Impax Asset Management is celebrating the 50th birthday of the Pax Sustainable Allocation Fund, a product that helped spawn the now burgeoning sustainable investment industry.
Launched in August 1971, it was the first publicly available mutual fund in the United States to use social and environmental as well as financial criteria in the investment process.
The fund’s founders, Luther Tyson and Jack Corbett, were United Methodist ministers who were opposed to the Vietnam War. They wanted to avoid investing their churches’ assets in companies involved in the war, so the Pax World Fund (later renamed) excluded companies that manufactured such products as Agent Orange, napalm and other weapons. Soon after launching the fund, Tyson and Corbett realized that, if they could screen out weapons, they could also screen out other things that they deemed inappropriate for church investments. They added tobacco companies, polluters and (as earnest Methodists) alcohol and gambling to the list of excluded companies.
This was an important step in the development of what is now called “sustainable” or “ESG” investing. However, the focus was more on what you didn’t invest in than what you did.
Our investment philosophy has evolved since launching the Pax Sustainable Allocation Fund 50 years ago. While Pax World Funds still exclude companies involved in the manufacture or sale of weapons, as well as tobacco companies and fossil fuel companies, today our investment focus is squarely on the risks and opportunities arising from the transition to a more sustainable global economy. We believe that capital markets will be shaped profoundly by global sustainability challenges, particularly climate change, environmental pollution, natural resource constraints and demographic and human capital issues such as diversity, inclusion and equality. Our view is that these trends will drive growth for well positioned companies and create risks for those unable or unwilling to adapt.
We integrate environmental, social and governance (ESG) criteria into our investment portfolios based on the now firmly established premise that such factors can be material to how companies and investment portfolios behave, particularly when it comes to risk1. We seek to invest in companies that are better prepared for the transition to a more sustainable economy and better at managing risk, including ESG-related risk.
We recently published an engagement report showcasing the results of our global engagement activities over the past year. We held 300 meetings with companies and achieved some notable milestones, including persuading a Chinese water infrastructure and technology provider to be more aware of its physical risks emanating from climate change, and encouraging an energy efficiency company to embrace a more diverse workplace by welcoming two female directors to its board. The global pandemic and social unrest changed the way we engaged in 2020 and the report details those changes, as well.
It is gratifying to be part of the company that helped spark an entire industry some five decades ago. We continue to have a sense of urgency about addressing global sustainability challenges and we continue to be vigilant stewards on behalf of our clients and shareholders. But there are also grounds to pause, reflect and celebrate as we mark the 50th anniversary of the Pax Sustainable Allocation Fund.
1 Julie Gorte, “The Investment Case for Sustainability: The Rise of Resilience,” Impax Asset Management, July 29, 2020.
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