We believe Impax Environmental Markets plc is the first listed equity fund to demonstrate a net positive carbon impact.  We discuss our methodology which has been developed by the Impax ESG & Sustainability team, and why we believe this more sophisticated approach is superior to carbon footprinting.

Investors choose funds for many different reasons. Some seek growth, others income.  Some investors opt for low cost index tracking funds while many are looking for products for diversification that demonstrate low correlation with other assets in their portfolios.

In recent years we have seen another significant driver emerge as many individuals, endowments and pension funds increasingly seek to align their investments with their values and beliefs.  As concerns about climate change and the investment risks become more widespread amongst investors, we are frequently asked about the environmental impact of our funds.

Many asset classes (such as infrastructure, venture capital and debt) now commonly use positive impact metrics.  However, listed equity products have been slow to adopt a more sophisticated positive approach and typically look at only negative risks; often with overly simplistic or qualitative techniques including carbon foot-printing.  So we set out to change this and to measure not just the negatives but to bring the language and quantitative evidence of positive impact to a listed equity fund.

Impax’s first listed equity product, Impax Environmental Markets plc, is a London listed investment trust which maximises financial returns within a universe of pure play – or “specialist” – environmental companies.  The fund has delivered 8.4% annualised NAV return over the last ten years.  (Past performance of the fund is no guarantee as to its performance in the future).  However, it is not just the returns which appeal to investors.  With over 80% of the underlying revenue of the portfolio companies generated by sales of environmental products or services, it has always seemed reasonable to believe that the fund has a positive environmental impact.  

However, reasonable assumptions need to be tested, and today we are able to assure investors that IEM plc does indeed have a quantifiable net positive environmental impact.  We believe it is the first listed equities fund to disclose a net carbon position and our methodology is breaking new ground in the field of positive impact investing.

Our rigorous methodology is available for scrutiny here, and we have received assurance of its efficacy from EY, a leading provider of climate change and sustainability services.  We have assessed the positive impact at company level and attributed a portion to the portfolio based on our percentage equity ownership. 

By way of example, let’s consider the environmental impact of Kingspan, a global leader in high performance insulation and building fabrics, delivering energy efficiency solutions across a broad range of sectors. The following data refers to the company’s activities in 2013:

 However

At the end of 2014 IEM plc owned 0.6% of Kingspan shares so in our portfolio calculation we attribute 9,600 net tonnes of COavoidance to IEM plc.

For example, over the last year, the trust’s portfolio companies have avoided 513,000 tonnes of carbon dioxide – which is equivalent to taking 230,000 cars off the road (1).   

In addition, we have been able to estimate that every £1 million invested in IEM plc over the period has delivered (2):

  • 1,400 tonnes net CO2 net impact
  • 700 MWh of renewable electricity generated
  • 300 megalitres of water treated
  • 650 tonnes of waste recycled and treated.

Since inception, IEM plc has had a strong positive intention built into the investment process. By adding quantitative metrics to our reporting process we hope investors will have a much clearer understanding of the positive environmental outcomes of their allocation.

Investment advisers and discretionary managers can use these additional reporting metrics to help clients seeking to decarbonise their portfolios, offset high emissions in alternative strategies, or simply to improve their understanding of the extent of the positive outcomes of their investment decision.

We are keen to hear the broader industry’s comments and suggestions and look forward to seeing others reporting comparative metrics going forward.

Meg Brown, UK Business Development

Lisa Beauvilain, Head of ESG & Sustainability

Bruce Jenkyn-Jones, Head of Listed Equities

Sources

1 Environmental impact was translated into everyday equivalents using the UK Green Investment Bank’s calculator.

Based on most recently reported annual impact data for holdings in the portfolio as of 31/12/2014

Lisa Beauvilain

Head of Sustainability & ESG, Executive Director

Lisa is responsible for the development and oversight of Impax’s Sustainability and Environmental, Social and Governance (ESG) analysis, including overseeing stewardship work in the Listed Equity team. She is the Chair of Impax’s ESG, Sustainability Lens and Environmental Committees and also Co-Heads Impax’s impact investment work.

Lisa joined Impax in 2010. She started working in the financial industry in 1999 and previously worked as an executive director in the Investment Management Division of Goldman Sachs in London. Lisa has also worked as an independent consultant, focusing on environmental policy research and analysis.

She is active within working groups and advisory councils relating to impact investing, water, governance and ESG standard setting with several external industry organisations.

Lisa has an MSc in Environment and Development from the London School of Economics as well as an MSc in Finance from the Hanken School of Economics, Finland.

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