Investing in companies positioned to thrive as the global economy becomes more sustainable is not without its pitfalls. Here’s what two decades of experience have taught us at Impax.

Focus on the “regulatory ratchet”, not the “subsidy spigot” 

For many investors, Environmental Markets are synonymous with subsidy, as governments seek to correct market failures that reward polluters, or as they attempt to pump-prime the clean industries of the future. Too often, investors have been blindsided when governments change tack and shut off costly subsidy regimes.

Although well designed subsidies can help a nascent technology break through to commercial scale, they are, by definition, unsustainable over time. They can also generate vocal opposition because they transfer money to a favoured constituency. In contrast, we have found steadily tightening regulations, such as water quality standards, energy efficiency standards, building codes or recycling targets, to be more supportive of long-term investment. These tend to be less expensive for governments to introduce, favouring incumbent solution providers by creating barriers to entry, and they usually avoid the boom-bust cycles that overly generous subsidies can trigger.

Small-caps offer an “M&A supercharge”

In a high-growth sector such as environmental technology, which is disrupting a growing number of industries, merger and acquisition activity can provide a substantial boost to realised returns.

M&A transactions in Environmental Markets since 2005

However, for every environmental technology small-cap that is acquired at a big premium, many more fall by the wayside – especially those with unproven technologies or those that are pioneering new business models. We have learned that the most attractive investment point is when a profitable company with established technology is beginning to scale up.

Knowing when to say no

There has been no shortage of environmental technology fads and fancies over the last 20 years, with hot money inflating bubbles from fuel cells to 1st generation electric vehicles, bioenergy businesses, and carbon traders.

While every bubble ultimately bursts for its own distinct reasons, there are three characteristics that tend to be predictive: unproven technology, high capital intensity, and outsized policy risk. Our focus on proven technologies, with limited capital requirements and a clear business case absent of subsidy or policy support, has helped our investors avoid the worst of the clean-tech bubbles and benefit from some of the best.


1Bubble size represents deal size in USD. Source: Bloomberg. Data as of 30 September 2018. Sustainable Food M&A activity since Impax began tracking these companies in April 2012

Hubert Aarts

Deputy CIO, Listed Equities, Executive Director

Hubert serves as Deputy CIO, Listed Equities. He and Bruce Jenkyn-Jones, CIO Listed Equities, are responsible for the development of the investment process, research and team. Hubert researches stocks globally and specialises in Industrials and Consumer Discretionary.

Hubert is Co-Portfolio Manager of Impax’s Leaders and Water strategies. He also leads Impax’s macro-economic research process and is responsible for the top-down investment framework.

Hubert started his career in the investment industry in 1990 and joined Impax in January 2007.  He has extensive experience investing in Pan-European equities as a portfolio manager at MeesPierson and Merrill Lynch Investment Managers, where he chaired the European Sector Strategy Group. Hubert joined Impax from Cambrian Capital Partners LLP where he was a partner and portfolio manager of the Curalium Fund and Incremental Leveraged hedge funds.

Hubert has a Master’s degree in Economics and Business Administration from Maastricht University.

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