Sustainable, Responsible &/or ESG Policy:
The ESG Policy for Impax Environmental Markets plc outlines the sustainable investment approach undertaken by the manager Impax Asset Management.
All of Impax Asset Managements’ investments are aligned to the transition to a more sustainable economy. Activities with lower sustainability risks and higher opportunities are set to benefit from a transition to a more sustainable, low-carbon economy and are well positioned for the long-term. They are less at risk of disruption from new technologies, changing consumer preferences or legislation. These well-positioned areas of the economy are sought and prioritised for investment across the Manager’s listed investment strategies.
ESG-analysis is an integral part of the Manager’s investment process, at the company level. We believe that a thorough understanding of environmental, social and governance (ESG) issues will enhance our perspectives on both the opportunities and risks offered by individual investments. The analysis enables a deeper and broader understanding of the companies, their corporate structures, oversight mechanisms, risk management capabilities and processes and transparency. Impax Asset Management seeks to understand the character of the companies through the ESG analysis. The insights from the ESG-analysis are then utilised to establish the priorities for engagement with the investee companies. The analysis focuses on corporate governance structures, the most material environmental and/or social risks for a company, climate change, human capital management, and any controversies that a company has faced.
Stewardship through active ESG engagement and proxy voting are important parts of the investment process. They enable monitoring of the investee companies more effectively and aim at further enhancing the structures, processes and disclosures of the companies. Impax Asset Management takes into account relevant regulations when considering the approach to sustainability and ESG, especially as it relates to reporting and disclosures.
Impax Environmental Markets plc ESG policy can be found here -policy_esg.pdf (impaxenvironmentalmarkets.co.uk).
Sustainable, Responsible &/or ESG Process:
The below explains the approach of the Manager, with oversight from the IEM Board, to integrating Environmental, Social and Governance (ESG) analysis in the investment process. Both the Manager and IEM plc believe that a thorough understanding of environmental, social and governance performance can enhance perspectives of the opportunities and risks offered by individual investments. The Manager has long embedded ESG into its investment process and takes an active approach to engagement with investee companies, as outlined below.
1.Idea generation – identifying interesting companies
Impax’s thematic environmental market strategies invest in companies that provide solutions to environmental and resource challenges. Inclusion in the Impax Environmental Markets Universe is contingent upon the resource efficiency and environmental markets business typically having >50% of group revenue, profitability or invested capital. Ideas are sourced from an investment universe that captures the following broad themes: Energy (Alternative Energy/Energy Management & Efficiency) | Clean and Efficient Transport | Sustainable Food | Water (Infrastructure & Technologies) | Circular Economy (Resource Efficiency & Waste Management) | Smart Environment (Environmental Services & Resources and Digital Infrastructure).
2.ESG-analysis.
Impax conducts a detailed, proprietary ESG-analysis of new companies considered for the investable universe and review the ESG-analysis on a periodic basis. IAM considers five main pillars within its ESG analysis:
- Governance: Impax analyses companies’ governance structures, taking into account common and best practice in the areas of board structure, compensation, shareholder rights, internal controls and governance of sustainability.
- Material Environmental, Social, and Other Risks: Impax analyses companies’ and issuers’ environmental and social policies, processes and disclosures, identifying the most material risks. Materiality is defined as the sustainability issues or risks that may most materially disrupt a company’s operations through financial, physical, or reputational loss or disruption. These risks can include: Resource use and dependencies, biodiversity risks, waste and pollution externalities, health and safety, supply chain complexities, and product liabilities including cyber risks and data privacy. Impax seeks investments in companies or issuers that have addressed the material risks with robust policies, processes, management systems and incentives that are scaled appropriately to the importance of the risk.
- Climate Change: Climate change is a systemic issue for all companies and this pillar assesses the preparedness, management, target-setting, performance and disclosures by companies in terms of both climate transition risks and physical climate risks.
- Human Capital Management and Equity (Equality), Diversity & Inclusion (E, D&I): Human capital and E, D&I are systemic and critical issues for all companies. This pillar assesses the management, target-setting, performance and disclosures by companies for aspects of diversity in leadership (gender, racial/ethnic diversity in board and management teams), workplace equity (hiring/retention efforts, goals, targets, disclosures), and human capital (talent pipeline, compensation/benefits and employee engagement).
- Controversies: This includes analysis of companies’ past and on-going controversies, seeking strong processes and management systems to address and avoid any repeat events. Analysis includes types of controversies or incidents (repeats, reputational, financial, operational), severity (widespread, systematic, isolated incident), and timeframe and status of issues (ongoing, closed, company has responded or addressed). Company disclosures and reports are analysed by Impax, with external ESG-research as input and support in the analysis.
When all the data is gathered, an ESG report is written, and the company is assigned a proprietary ESG-score. Impax does not seek to exclude a certain number or percentage of companies, but rather seeks an absolute level of ESG-quality. Where this is not achieved, a company is excluded from the investable universe.
ESG scoring
Upon completion of analysis, an ESG report is submitted and a proprietary ESG score assigned by members of the Sustainability & Stewardship team. Ultimately, all companies must be approved on both a financial and an ESG basis before being added to the investable universe as part of Impax’s research and approval process.
The five pillars (corporate governance, material environmental, social, and other risks, climate, human capital/E,D&I, and controversies) are each scored based on tiering of performance, management and disclosures. Each of the five pillars, including sub-pillars, have guidance documents describing what represents best practice from first tier down to the lowest tier. The pillar weights are adjusted where relevant for materiality.
Based on the five pillar scores, companies are assigned an overall rating: Excellent, Good, Average, Fair and Excluded. The Impax ESG scoring system is “absolute” (not a sector best-in-class approach) and is intended to enable a comparison of company ESG quality across countries, sectors, company sizes, etc.
Companies categorised as ‘Excluded’ are not eligible for investment, while those categorized as ‘Fair’ have a cap for the maximum allowed weighting within portfolios, for risk management purposes. Impax does not seek to exclude a certain number or percentage of companies, but rather seeks an absolute level of ESG-quality in companies/issuers eligible for investment (the “A-list” for active listed equities). An improving ESG rating trajectory can give the investment team and portfolio managers further conviction in a company.
Stewardship and engagement
All portfolio managers and analysts are involved in engagement activities and Impax’s Investment Committee has a standing “ESG and Engagement” agenda item to continuously inform and discuss engagement issues across the investment teams.
Engagements are conducted as part of regular meetings with company management teams, or through additional conference calls, meetings, email exchanges, or as part of joint communications with the investment community. Engagements are also regularly conducted together with other investors and partners with or without a lead or coordination from expert organisations. Collaborative engagements are conducted across several ESG issues, specific sectors and companies and can be prioritised where outreach may particularly benefit from a larger group of shareholder involvement or in cases where an issue is being escalated. Impax also conducts public policy advocacy, engaging with public policymakers.
Where material concerns or anomalies at an investee company are identified, Impax will intervene to mitigate risks and preserve shareholder value. The investee company management team is immediately contacted and, where possible, members of the company board.
If the investee company is unresponsive to engagement or unwilling to consider alternative, less risky options, Impax will escalate the dialogue by:
- Seeking alternative or more senior contacts within the company
- Intervening or engaging together with other shareholders
- Intervening or engaging together with other institutions or organisations (multi-stakeholder)
- Highlighting the issue and/or joint engaging regarding the issue through institutional platforms
- Filing or co-filing resolutions at General Meetings
If interventions are unsuccessful and Impax considers that the risk profile of the company has significantly deteriorated or company strategy/governance structures have altered because of an incident, to a degree where the return outlook and the company’s strategy and quality no longer meet expectations, the company would be excluded from the investable universe and/or sold.
Impax seeks to follow up on previous engagements after six months to one year, depending on the nature of the issue and situational context (e.g., reporting cycles). While some engagements may be one-off, as investee companies’ ESG processes mature over time, engagement series often continue over years.
Resources, Affiliations & Corporate Strategies
Impax's most valuable research is generated internally, with external research being used to challenge assumptions and conclusions made by the investment team. Much of Impax’s research, especially top-down, global macroeconomic views and analysis is shared across investment teams and used firm-wide. This includes views on changes in credit markets, government and consumer spending, policy announcements, industrial production and commodity prices, sector and industry dynamics, technological disruptions, and similar themes. Impax strives to maintain its competitive advantage by continuing to invest in its personnel and research resources, and by staying ahead of dynamic technology and regulatory changes.
External data is sourced from a variety of sources including sell side research, Bloomberg, MSCI, Sustainalytics, Glass Lewis, industry publications, databases, conferences, industry contacts, etc. Impax uses external research and service providers as an input to its ESG analysis. Impax has developed its own proprietary methodology for analysing and scoring companies on ESG quality and does not rely on external ESG ratings.
With regards to external ESG research, there is a general concern of the opaqueness of methodologies and that data is increasingly coming through “automated data gathering”, thereby reducing its value. Impax also has concerns about the method of using sector-level materiality analysis as in many cases material risks are company specific. Impax’s own proprietary analysis and scoring methodology is relevant and appropriate for the types of companies in which it invests.
External research and data are used when monitoring investee companies’ behaviour and controversies, as well as for norms-based screening. This relates both to normative controversies, such as human rights breaches and more common controversies, such as litigation or labour relations. Impax also uses external research providers’ data to monitor any potential controversial activities, such as revenue exposure to controversial weapons, fossil fuels or tobacco. Impax reviews external ESG research providers on an annual basis, to understand any changes to research methodologies, and to understand areas of priority for the research providers.
ESG research resources:
Impax has a dedicated team of Sustainability and Stewardship analysts, led by Lisa Beauvilain.
Fully integrated within the global investment team, the 12-strong Sustainability & Stewardship team is responsible for leadership and oversight of sustainability research, thematic universes, and proprietary tools, fundamental and systematic ESG analysis, ESG policies, and stewardship including proxy voting and company engagement.
The team’s key responsibilities include:
- Sustainability research for Impax’s proprietary tools and frameworks including the Impax Sustainability Lens and Gender Lens, Impax’s thematic universes, and the Impax Systematic ESG Rating
- Development of methodologies, such as the proprietary ESG 2.0 analysis, and oversight, peer-review and scoring of security-level ESG analysis in the investment team
- Stewardship including proxy voting and company engagement – including coordination of focus engagement areas and external collaboration
- Development and implementation of policies such as Biodiversity and Nature Policy and Proxy Voting Guidelines
- Lead on sustainability methodologies, measurement, and metrics, including for impact, client and regulatory reporting as part of Impax’s ‘Beyond Financial Returns’ (BFR) working group
- Continuous further development of sustainability and stewardship approaches and methodologies, and training and development on sustainability and stewardship topics
For each prospective and current investment holding, the respective lead analyst from the broader investment team completes the proprietary 10-Step analysis which includes the in-depth ESG analysis. This is accompanied by oversight, review and approval of the scoring by the Sustainability & Stewardship Team to ensure consistency across sectors and companies.
All portfolio managers and analysts conduct proprietary in-house ESG analysis under the supervision of the Head of Sustainability & ESG, an experienced member of the investment team dedicated to ESG research. Impax has the following team members: Lisa Beauvilain, Head of Sustainability & ESG and Miriam Benarey-Meisel, Sustainability & ESG Analyst.
Company ESG characteristics are continually discussed between team members and ESG is a standing item on the weekly Investment Committee agenda. Importantly, while the respective stock’s analyst is informing and leading the ESG analysis and discussion around ESG outcomes, outstanding questions and concerns are continuously discussed with the portfolio managers and Head of Sustainability & ESG. Ultimately, all companies have to be approved by the Investment Committee on both a financial and an ESG basis as part of Impax’s research and approval process.
ESG Training
Impax strives to maintain its competitive advantage by continuing to invest in its personnel and research resources. The Head of Sustainability & ESG leads the continual development and training of the Firm’s investment team on ESG competency and training includes emerging risk factors such as cyber risk, plastic exposures or general ESG topics such as the long-lasting value destruction from fraud, shareholder structure and oversized influence, management turnover, and the importance of management attitude during engagement. All new analysts are trained on, and dedicate time to, ESG analysis alongside financial analysis. The team is seasoned, collegial and multi-disciplinary in nature and brings a range of ESG training and experience.
Impax works on ESG engagement collaborations with clients, partners, and industry organisations to promote sustainable investing and ESG considerations across the globe. Impax is proud to be a part of:
- 2001- UK Sustainable Investment and Finance Association (“UKSIF”)
- 2003 - NH Businesses for Social Responsibility
- 2007 - Interfaith Centre on Corporate Responsibility (ICCR)
- 2007 - CERES
- 2008 - Institutional Investors Group on Climate Change (IIGCC)
- 2008- Principles for Responsible Investment (‘PRI’)
- 2009 – Carbon Disclosure Project
- 2009 - Investor Network on Climate Risk (INCR)
- 2010 - UK Stewardship Code
- 2011 - Thirty Percent Coalition
- 2011 - Silicon Valley Toxics Coalition (SVTC)
- 2012 - Access to Nutrition Index
- 2013 - Investor Environmental Health Network (IEHN)
- 2013 - Sustainable Stock Exchanges Initiative (PRI)
- 2014 - World Resources Institute
- 2015 – Global impact Investor Network (GIIN)
- 2016 - Shareholder Rights Group
- 2016 - Access to Medicine Index
- 2016 – FAIRR
- 2017 - Task Force on Climate-related Financial Disclosures (TCFD)
- 2018 – Council of Institutional Investors (CII)
- 2019 – Impact in Listed Equities working group (GIIN)
- 2019 – Just Transition
- 2019 – Northeast Investors Diversity Initiative
- 2019 – Asian Corporate Governance association (ACGA)
- 2019 – Plastic Solutions Investor Alliance (As You Sow)
- 2020- Confederation of British Industry (CBI)
- 2020 – PRI EU Taxonomy Practitioners Group
- 2020 – Climate Financial Risk Forum (CFRF)
- 2020 – Energy Transitions Commission (ETC)
- 2020 – Finance to Accelerate the Sustainable Transition-Infrastructure (FAST-Infra)
- 2020 - Taskforce for Nature-related Financial Disclosure (TNFD)
- 2021 - Net Zero Asset Managers Initiative (“NZAM”)
- 2022 - Natural Capital Investment Alliance (“NCIA”)
- 2023 – The Investment and Saving Alliance (‘TISA’)
- 2023 - Women's Empowerment Principles
- Investment Association
- Forum for Sustainable and Responsible Investment (“USSIF”)
- PRI Financial Institutions Commitment to Tackle Deforestation
- PRI Global Policy Reference Group
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