United StatesImpax was busy at London Climate Action Week in late June, taking part in events across the city. On the final day, the event arrived at our doorstep as its slogan was emblazoned across one of the famous billboards of Piccadilly Circus, around the corner from our offices. “Don’t tell me climate action isn’t happening”, it read.
At times it can be easy to forget this truth. Over the past year, a number of asset managers have diluted or reversed their climate-related commitments while, in January, the Net Zero Asset Managers (NZAM) initiative announced that it would suspend activities as it undergoes a review.
But the systemic risks posed by climate change have not gone away. It remains our conviction that climate-related risks and opportunities will become increasingly material drivers of investment performance, for decades to come, as the impacts of climate change intensify.
It is against this backdrop that we have published Impax’s second annual Climate Report. Following the approach taken in our inaugural report last year, we have addressed the recommendations of both the Task Force on Climate-related Financial Disclosures (TCFD) and the Transition Plan Taskforce (TPT) in a single report to streamline reporting. The key messages of the report are set out below.
Addressing climate-related risks and opportunities
As a specialist investor in the transition to a more sustainable economy, a detailed appreciation of climate-related risks and opportunities is central to our investment philosophy. Our approach to climate-related issues is entirely consistent with our fiduciary duty to pursue attractive, risk-adjusted long-term financial returns for our clients.
Our investment process is grounded in understanding and pricing in companies’ exposure to climate-related risks and opportunities amid wider disruptive forces. We use proprietary a Sustainability Lens methodology and our Environmental Markets taxonomy to identify companies well placed to navigate the climate transition.
A central innovation during 2024 was the introduction of our proprietary fixed income sustainability framework to integrate climate-related and wider sustainability issues into our fixed income investment process.
Despite the economic and policy obstacles that have emerged over the last year, we continue to see opportunities for strong investment performance from companies and projects providing innovative solutions and technologies to help mitigate or respond to climate change and its effects.
Achieving real-world impacts
We believe that company engagement and policy advocacy are critical twin levers in driving positive real-world impacts to address climate change, reduce the investment risks it poses, and unlock new investment opportunities. In 2024, 25% of our total engagement dialogues with investee companies addressed climate-related issues, with around 60% of those aimed at improving greenhouse gas (GHG) emissions disclosures, setting science-based targets and developing or implementing transition plans.
Policy advocacy highlights during 2024 included efforts to encourage governments to develop national transition plans, which combine ambitious emissions reduction goals, sectoral decarbonisation pathways and dialogues with investors on detailed policies needed to attract private capital.
We are broadening our use of systematic stewardship, whereby we combine company engagement, working with clients and peers, and policy advocacy to address challenging systemic risks.
In the report, we describe how we plan to use this approach to escalate efforts in pursuit of our NZAM net-zero commitment – that, by 2030, 100% of our listed equities and private markets assets under management (AUM) will be deployed into ‘transition aligning’ or ‘transition aligned’ assets – and ultimately better manage the systemic risks that climate change poses to our investment portfolios.1 As at the end of 2024, 91% of our committed AUM was invested in ‘transition aligned’ or ‘transition aligning’ assets. This has also helped to bring us closer in alignment to the TPT recommendations, in anticipation of future regulation on transition plan disclosures.
Wider changes to this year’s report and future plans
We have also sought to make the report more accessible to our clients and wider stakeholders, including through greater use of graphics and providing additional context and commentary on the climate-related metrics we report.
Ahead of next year’s report, we are evaluating our approach to net-zero targets and the case for establishing medium- and longer-term targets, with clearer action plans for meeting them. In parallel, we are preparing for our inaugural reporting against the final Taskforce on Nature-related Financial Disclosures (TNFD) framework, which will be complementary to our Climate Report.
The transition to a more sustainable economy is a broad-reaching trend that will continue to reshape all corners of the global economy. Climate-related issues, therefore, remain at the very centre of our investment decisions and engagement activities as we seek to manage financial risks and realise the opportunities presented by the transition. As the London Climate Action Week slogan put it so well: climate action is happening here.
1 ‘Transition aligned’ and climate resilient management processes of investee companies include: 1) robust sector-relevant near- and long-term GHG reduction targets to a net-zero pathway (externally verified by, for example, SBTi); 2) management strategies and processes that enable climate and GHG target achievement (for example, capex spending, climate-linked management compensation); and 3) climate transparency and appropriate risk pricing (TCFD-aligned reporting). ‘Transition aligning’ companies have initiated climate risk management processes and have respective commitments in place but have not fully formalised and internalised these yet as part of a long-term net-zero corporate strategy. Where companies are ‘not aligned’ to a climate resilient net-zero pathway, climate risk management processes have not yet been initiated, are significantly underdeveloped, or have notably stalled or deteriorated.
Nothing presented herein is intended to constitute investment advice and no investment decision should be made solely based on this information. Nothing presented should be construed as a recommendation to purchase or sell a particular type of security or follow any investment technique or strategy. Information presented herein reflects Impax Asset Management’s views at a particular time. Such views are subject to change at any point and Impax Asset Management shall not be obligated to provide any notice. Any forward-looking statements or forecasts are based on assumptions and actual results are expected to vary. While Impax Asset Management has used reasonable efforts to obtain information from reliable sources, we make no representations or warranties as to the accuracy, reliability or completeness of third-party information presented herein. No guarantee of investment performance is being provided and no inference to the contrary should be made.