INSIGHTS

The 2020s look set to become a decade marked by growing awareness of social and environmental issues. So it is no surprise that investors are increasingly considering the impact of their investments on the environment and society.

Introducing Impax Environmental Markets

Impax Environmental Markets (IEM) was one of the first investment trusts in the world to utilise the impact investing approach, nearly 20 years ago, and has been leading the way ever since. Impact investing involves investing in companies that are designed to generate a positive social and environmental impact alongside a financial return.

IEM’s central thesis is that the world economy is in transition from a depletive economic model to a sustainable economic model. IEM’s objective is to enable investors to benefit from growth in markets for cleaner or more efficient delivery of basic services of energy, water and waste.

IEM invests predominantly in listed companies that generate profits by providing goods and services that help solve the following environmental challenges:

• Resource scarcity exacerbated by an expanding global population.
• Replacement of ageing infrastructure.
• Demand for new infrastructure driven by urbanisation in developing countries.
• Cost constraints in the developed world requiring efficiency savings.
• Environmental pollution.
• Energy security.
• Climate change adaptation & mitigation technologies.

IEM is significantly leveraged to climate change initiatives with 26% of the portfolio invested in energy efficiency, 17% in sustainable and efficient agriculture and 9% in renewable energy.

 

Portfolio holdings underpinned by powerful drivers

IEM is seeing the convergence of several technology trends that promise to underpin performance and accelerate the growth of some of its portfolio companies.

For example, one of the trust’s top 10 holdings is Generac Holdings which provides efficient solutions for aged and under invested power grids, prone to disruption during natural disasters.

Similarly, PTC is an IT firm that offers software products which can be deployed toward leaner manufacturing capabilities. PTC’s industrial connectivity platform enables customers to connect ‘smart’ devices, analyse associated data, and create ‘Internet of Things’ applications.

Another large holding that will also benefit from climate mitigation is Rayonier, a manager of timber forests with a strong sustainability focus. An adequate and sustainable supply of timber is essential for more ‘green’ construction, as well as fibre-based packaging.

Measuring its positive impact on the environment

In addition to providing normal investment returns, IEM has also developed a sophisticated method, assured by Ernst & Young, that measures the positive environmental impact of an investment in the trust. IEM believes it is important that investors can see the link between their investments in companies delivering environmental products and services and the environmental outcome of their business.

In 2018, a US$10m investment in IEM produced:

A good option for sustainably minded investors

IEM is positioned to benefit from the innovation and disruption of new technologies as the world transitions to more efficient ways of delivering basic services such as energy, water and waste.

The trust is run by a stable investment team and two highly experienced co-managers. Both have more than two decades’ experience in the environmental markets sector. This is reflected in the trust’s solid track record of outperformance relative to its benchmark.

 

This is an excerpt of an article first published in the August 2020 edition of News & Views. Craigs Investment Partners clients can view the latest edition of News & Views, which includes the full version of this article, by logging in to the Client Portal.