Environmental markets: from slim-pickings to spoiled for choice

Written by Bruce Jenkyn-Jones on 16th Nov 2018

In 1999, Impax launched the Environmental Technology 50 Index (the ET50), defined as the top 50 listed companies deriving at least 50 per cent of their revenues from at least one of three themes: clean energy; waste and water management; and pollution control.

At that time, there were around 250 companies globally that qualified for the universe from which the index was selected.

Fast forward eight years to 2007 and a clear trend was emerging; larger cap companies were either organically growing or acquiring smaller specialists to capture the environmental opportunities.

Broadening universe

In response the Impax universe broadened to around 450 companies whose revenue exposure to those themes represented at least 20 per cent of their revenue.

Jump ahead to 2012 and it was time to include a fourth theme – sustainable food and agriculture – bringing a further 580 companies to the universe.

We see the growth of the Impax Environmental Markets investment universe as clear evidence of the increasing influence of drivers such as resource scarcity, environmental and social regulation and, of course, consumer preferences for more transparent, authentic and healthy products.

Good growth

Looking back at the early years from 1999 and the universe as dominated by unprofitable early stage companies. Over 50 per cent of the ET50 was under £500m market cap.

Since then, pure-play companies have successfully expanded and large incumbents in mainstream sectors have developed or acquired environmental technology businesses.

Today the average market cap of companies in the Impax thematic equities universe is £2.9 billion.

Asia has had a key role to play in the universes expansion. Between 2009 and 2018, the number of companies in our Asia-Pacific universe almost doubled, rising from 342 to 630 companies. This was largely a result of the need to tackle local pollution, which became a health priority and in turn resulted in opportunities for companies that offered solutions.

Going mainstream

A larger investment universe, with a wider range of companies – in terms of market-cap, purity and geography – provides more opportunities for active investment management.

At Impax the investment thesis was always clear, as long-term investors sustainability offered an analytical screen that provided a clear direction of a company’s growth potential, inclusive of both opportunities and risks.

Twenty years ago, climate change was unlikely to be considered a key risk to an organisations profitability. Today, supported in no small way by empirical evidence, this is changing. There is further to go of course, but when 9 in 10 people say that they would make changes to their standard of living to prevent future climate catastrophe*, the move to mainstream is clear.

We believe the transition to a more sustainable economy will continue to disrupt an ever-larger proportion of the global economy and that portfolios which focus on well-positioned companies, while avoiding those unable or unwilling to adapt, should outperform.

*Source: Thomson Reuters Foundation May 2017

Source for all other data listed in this article – Impax Asset Management, 20th September 2018.

To find out more about Impax and whole host of other sustainable investment managers see Good With Money’s latest Good Investment Review 

Sign up to our weekly newsletter

Get better with money, in every way.