As the global economy shifts to become more sustainable, the set of related investment opportunities is broadening, widening and deepening.
The growth of the Environmental Markets investment universe is clear evidence of the increasing influence of drivers such as resource scarcity, environmental and social regulation, and consumer preferences for more transparent, authentic and healthy products.
This growth can be seen across three metrics:
- The absolute number of qualifying stocks;
- Their market capitalisation; and
- Their geographic spread.
Rapid growth in the number of companies
In 1999, Impax launched the Environmental Technology 50 index (the ET50), defined as the top 50 listed companies deriving at least 50% 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 which qualified for the universe from which the index was selected.
By 2007 the trend of larger cap companies, organically growing or acquiring smaller specialists to capture the environmental opportunity, was becoming evident. In response, Impax created a broader universe based on a 20% revenue exposure to the themes, bringing the universe to approximately 450 companies.
Following further expansion of the themes into food related sectors, in 2012, the sustainable food and agriculture opportunity was incorporated.
Today Impax’s thematic equity universe comprises almost 2,000 companies.
The growth in absolute numbers of eligible stocks has been mirrored by a growth in their market capitalisation, as pure-play companies have successfully expanded, and as large incumbents in mainstream sectors have developed or acquired environmental technology businesses.
In the early years, the investment universe was dominated by unprofitable early stage companies, and over 50% of the ET50 was under £500m market cap. Today the average market cap of companies in our thematic universe is $3.8bn.
A clear theme over the last decade has been the rapid growth in the investment universe in Asia. Between 2009 and 2018, the number of companies in Impax's Asia-Pacific universe has almost doubled, rising from 342 to 630, as the need to tackle local pollution has become a priority for human health resulting in opportunities for companies offering solutions.
A more diverse investment opportunity
This larger investment universe, with a wider range of companies in terms of market cap, purity and geography, provides greater opportunities for active investment management. At Impax we continue to be excited by the ongoing expansion in the Environmental Markets universe, and the compelling investment opportunity which it represents.
We believe that 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, potentially could outperform.
To hear more of how Impax strategies can help you access opportunities to invest in the sustainable economy, please speak to your usual Impax contact.
Source: Impax Asset Management