Russia’s invasion of Ukraine has sent shockwaves around the globe, leading to a devastating human cost, market volatility and economic uncertainty. As this is a developing and potentially escalating conflict, we anticipate that the geopolitical and economic effects will rapidly change.

Below is a summary of our investment team’s current perspective on how the crisis is impacting our portfolios, Impax Asset Management Group, and the global investment outlook.

For our Listed Equity and Fixed Income strategies:

  • Impax has no direct holdings in either Russian or Ukrainian equities or fixed income securities. We have also implemented a trade block on Russian and Belarus securities across all products effective 10 March. This block will be reviewed end September 2022.
  • Direct revenue exposure to Russia and Ukraine in companies held within Impax strategies is very limited.
  • The current tension has initially led to inflationary rises in oil, gas and soft commodities. This has led to strong performance from names in the MSCI GICS Energy sector, to which Impax strategies have no exposure.
  • There are potential secondary effects on Impax strategies from these rises in commodity prices:
    • Impax expects the rising cost of energy and oil derivatives will impact companies to varying degrees depending on their hedging policies and ability to pass through higher input costs.
    • Impax also expects this rise in input prices to drive an increased focus on energy efficiency as longer-term, energy spikes tend to accelerate the shift to diversify and decarbonise.
    • At a policy level, security of energy supply concerns will increase, further prioritizing the shift away from fossil fuels such as natural gas.
    • Rising global soft commodity prices tend to increase farmers’ income which can lead to greater demand for agricultural and irrigation equipment. 
  • Impax will position its strategies to take advantage of share price falls in companies where we believe they have been sold more on sentiment than for reasons relating to changes underlying earnings or long-term fundamentals.

For our Fixed Income strategies:

  • The potential impact of the conflict on inflation and economic growth has mixed implications on the direction of interest rates:
    • Heightened geopolitical risk typically results in a “flight to safety” to US Treasuries and other sovereign debt, driving bond yields down. At the same time, corporate credit spreads can widen due to the perceived higher risk and offset a portion of the lower interest rates.
    • The potential curtailment of oil and gas from Russia will drive short-term prices higher and cause incremental inflationary pressures. This may lead to higher interest rates in order to combat higher inflation.
    • The potential economic drag from this invasion is likely to have longer-lasting repercussions on economic growth (most acute in Europe, where economic interdependence with Russia and Ukraine is substantial), which could keep interest rates generally lower for a longer period of time.
  • The Impax fixed income portfolios are positioned with minimal duration risk relative to their respective benchmarks.

For our New Energy (private markets) strategies:

  • The Impax New Energy Strategy has no exposure to Ukraine or Russia
  • Impax expects this to accelerate the build-out of renewable energy infrastructure and the energy transition as a whole
  • It is now essential that governments adjust permitting processes which have been the bottleneck for a faster build-out of new renewable energy projects as the need to shift away from the reliance on Russia’s fossil fuels increases in priority
  • We are proud of our partners in Poland, who are providing on-the-ground voluntary support to refugees crossing the border from Ukraine

Impax Asset Management Group

We have undertaken a review of clients, suppliers and vendors to Impax Asset Management Group companies to confirm compliance with recently introduced sanctions and have found no areas of concern. Sanction screening is part of our regular onboarding process, and we will continue to develop our approach to encompass any new sanctions with regard to the conflict in Ukraine as they are announced.

We have donated to the British Red Cross’ Ukraine appeal and are matching colleagues’ personal donations to support humanitarian efforts for the people of Ukraine.

We are also mindful of the urgency of the need to set out the prospects for fossil fuel dependent economies within a lower carbon global economy, based on the challenges these countries face as the global economy weans itself off their natural gas and oil.

A fuller discussion on the climate implications of the conflict are available in our Chief Executive, Ian Simm’s article “Why market turmoil will not derail the Transition to a More Sustainable Economy” here.

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