Regnan Sustainable Water and Waste

The team emphasises that water and waste management are essential for any economy and that sustainable growth depends on effectively managing these resources. Throughout history, cities have been built around solid water and waste systems, a pattern that they believe will continue for millennia. As the global population grows, resource consumption has reached unsustainable levels, exceeding the earth's ability to regenerate. They champion the idea that to ensure future generations can meet their needs, the world must improve its management of water resources and physical waste.

The initial stage of the investment process ensures that opportunities align with the strategy's focus on the water and waste management value chain and related industries. The bulk of idea generation comes from their experienced team, who have built a comprehensive investment universe over many years.

The team target all types of companies in the water and waste chain. For water, this can include the likes of pumps, valves, chemical treatments, testing, filtering, consulting, environmental planning, water rights, irrigation and hydro power. For waste it will include the likes of collection, transportation, air filtering, organic waste, re-usable materials (plastic, metals, rare earth, fuel), testing, hazardous waste and biological & human waste disposal.

Next, the team monitors around 350 companies within this universe. A disciplined stock selection process, using a multi-factor model and both proprietary and external ESG research, results in a portfolio of 35 to 50 stocks. This process includes a bottom-up analysis of business quality, assessment of upside potential, and ESG due diligence. Up to 30% of the portfolio may be allocated to companies showing improving sustainability indicators, with potential for further improvement via formal engagement plans.

The strategy typically has a 60% water and 40% waste split, though the team has the flexibility to allocate 100% to either sector, based on bottom-up analysis and attractive opportunities.

JOHCM’s risk management framework fosters a culture of risk awareness across the firm, involving all staff in managing risks. It follows a traditional ‘Three Lines of Defence’ model, with internal audit services provided by Perpetual. Investment oversight is led by the head of investments, with compliance and risk teams providing secondary oversight. A range of tools is used to assess risk, style analysis, and decision making, monitored through quarterly reviews and daily risk screens.

The team primarily invest in mid-caps ($5-10 billion) and will fish globally for opportunities. If sectors such as information technology, energy and/or financials dominate the market, the team is likely to underperform in the short term as they have limited or no exposure to such sectors.

ESG – Integrated
The team conducts rigorous analysis of companies’ management of ESG practices after they have met a certain minimum standard. The fund requires at least 70% of the portfolio to be invested in securities that have sustainable characteristics. The team also engages with companies to enhance ESG risk management and opportunities, assist clients in engagement strategies, and provide voting and advocacy support. Regnan’s engagement approach evaluates a company’s potential for improvement based on performance gaps, willingness to engage, and aligned initiatives. Engagement methods include meetings, letters, calls, coalition-building, and shareholder resolutions. Progress is regularly reviewed, with a stock exit strategy if no improvement is seen within 18 months.