The last 20 years have seen the environmental investment community grow from a small vanguard into the finance sector equivalent of a mass movement.
A different landscape
When Impax was launched in 1998, there were just a few dozen individuals in London investing in what was to become Environmental Markets. Then, the acronym of choice for such activity was SRI – short for socially responsible investment – and, for many SRI enthusiasts, ethics were more important than earnings.
At that time environmental investors were mostly focused on opportunities in private equity; there was just one ‘green’ unit trust investing in listed stocks in Europe. Listed Environmental Markets companies tended to be small-cap, somewhat illiquid, and relatively high risk.
Renewables redrew the map
By the turn of the century, in the wake of the Californian energy crisis and rapidly rising oil prices, the first renewables boom was creating a broader range of investment opportunities and a wider suite of investment products. Larger pure play companies were emerging, bigger industrial groups were building meaningful Environmental Markets divisions, and green infrastructure investment was reaching scale.
Increasingly, ‘mainstream’ financial firms began recognising the potential of the theme, exemplified by Impax designing one of the first “green taxonomies”, adopted by FTSE in 2007 as the basis of the FTSE Environmental Technology indices.
ESG risk rises up the agenda
The noughties also saw increasing recognition of the investment risks posed by factors not traditionally included within fundamental company analysis. The term “ESG” (Environmental, Social and Governance) was coined in 2004 conflating corporate governance with triple bottom line and ethical investing. Investors cooperated to back initiatives such as the Carbon Disclosure Project (CDP), the Investor Network on Climate Risk (INCR), and the Institutional Investors Group on Climate Change (IIGCC) to better understand, and act on, the risks posed by climate change.
In 2006, the Principles for Responsible Investment (PRI) was launched to promote the integration of ESG factors into mainstream investment practice. The membership has grown rapidly, to more than 2,000 investors, representing more than $70trn in assets (including Impax, which has an A+ PRI score for its approach to responsible investment).
Aligning investment with impact
In recent years, “Impact Investing”, where investors seek measurable environmental and social outcomes alongside financial returns, has spread from the world of philanthropy into institutional investment portfolios. Impax joined GIIN (the Global Impact Investing Network) in 2014, and began reporting impact metrics in 2015.
We have also mirrored this trend by linking our investment management approach to our corporate philanthropy through our support of Ashden, and its sustainable energy awards, and environmental law non-profit Client Earth.
Looking to the future
With more than 150 staff globally, Impax is now bigger than the whole of the UK’s environmental investment sector was at our launch 20 years ago. Our focus has also broadened, into sustainable food and gender issues, for example. Today we are part of a much bigger community demonstrating how to invest profitably across asset classes by taking a long-term approach to tackling the world’s sustainability challenges.
The investment case is increasingly compelling, and we have no doubt that the proportion of invested capital being re-directed towards a more sustainable economy will continue to grow. We look forward to playing a key role in that transition, with our clients, over the next 20 years.