Interview with Impax Founder and Chief Executive, Ian Simm
Climate Action spoke with Ian Simm, Founder and Chief Executive of leading investment firm Impax Asset Management.
Firstly, could you please describe who Impax are and outline your mission statement?
I founded Impax Asset Management back in 1998. The company is now managing or advising on US $5.6 billion (as of 31 July 2016), primarily for institutional clients through both listed and private equity strategies.
Our investments are based on our strong conviction that population dynamics, resource scarcity, inadequate infrastructure and environmental constraints will profoundly shape global markets, creating investment risks and opportunities. We expect that these trends, reflecting the transition towards a more sustainable global economy, will drive earnings growth for well-positioned companies. Our proprietary investment framework identifies and calibrates the rising risks and expanding opportunities from this transition, and guides our search for investments that will deliver long term outperformance.
Impax is an active manager. Our mission is to produce superior investment returns for our clients by consistently applying our specialist expertise, taking a long term perspective and, as asset managers acting on behalf of owners, acting responsibly. We also seek to have a positive impact on our society and the environment, for example by helping mobilize capital to solve environmental problems.
Impax is focused on companies positioned to benefit from the transition to a more sustainable global economy. Could you please explain how you do this?
Portfolios of companies providing cleaner, more efficient products and services across the energy, water, waste, food and agriculture sectors are expected to deliver strong long term risk-adjusted returns.
We offer investors exposure to a range of global and regional strategies spanning these sectors. We manage six equity strategies, including a water fund and a sustainable food fund. On the private equity side we invest in the renewable energy sector, creating value principally by building onshore wind and solar power assets. Within our real assets business we also have a team focused on investing to improve the sustainability of commercial property.
How do you think environmental constraints will shape global markets?
There is mounting evidence that depleted environmental resources such as clean water, clean air and arable land are limiting the potential for economic growth in many countries. At the same time, losses from weather related events have increased sharply, while constraints in the supply of other natural resources such as some minerals is likely to lead to innovation.
Improvements in efficiency have historically underpinned enhancements to productivity and boosted economic growth. Today's falling costs of technology, liberalization of basic service industries and policies designed to mitigate environmental damage are underpinning an efficiency revolution that is creating unprecedented opportunities for the private sector.
Can you explain what you mean by a “Smart Carbon” portfolio and why is this important for investors?
There is an increasing likelihood that governments of major economies will act within the next decade to reduce greenhouse gas emissions, probably by intervening in the fossil fuel markets. We have developed a methodology to calculate the carbon risk in a portfolio (from holdings in companies engaged in the exploration and production of fossil fuel assets) and optimize the subsequent asset reallocation. We argue that investors should model the impact of this potential intervention and replace their market-weighted basket of energy stocks with a new energy basket that includes lower weightings of some fossil fuel stocks with equivalent higher weightings in stocks of companies active in energy efficiency markets, thereby maintaining exposure to energy price factor risk.
Impax is a holder of a number of prestigious industry awards. What do you think sets Impax apart from its competitors?
We have been investing in environmental and resource efficiency markets since 1998, longer than just about anyone else! Over the years Impax has won numerous awards for our investment expertise in the markets in which we invest. We were particularly pleased to receive a Queen’s Award for Enterprise: Sustainable Development in 2014. This is one of the highest industry recognitions for outstanding achievement and was awarded for our work in educating investors, promoting sustainable investments and for our development of a range of investment vehicles across these markets.
Our senior specialist investment team has grown steadily since inception. The portfolio managers have a wide range of backgrounds across different sectors and I think this diversity gives us an edge in researching our markets. We also have specialists focused on the analysis of risk (including environmental, social and governance factors) supporting our portfolio managers.
In recent years we have witnessed a dramatic rise in investor interest in environmental and resource optimization markets. Investors are also becoming more aware that climate change and increasing environmental regulations, pose a significant investment risk. I believe Impax has played a role in educating investors on these topics over the years. This surge in interest has also prompted many larger investment managers to launch environmental or climate related funds, but very few have as long a track record as Impax. It is pleasing to see both the sustained, strong growth of our target markets and the success of our approach to navigating some of the pitfalls.
Impax is sponsoring the Sustainable Investment Forum in September. Could you explain why you wished to be involved in this event and who you hope to meet?
The Forum is a valuable US networking event for Impax, and an opportunity to meet with asset owners, policy makers and thought leaders in this area. We have been active in the US for many years and now have offices in Greenwich, Connecticut and in Portland, Oregon. The US is our fastest growing market. We have several North American distribution partners for our products and the region now accounts for nearly 15% of our total assets.
The speaker line up for the conference is impressive and the agenda for the Sustainable Investment Forum covers a broad range of important topics that investors need to debate in order to develop an informed approach to sustainable investment.
You will be speaking at Sinv. Could you give us a brief outline of what you will be discussing?
The title of the panel that I am speaking on is “Building climate friendly portfolios”. The panelists will be discussing how investors can build sustainable portfolios, manage the risk of holding fossil fuel assets and invest in “low carbon” opportunities all while remaining consistent with their fiduciary responsibilities.
I will be talking about our Smart Carbon methodology. Many investors are concerned about the risks of holding fossil fuels - we believe that our rational, risk-based approach provides a straightforward, actionable roadmap for assessing climate change risk and implementing appropriate responses. This model recommends partial reallocation from fossil fuels to energy efficiency; we’re also recommending that investors step up their efforts to engage with high carbon companies and regulators for additional disclosures around climate change risk.