Ian Simm caught the “sustainability bug” in an unusual place: McKinsey’s office in Amsterdam, where he started his career. However, his mentor at the time was Pieter Winsemius.
As a young Minister of Housing, Town and Country Planning and the Environment (VROM) in the First Lubbers’ administration (1982-1994), on behalf of the VVD, Winsemius gained a reputation for bringing environmental laws into effect, including the rules for environmental impact assessments.
Convinced that the transition to a sustainable economy would transform investing, Simm left McKinsey at the end of ’95 to found Impax Asset Management in London.
His first mandate was £15m from the International Finance Corporation, the private sector arm of The World Bank.
In 2020, Impax, now a firm with nearly 200 staff, was named ‘boutique manager of the year’ in the Global Investor Investment excellence awards and one of the ‘Green Top 50 Business Moves for the Planet.’
Not just a focus on investments
Simm’s consultancy training is perhaps still evident in the many papers he publishes – most recently Making green taxonomies less taxing. “With all the hot air around, I think it’s important for me to remain ‘curious’,” he said.
Impax maintains a significant policy team, which is perhaps a bit unusual for a specialist investment manager. But Impax “believes quite strongly that the transition to a more sustainable economy will be accelerated if appropriate policies emerge quickly – regulations, market structures et cetera.”
It also has close relationships with scientific groups that are trying to build a bridge into the finance sector. For example, when it comes to the scientific basis for climate change risks or to unpacking what biodiversity risks mean for investors.
Impax invests in companies and assets that are well-positioned for the transition to a more sustainable global economy. This can be through public equities, private equity, or fixed income.
The company focuses on businesses that solve “environmental problems, improve resource efficiency, and address the challenges that come from lots and lots of people on the planet with high levels of demand and consumption.”
Impax has been growing exponentially. Over the year to the end of March, it has more than doubled its assets under management, reaching £30bn for the first time.
Big mandate wins
Impax recently won various significant segregated mandates. These include Swedish state pension fund AP7 (adding €48.5mn to a ‘green impact mandate’), Quaestio Capital Management in Italy (awarding €79mn), and major wins in Australia and Canada.
Although Impax mainly has institutional clients, Simm estimates only 25% of its business comes through consultants. Crucial to Impax’s success, Simm said, has been tie-ups as a specialist provider to much larger houses, who source clients (white-labelling funds).
This includes ASN, where Impax’s business has grown from a few million Euros to €500-600mn now.
The company’s shares – listed on the London Stock Exchange – were up over 80% in the last year helped by the strong performance of the firm’s main strategies.
For example, ‘Water’ and ‘Leaders’ posted returns last year of 9.6% and 14.8% respectively against an index return of 5.3%.
All this despite Covid, or is it because of it? The pandemic has concentrated people's minds. Simm believes “the effects of Covid-19 have amplified many of the issues associated with investing in the transition to a more sustainable economy.” Indeed, “recent events have reinforced our investment case.”
Gender lens investing
Part of the growth comes from the 2018 acquisition of Pax World Management LLC, “a big step up – an opportunity to scale up our US operations.” Pax brought in key talent in an area Impax did not have it: Fixed Income.
The acquisition also took Impax into the area of gender diversity investing. Simm cites work by McKinsey which shows that the most successful companies are those who “unleash” female talent.
Pax entered “Gender Lens” investing in 2007 with the world’s first dedicated mutual fund. Their Global Women’s Select Strategy was launched in May 2019 and last year outperformed the MSCI World Index by 2.9% (net).
In 2014, Impax created the Global Women's Leadership Index, rating 400 plus companies on "multiple criteria" of gender leadership. Impax admits this strategy trailed its benchmark last year, but it can still claim a better long-term record.
Simm says the company takes impact reporting seriously. In assessing how to measure the impact of its investments it builds on the policy team’s close connections to the environmental science community “to augment their work on climate risk.”
They report net CO2 impact per $10mn invested for each of their strategies over one year. They also measure those strategies against the UN Sustainable Development Goals, showing each strategy’s relevant exposure expressed as a percentage of revenue.
For water impact measurement Impax works alongside CDP, the not-for-profit charity that runs global disclosure systems, and the Swedish Pension Fund AP7 to “develop best practices for water impact measurement” and to “improve the disclosure of water-related metrics.”
Broadening sustainable investment themes
Simm sees a bright future for Impax. “We still have a decade-plus of significant growth ahead of us.” In part, this will come from a broadening of sustainable investing themes, as his “core belief that sustainable companies will offer investors superior returns moves to the mainstream.”
Amongst new investment themes are the hydrogen economy, smart materials for energy efficiency in buildings and ‘the future of food.’ One of Impax’s biggest holdings is Koninklijke, the Dutch company that specializes in natural ingredients for human consumption and more environmentally-friendly animal feeds.