Impax blog

Beyond a low carbon footprint: delivering a net carbon benefit

6 Sep 2016 - by Meg Brown

We have repeated our positive environmental impact analysis for our smaller cap global Specialists strategy (known as Impax Environmental Markets in the UK) which invests in companies providing solutions to environmental problems. This is the second year we have collected and analysed this impact data following the same principles as last year. Our analysis has again been assured by EY.  While our primary investment objective is long term investment growth, these additional environmental impact metrics  help investors gain a better understanding of the positive environmental outcome of their allocation focusing on C02 emissions, C02 avoidance, renewable energy generation, water treatment and materials recovery and recycling.  

This year’s analysis shows that Specialists continues to deliver a net carbon benefit to investors.  A $10 million investment in our Specialists strategy in 2015 produced a net carbon reduction of 7,600 tonnes of C02, which we estimate is equivalent to taking 3,400 cars off the road.  The C02 avoided and renewable energy generated were slightly lower than the previous year, as was the quantity of waste recycled.  However, the volume of water treated/recycled was 42% higher. These changes are due to a portfolio shift to somewhat more defensive holdings, reflecting the portfolio manager’s concerns of a slowdown in global economic growth.  As a result, Specialists had a relatively higher exposure to water, with reduced holdings in renewables and recycling companies.  

The three largest contributors to C02 avoidance were a manufacturer of equipment used in beverage container recycling (“reverse vending”), a company generating renewable energy that displaces coal use in China, and a company providing market-leading LED lighting for demanding operating environments.

We continue to develop and refine our analysis and methodology.  Through our engagement with our investee companies we obtained significant additional disclosures.  For example, we were able to include the Scope 32 emissions of 17 companies, compared to 6 last year.

Impax’s Specialists strategy has always had a strong positive intention built into the investment process. Investors can use these additional reporting metrics to decarbonise their portfolios, offset high emissions in other strategies, or simply improve their understanding of the extent of the positive outcomes of their investment decision. This more holistic reporting approach is resonating with many investors who are seeking strong financial returns over the longer term but also want to see some kind of positive impact from their investment.  The analysis also appeals to investors who understand that carbon foot printing only provides limited insight into carbon risk – particularly when investing in environmental solution providers.  

1Impact of $10M invested in the strategy for one year. The UK Green Investment Bank’s calculator was used to translate the impact into everyday equivalents (e.g. cars on the road, household energy use). Based on most recently reported annual impact data for holdings in the strategy as of 31/12/2015. Methodology has been assured by Ernst & Young LLP.

2Scope 3 emissions cover indirect emissions due to the activities of an organisation.  These include emissions from both suppliers and consumers.

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