Stock in Focus: I’m troubled by ESG and surprised by Impax Asset Management

Tuesday, Aug 13 2019 by
Stock in Focus Irsquom troubled by ESG and surprised by Impax Asset Management

I’m a firm believer in a quantitative approach to investment - relying on the power of data and proven factors to select stocks. One of the things I like about investment is the intellectual challenge of the process and the way in which it can be abstracted from day-to-day life.

However, by detaching myself in this way, I wonder whether I’m doing my full duty as the part-owner of a business. Focusing only on a company’s numbers can make it uncomfortably easy to condone things for which I wouldn’t want to take personal responsibility.

I don’t claim any kind of moral high ground here. I’ve profited from owning shares in a number of businesses that I wouldn’t want to work for. But I’m starting to wonder whether I’m comfortable with this situation, or if I need a more structured approach to ethical and environmental issues.

I’ve been having a think about how I might do this, and have come up with three options.

DIY: As a general rule, I only invest in stocks that I’ve selected myself. I don’t generally buy funds, either. 

Logically, if I wanted to take ethical investing seriously, I’d have to understand the issues, do my own research, and form my own ranking system. 

That sounds like a lot of work, unless I could use tools such as Stockopedia to develop a screening system that recognises ESG (Environmental, Social and Governance) factors. This would be an interesting project, but I’m not yet convinced that I could make meaningful ESG judgements from financial data alone.

The index tracker option: ESG investing is increasingly on institutions’ radar. Index providers such as MSCI and FTSE Russel have developed ESG scoring frameworks and related indices to facilitate investment in well-ranked companies.

However, the top holdings from each provider’s UK ESG indices suggest heavy concentration, and very few obvious themes:


Source: MSCI UK ESG Leaders Index factsheet, 31 July 2019, FTSE4Good Index Series factsheet, 31 July 2019.

Judging from these stock selections, FTSE and MSCI use very different sets of criteria to score firms for ESG. This highlights one problem with ESG investing -- existing rating systems appear to be highly subjective and inconsistent. 

I own several of these stocks and would be happy enough to own most of the others. But I’m not sure I’d describe…

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Impax Asset Management Group plc is an investment company offering listed and private equity strategies primarily to institutional clients. The Company has six listed equity strategies: Specialists, Leaders, Water, Asia-Pacific, Global Opportunities, and Food and Agriculture. Its real assets business comprises renewable power generation and sustainable property private equity funds. The Company has investments sectors, such as energy efficiency, which includes power network and buildings; alternative energy, which include solar, wind and biofuels; water infrastructure/technologies, which include treatment and utilities; pollution control, which include pollution control solutions, and testing and gas sensing; food, agriculture and forestry, which include logistics and sustainable forestry; waste management and technologies, which include tech equipment and hazardous, and environmental support services, which include consultancies and diversified environmental. more »

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9 Comments on this Article show/hide all

crazycoops 13th Aug 1 of 9

As ever, some excellent analysis Roland. I have owned Impax Asset Management (LON:IPX) for a couple of years now (maybe three years even) and have taken some profits along the way. I have passed them over for recent portfolio top ups, partly because of value and partly because of the stage of cycle we are at. AuM is in part affected by market performance.

This said, since passing £10bn AuM the company have been winning some fairly significant mandates (due to scalability I presume) which I think will be an ongoing trend. In short, I would see a significant market sell off as an opportunity to load up on Impax Asset Management (LON:IPX) but for now, I am retaining a modest holding with a watchful eye on a valuation opportunity.


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Andy Stafford 13th Aug 2 of 9

With all the "moral" investors selling out of the non-ESG stocks, the big sovereign funds and institutional investors, this must surely act to depress the share price of the non-virtuous stocks. 

Does this mean there is a future opportunity for income plays from depressed sin stocks once the moral investors have all sold out?

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Roland Head 13th Aug 3 of 9

In reply to post #504176

Hi Andy,

I can see that some unloved non-ESG stocks do present possible buying opportunities. For example, the current valuations of big tobacco and big oil.

Conversely, some bears would argue that depressed valuations are deserved not so much for ethical reasons, but because these companies are potentially in a multi-decade run-off scenario.

These arguments have been knocking around for a while, as a shareholder in some such companies, my view is that the reality lies somewhere in the middle.

I do believe that there are some attractive income opportunities in big cap stocks at the moment and have been buying accordingly.

DYOR, of course!


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andrea34l 13th Aug 4 of 9

Although Impax Asset Management (LON:IPX) may be a good long term, I am very cautious about investing in fund managers at the moment with the current volatility and Brexit likely to be an even bigger factor in the coming months.

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Roland Head 13th Aug 5 of 9

In reply to post #504171

Hi Simon,

Thanks for your comment. I agree that the link between market performance and AUM is a risk with Impax Asset Management (LON:IPX). Given the rapid recent expansion, any impact from a market fall may be hard to predict -- and could be severe, given high asset values in many sectors.

For an asset manager with a good track record, I would tend to view a market dip as a buying opportunity, rather than a reason to sell. But it could be very uncomfortable for a while...

Another point that interests me about the rapid increase in AUM is whether Impax will be able to maintain a genuine differentiated focus on impact investing. One area I'd like to research in more detail is the nature of the firm's investments.

Good luck with your holding.


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crazycoops 13th Aug 6 of 9

They are a good follow on Twitter Roland - company specific and ESG sector generally

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topvest 14th Aug 7 of 9

An interesting summary which I agree with. I purchased all of mine in 2016 at the 40s and 50s and top-sliced a couple of times to make it a nil cost share. It's no longer cheap, but once we get through any possible bear market it should be able to grow AUM much further. I see no reason why it can't notch-up £30bn AUM in the next 5-10 years. I will continue to hold as Ian Simms is an intelligent iconoclast - he probably has 5-10 years before retirement so will want to keep his baby moving to some sort of crystallisation event no doubt.

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SMinvest 15th Aug 8 of 9

Hi - why would you invest in an asset management firm and not an ETF from blackrock or similar that keep the costs much lower(to be honest, i haven't done the math yet), more transparent in showing their holdings to you(from an ESG perspective you can reconcile easier)? I'm just getting started on this part of our strategy, so this article has been quite helpful! thanks!

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Roland Head 15th Aug 9 of 9

In reply to post #504881

SMinvest - thanks for your comment. I was considering Impax Asset Management (LON:IPX) as a possible ESG investment because I mostly buy stocks, not funds. I was attracted by Impax's specialist focus on impact investing, which I hope would provide exposure to a differentiated set of assets to a general stock market fund.

I've not so far been tempted by ESG ETFs because my brief research into ESG indices such as those run by MCSI and FTSE suggests that they aren't particularly differentiated investments (see the examples in my article).

One point I should make is that investing in Impax stock is not equivalent to buying an ESG ETF.

In general terms, investing in an asset manager can be seen as similar to a *leveraged* investment in stocks. This is because fee income is normally linked to the value of assets under management (AUM).

When markets are rising, clients invest more cash and asset values rise. So AUM rises very quickly.

When markets are falling, the opposite tends to happen. Asset values fall and clients withdraw cash. AUM can fall fast, cutting fee income sharply.

In truth, I haven't yet decided how I will approach ESG in my own investing. I think that Impax could be an attractive stock, although I'm not sure that the shares are particularly cheap at the moment.

As always, please DYOR.


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About Roland Head

Roland Head

I'm a private investor, analyst and writer on stock markets, with a particular fondness for free cash flow, dividends and value. My main interests are UK and US stocks. I also have an interest in (profitable) commodity stocks.  I have passed the CFA Level 1 exam and hold the CFA UK Investment Management Certificate (IMC). One of my investment interests is developing rules-based strategies such as my Stock in Focus portfolio. This reflects a significant part of my personal portfolio and is the subject of my weekly column here at Stockopedia. In earlier life, I worked as an engineer in telecoms and IT. The rules-based and quantitative approach required for this kind of work undoubtedly influenced my investing style.  I also learned a lot from seeing the tech bubble deflate in 2000-1, when I was working for a very large and now defunct Canadian telecoms firm.  more »


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