Regnan’s Crockford: The ESG industry is taking a breather – ESG Clarity

    Regnan’s Crockford: The ESG industry is taking a breather – ESG Clarity

    The sustainable investment industry is going through a “healthy workout period”, giving investors a chance to truly understand where the “different flavours of sustainability” sit within their portfolios, according to Regnan’s Tim Crockford.

    In this video interview, the manager of the Regnan Global Equity Impact Solutions fund, a high conviction, diversified, global multi-cap portfolio, discussed the outlook for sustainable investing after a period of increased demand since the pandemic.

    He also shares his views on generating financial returns and a positive impact on the environment and society, innovation in healthcare and opportunities within the circular economy theme.

    Watch the full video interview above and read the transcript below.

    NK: Hello, I’m Natalie Kenway, and welcome back to the Green Dream. Today. I’m joined by Tim Crockford, who is head of equity impact solutions at Regnan. Thank you very much for coming in today.

    TC: Thank you for having me.

    NK: I think this is an important question for anybody running an impact strategy. How do you balance finding companies that are generating a positive impact on the environment or society as well as financial returns?

    TC: Yeah, good question. This is a strategy now that we’ve been running for seven years in it’s totality. And ultimately that balance comes down to three pillars; the first thing is we’re looking for companies that have that tailwind of demand for the environmental or the social solution that’s going to be at the heart of their business and therefore their revenue and profit generation.

    The other critical element, the second critical element, is really about that company’s ability to hang on to its competitive positioning through innovation. So the moats that we are looking for in the companies we invest in are centred around that company being able to do something which is tricky to do or protected by IP or highly differentiated. And, as a result, as demand grows, that company can typically hang on to its competitive positioning as that market scales up.

    And then finally, perhaps one of the most critical parts of the recipe nowadays, it’s really about looking for ideas where no one else is looking. This is not about investing, for us at least, isn’t about investing in companies like Tesla that are well known. This is about looking for businesses in areas of the market, in areas of the value chains that we’re interested in, to find companies that are mission-critical enablers, that are yet to be discovered and hence that’s reflected in their valuation.

    NK: Okay. So, of course, my next question is, can I have some examples, please? Perhaps some recent additions to the portfolio that are really making an impact?

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    TC: Sure. Well, I guess when we talk about innovation a lot, we’re talking about what it is that makes us different. And I think this year it’s impossible to talk about innovation without talking about artificial intelligence and generative AI.

    Interestingly, there’s one company in the portfolio that we’ve been invested in since the early part of this year that really helps reduce the drastic increase in power consumption that is being driven by the large language models behind these generative AI platforms. These platforms are very, very intensive. When it comes to energy usage, when it comes to training them.

    And then, of course, the data centres that run them will require huge amounts of electricity for the actual usage and inference of these models. And there’s a company in Germany, a business that’s called Actron and listed on the Frankfurt Stock Exchange.

    That’s a business which is selling an enabling technology which allows the production of power semiconductors that run, rather than on silicon, they run on an alternative material called gallium nitride. It is really an innovative player in this space. It has a huge market share, and it’s the switch in the power electronics from traditional silicon-based electronics into a material like gallium nitride that can actually drive a 20% reduction in the electricity consumption of the datacentres or the supercomputers that are ultimately running these models.

    NK: Okay, fantastic. It is certainly something I’ve never come across before. And I think in the literature it also mentions exposure to things such as life expectancy and the circular economy. Could you touch on those a bit?

    TC: I think health and wellbeing for us has been a big area for many, many years now. If you look at how we treat ailments now and how we’re addressing some of the major killers of mankind, like heart disease for example, there are big changes coming.

    We started to see that certainly with the pandemic. And, of course, the challenges that the pandemic brought a few years back made us realise that we have to get more efficient in how we use our healthcare systems and how we treat patients. And that’s really enabled the ramping up of more personalised treatments and more innovative technologies around those treatments to make them more effective ultimately on the patients that they’re being used on.

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    I think the life expectancy part of the portfolio, health and wellbeing for us is very much about companies that are enabling this new wave of biologic drugs that are coming through new generations, that are more targeted to specific diseases and the patients that are ultimately suffering them where demand is just starting to ramp up and where within the next five to 10 years we see these sort of treatments becoming the standard of care.

    The circular economy piece is interesting because, of course, using or making more efficient use of input materials and reducing your wastage is always an important thing for the environment, of course, but it becomes much more important for companies financial progress when we’re in an inflationary environment. What we’ve been seeing is that more of our companies’ customers are looking for solutions, as in the manufacturing process, for example, that can help optimise their resource usage, that can help optimise, for example, the production process by reducing the error rates.

    The circular economy theme is really emerging into areas where there’s both an environmental as well as a financial imperative to make more efficient use of the factors of production.

    NK: What would you say is outlook for sustainable investing? Obviously, we’ve seen some big swings in sentiment in recent years?

    TC: I’ve been around for a while now in this industry for over a decade. And I think I’ve seen all of these different monikers, all of the different labels that we attach to sustainable investing. And like any trend, it’s going to go through cycles rather than in a perfectly straight line. I think if I look back over the last three years, I look back to the pandemic and what happened then, you saw a massive wall of capital coming into the space and in some cases in such a rush to invest in sustainable related products before they even understood what they were doing and how they earned their financial returns.

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    I think we’ve now gone through this healthy work-out period, and I think there is always going to be, I’m fairly confident that we will continue to see increased demand from the end investor. But ultimately, I think now the industry has had a chance to take a breather and really understand where the different flavours of sustainability fit in to a portfolio and how they how they make part of a broader portfolio and asset allocation.

    NK: We always end the Green Dream with this question. What is your favourite sustainable drink or snack?

    TC: I’m not sure if I’ve got any good, sustainable answers for that, but I’m originally from Malta, so I’m going to have to big up the country over here, my home country, and talk about a Maltese snack, which is a cheesecake, but a savoury cheesecake.

    And that’s something I always race to when I go home. I’ve stayed away from talking about my country’s beer, which would probably be my first unsustainable favourite snack.

    NK: We do get beer a lot! Well, thank you very much for your time.