ESG Investing: Is Impax Asset Management A Potential Bargain?

6th Sep '22 by Roland Head

6 comments 1723 reads

One of the top performers in among listed UK asset managers in recent years has been sustainable investing specialist Impax Asset Management (LON:IPX) - shares in this founder-led AIM firm have tripled in five years, despite a calamitous 50% fall over the last 12 months:

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One potential headwind for Impax is that ESG investing has come under pressure recently. I think this is due at least partly to a widespread lack of clarity about what it actually means.

According to HSBC’s former head of responsible investing, Stuart Kirk (who resigned last year after giving a colourful presentation entitled “Why investors need not worry about climate risk”) there are actually two types of ESG investing.

In an article in the FT (£) last week, Kirk explained that one type of ESG considers how environmental, social and governance inputs might affect future investment returns, and how companies are aiming to address such issues.

This approach lies behind the ESG rankings produced by major index providers such as MSCI and FTSE. The focus on inputs explains why companies such as oil and tobacco firms are often able to secure good ESG ratings.

The second type of ESG focuses on the outputs from the investment. This is what many people expect from ESG – sustainable assets. So a wind farm might be attractive, a new oil refinery less so.

Splitting ESG into inputs and outputs really makes sense to me. I would guess that most retail investors are thinking of ESG outputs when they choose to invest in sustainable funds.

Impax Asset Management (LON:IPX)

Impax falls very much into the second type of ESG investing. Founded by CEO Ian Simm, who remains a shareholder, the company’s stated mission is to invest in “opportunities arising from the transition to a more sustainable economy”.

The top 10 holdings in Impax’s flagship Impax Environmental Markets (LON:IEM) fund appear to provide evidence of Impax’s clear focus on sustainability investments:

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Source: Impax Environmental Markets July 2022 factsheet

Looking at the latest investor presentation from Impax, I see that the company’s strategies are divided into six categories:

Leaders
Specialists
Water
Climate
Sustainable Food
Asian Environmental

Even before the pandemic, many of these sustainable asset classes didn’t look especially cheap to me. Covid-19 triggered a major surge in demand for ESG assets, pushing…

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Bouden54

6th Sep '22

I follow the fund management sector closely and think there are much better plays for those wanting exposure to sustainable investments (which is likely to remain a big theme and attract lots of inflows).

Impax invest mainly in public equities and are therefore very susceptible to both market falls and investor outflows. I also question how much of an edge they really have - pretty much every fund manager now has a range of sustainable equity funds. Not to mention dozens of passive sustainable ETFs with much lower fees. Are the Impax funds really any better than these?

The 2 I prefer (and hold) are Gresham House (LON:GHE) and Foresight group (LON:FSG) - these mainly invest in private assets (such as forestry, energy storage or solar) for institutional clients. Importantly, the aseets are largely uncorrelated to wider market movements, while clients tend to be locked in for longer periods.

ridavies

Bouden54. Agreed.

Re Impax Asset Management (LON:IPX), another short to medium term negative is that on the crest of the wave at the turn of the year, they had invested in a significantly larger work force to build on their programe - which has since fallen back - and |I imagine these guys aren't cheap!

Brilliant Leader

Thanks for this article Roland. FYI, Impax publish their AuM monthly on their website https://impaxam.com/investor-r... At the end of July AuM had risen to £38.2bn - the August update should come through this week.

Roland Head

Thanks for highlighting this, Brilliant Leader.

I'd noticed that a basket of the largest holdings had recovered somewhat over the summer, but I hadn't seen the August AUM update.

Regards,

Roland

topvest

Interesting article. Thanks.

Impax has probably been my best ever equity investment (despite an enormous pull-back) having bought lots at the c50p level. I never dreamed it would do as well as it has. I have top-sliced a few times, but continue to hold a chunk long-term. Ian Simms is a great leader in this space and they have competitive advantage having one of the longest track records in ESG. Still optimistic that they will continue to do very well long-term, but think the next year will continue to be choppy.

I also hold Gresham House and Foresight Group. They are much better on physical assets in this space and have very sticky revenues.

One shortcoming that Impax has is in its physical assets fund which is very sub-optimal versus the equity side of the business. An obvious way forward for Impax would be to buy something like a smaller scale Gresham House or Foresight. It won't be either I feel, as they both have strong leadership teams, but there may be other alternative asset providers of a smaller scale with a couple of billion AUM which would triple the size of their business in this area. It's definitely an obvious strategic move for them at this stage.

7th Sep '22

The AuM as at 31st August has just been published - drum roll - £38bn

ESG investing: is Impax Asset Management a potential bargain?

Impax Asset Management (LON:IPX)

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Roland Head

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