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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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.”
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.
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.
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For more information on these and other responsible investing strategies, contact Head of Regnan and Responsible Investment Distribution Jeremy Dean at firstname.lastname@example.org.
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