean@regnan.com.

This information has been prepared by Pendal Fund Services Limited (PFSL) ABN 13 161 249 332, AFSL No 431426 and is current as at June 29, 2022. PFSL is the responsible entity and issuer of units in the Regnan Global Equity Impact Solutions Fund (Fund) ARSN: 645 981 853. A product disclosure statement (PDS) is available for the Fund and can be obtained by calling 1300 346 821 or visiting www.pendalgroup.com. The Target Market Determination (TMD) for the Fund is available at www.pendalgroup.com/ddo. You should obtain and consider the PDS and the TMD before deciding whether to acquire, continue to hold or dispose of units in the Fund. An investment in the Fund or any of the funds referred to in this web page is subject to investment risk, including possible delays in repayment of withdrawal proceeds and loss of income and principal invested. This information is for general purposes only, should not be considered as a comprehensive statement on any matter and should not be relied upon as such. It has been prepared without taking into account any recipient’s personal objectives, financial situation or needs. Because of this, recipients should, before acting on this information, consider its appropriateness having regard to their individual objectives, financial situation and needs. This information is not to be regarded as a securities recommendation. The information may contain material provided by third parties, is given in good faith and has been derived from sources believed to be accurate as at its issue date. While such material is published with necessary permission, and while all reasonable care has been taken to ensure that the information is complete and correct, to the maximum extent permitted by law neither PFSL nor any company in the Pendal group accepts any responsibility or liability for the accuracy or completeness of this information. Performance figures are calculated in accordance with the Financial Services Council (FSC) standards. Performance data (post-fee) assumes reinvestment of distributions and is calculated using exit prices, net of management costs. Performance data (pre-fee) is calculated by adding back management costs to the post-fee performance. Past performance is not a reliable indicator of future performance. Any projections are predictive only and should not be relied upon when making an investment decision or recommendation. Whilst we have used every effort to ensure that the assumptions on which the projections are based are reasonable, the projections may be based on incorrect assumptions or may not take into account known or unknown risks and uncertainties. The actual results may differ materially from these projections. For more information, please call Customer Relations on 1300 346 821 8am to 6pm (Sydney time) or visit our website www.pendalgroup.com

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