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Impact investing: How inflation is creating sustainability opportunities

Rising commodity prices are triggering investor interest in companies that can recycle, process waste and optimise production to reduce costs, says Regnan’s TIM CROCKFORD

RISING commodity prices are triggering investor interest in companies that can recycle, process waste and optimise production to reduce costs, offering opportunity for sustainable investors, says Regnan’s Tim Crockford. 

The concept of sustainable consumption and production is part of UN Sustainable Development Goal 12, which highlights that the global material footprint – the total of all raw materials used in production – has increased 70 per cent between 2000 and 2017. 

Higher inflation underpinned by soaring prices for energy, metals and food have put SDG12 at the centre of the global macroeconomic debate. 

“SDG12 is focused on minimising your inputs, minimising your wastage,” says Crockford, who heads up equity impact solutions at Pendal’s responsible investing unit, Regnan.

“That’s been a big area of focus for me and the team for the last 18 months or so. 

“There is obviously an environmental imperative there, but increasingly with the cost of inputs rising dramatically there is now a financial imperative.” 

Crockford says there is an opportunity for investors to lean in to SDG12 and identify companies that can help reduce input needs, recycle and drive towards a circular economy that reuses waste. 

“If your bill of material is increasing, and a company can sell a product or service that can reduce the bill of material for you, that company is now going to see some demand off the back of what’s going on in the commodity space.” 

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Regnan Global Equity Impact Solutions Fund

Leaders in SDG #12

Crockford offers three examples of companies placed to win from the principles in SDG12:

Toronto-listed ATS Automation Tooling Systems provides automation systems to manufacturing companies in industries like healthcare, food and beverage, transportation and consumer products. 

“Its reason for existence is to help customers optimise the cost of production by reducing the cost of doing business,” says Crockford. 

Another example is Nasdaq-listed PTC, which offers digital transformation and internet-of-things software that integrates devices and sensors for businesses. 

“The idea is that you can figure out where your pressure points are in terms of manufacturing mistakes and wastage in terms of too much material being used, using sensors and data to analyse the manufacturing process,” says Crockford. 

At the other end of the production cycle, Crockford points to Germany’s Befesa, a recycling company that collects hazardous waste and residues and processes them back into raw inputs. 

“They can extract the zinc content out of recycled steel. They are solving a double problem – finding a way to dispose of this hazardous material and extract economically useful commodities out of it. 

“They are the biggest steel dust recycling company in the world. They are the only one that has started recycling in China, which is of course the largest steel producing market in the world.” 

These companies help save material – which is critical for building a sustainable future – but they also provide the immediate benefit of saving costs. 

“Environmental challenges are also real economic challenges,” says Crockford. 

And they are winners in an inflationary environment: “The financial return on investment for these sorts of products increases as the cost of your inputs goes up.” 

About Tim Crockford

Tim Crockford leads Regnan’s Equity Impact Solutions team and is senior fund manager of Regnan Global Equity Impact Solutions Fund. Tim previously managed the Hermes Impact Opportunities Equity Fund after co-founding the Hermes impact team in 2016.

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 July 21, 2022. PFSL is the responsible entity and issuer of units in the Pendal Focus Australian Share Fund (Fund) ARSN: 113 232 812. 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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