Pros: This fund is a market leader with one of the strongest track records of risk-adjusted returns for a specialist environmental fund. Impax also provides empirical data on emissions reductions achieved through investing in their funds which is also very attractive.
Cons: I would be cautious to label this an impact fund. Impax specialises in investing in opportunities arising because of the climate crisis as opposed to identifying how their investments can mitigate the crisis. This results in a fund with a myriad of holdings with wide varieties of environmental benefits and some level of greenwashing to justify certain stock allocations.
Overall: Impax Environmental Markets is a leader in the environmental fund sector in both returns and emission transparency which makes it a very attractive investment if you desire these high returns alongside documented environmental benefits. Unfortunately due to evidence of greenwashing and the stock selection process, I would not recommend this if you are an investor wanting the most environmental impact out of your money. The fund invests in opportunities arising from global environmental issues with many excellent holdings but does not prioritise investing for impact, which the thematic investment approaches of other activist fund managers can achieve.
The Impax Environmental markets (IEM) fund contains £756.7 million in assets spread over 62 holdings as of June 2020. Holdings must gain at least 50% of their revenues from energy efficiency, renewable energy, water, waste, or sustainable food markets. The current weighted average of revenue from these sectors is 78%.
Top 10 Holdings: Company | Holding (%) | Industry | Sustainalytics ESG Score |
PTC Inc | 3.0 | Software Solutions | 18.8 (Low risk) |
Rayonier Inc | 3.0 | Forestry | 13.2 (Low risk) |
Clean Harbours Inc | 2.9 | Hazardour Waste | 23.6 (Medium risk) |
Royal DSM NV | 2.7 | Food Services | No data |
Generac Holdings Inc | 2.7 | Electrical Equipment | 30.8 (High risk) |
American Water Works | 2.7 | Water Utility | 29.0 (Medium risk) |
Trimble Inc | 2.5 | Software Solutions | 12.9 (Low risk) |
Spirax-Sarco Engineering Plc | 2.4 | Alternative Energy | 20.5 (Medium risk) |
Darling Ingredients Inc | 2.4 | Food recycling | No data |
Aalberts NV | 2.4 | Water technology | 19.8 (Low risk) |
The top 10 holdings have an average weighted ESG score of 21.1 making it at medium ESG risk which I believe immediately brings up concerns about the fund. Looking at outliers we can see Generac Holdings Inc, a company that profits from providing petrol generators to areas after extreme climate events such as hurricanes and wildfires. From an emission and moral standpoint, this seems displaced within an environmental fund. Another issue is the fact PTC and Generac Holding Inc sectors' are both labelled as ‘Energy Efficiency’ on the Impax Interim report but ‘Software’ and ‘Industrials’ on all other financial websites. This is a clear use of greenwashing and exaggerates the positive environmental impacts of the holdings in the fund.
What the fund does give you is transparent empirical emissions reductions for your investment. Every £10 million invested in the IEM is equivalent to 4,900 tc02 emissions avoided, 600 megalitres of water saved, 1,490 MWh of renewable energy generated, and 300 tonnes of material recovered/ waste treated. This demonstrates the positive impacts that your money can make if invested in the fund.
I have quite a few issues in how the fund is constructed but first I will outline the positives. Like many environmental funds, they focus on delivering long term capital growth by investing in companies operating in fast-growing environmental and resource efficiency markets. This means that the fund focuses on many of the SDGs and allows you to invest directly into the environmental market. They also use external ESG assessments for normative screenings and have their own Impax ESG propriety rating to support this analysis.
The main criticism I have of the stock selection is that many of the large holdings make their profit out of environmental crises rather than from preventing them. I reference again Generac holdings Inc and Clean Harbours Inc which both profit out of post extreme weather events. Furthermore, in the half-yearly report Clean Harbours Inc, American Water Works and PTC Inc are all identified to benefit from monopolistic markets through high barriers to entry and ‘rare’ permits. This reference to dominating markets as an opportunity for profit rather than an issue for long-term efficiency shows how the fund is geared towards high return. I find the allowance for investment to be made in firms that will profit as an outcome of environmental issues, rather than through producing beneficial social or environmental impacts, makes this fund unattractive.
The fund is managed by Jon Forster the Senior Portfolio Manager and Director at Impax Asset Management. He has managed the fund since its launch which has become the world’s largest environmental fund and has moved into the FTSE 250 Index. The fund’s board also has high diversity with the majority of the board being female.
Impax Asset Management was founded in 1994 and specialises in understanding the investment opportunities arising from the transition to a more sustainable economy. They received a Principles of Responsible Investing ESG integration rating of A+ scoring 30 stars out of a maximum of 30. They also view proxy voting as a key activity in dialogue but are not an activist investor which puts limits on their potential influence on any individual company.