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Impax Asset Management

PRI reporting framework 2019

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You are in Direct - Listed Equity Incorporation » ESG incorporation in actively managed listed equities » Implementation processes

Implementation processes

LEI 01. Percentage of each incorporation strategy

01.1. Indicate (1) which ESG incorporation strategy and/or combination of strategies you apply to your actively managed listed equities and (2) the breakdown of your actively managed listed equities by strategy or combination of strategies (+/- 5%)

ESG incorporation strategy (select all that apply)

Percentage of active listed equity to which the strategy is applied
20 %
Percentage of active listed equity to which the strategy is applied
80 %
Total actively managed listed equities 100%

01.2. Describe your organisation’s approach to incorporation and the reasons for choosing the particular ESG incorporation strategy/strategies.

Impax Asset Management incorporates thematic, screening and integration strategies.

At Impax, we focus on the risks and opportunities arising from the transition to a more sustainable global economy. The analysis of environment, social, and governance (ESG) issues is complementary to our focus on risk management and quality and is integrated into the investment process of each of our strategies and portfolios.

Equity investments at Impax can be classified in three categories:

1. Thematic Active Equities (thematic, screening and integration)

  • Environmental strategies (new energy, water, waste management, sustainable food)

2. Active Equities (screening and integration)

  • US Equities
  • Global Equity Opportunities

3. ESG Smart Beta Passive Equities (screening and integration)

  • Gender Leadership 
  • Sustainability Fund (quantitative ESG scoring)

 

1. Thematic Active Equities (thematic, screening and integration)

Impax is a leading investment manager dedicated to investing in the opportunities created by the transition to a more sustainable economy. Our thematic listed equity funds seek out mis-priced companies globally that are set to benefit from the long-term trends of climate change, inadequate infrastructure, environmental constraints, changing demographics, urbanisation and the resultant increases in resource scarcity. We expect that these trends, will drive earnings growth for well-positioned companies.

Investment is focused on a small number of deeply researched global equity strategies across alternative energy, energy efficiency, water, waste, food and agriculture and related markets. 

The entire thematic environmental investable universe is screened quarterly on a normative-basis by a third party ESG-research provider, in order to ensure that none of our companies breach any of the ten UN Global Compact Principles. We will not invest in companies that breach fundamental normative issues such as Human Rights, Labour Rights or are involved in corrupt practices. We do not perform negative activity screens, however we positively screen for global listed equities with at least 20% of revenues from environmental activities, as defined by the "Environmental Markets" classification system. 

A detailed ESG-analysis and proprietary ESG-scoring is fully integrated in our investment analysis and process, as it provides us with a more complete picture of the companies we invest in and results in a better assessment and understanding of the broader risks and opportunities. By analysing companies beyond the financials, we aim to identify company character and quality.

 

2. Active Equities (screening and integration)

US Equities

Our active equity strategies are high conviction, core strategies focused on adding value through superior stock selection. Our active equity teams integrate research from our ESG analysts throughout the investment process. Companies with highly rated or improving ESG profiles can be considered during idea generation, and the integration of ESG research helps us uncover risks when conducting fundamental analysis of companies. Deterioration of a company’s sustainability profile may also be a factor in the decision to sell a company.

Our team assesses key ESG issues for each sector, industry and sub-industry and weight ESG factors accordingly. We focus on companies’ ability to manage operational and reputational risks and to capitalize on opportunities arising from the shift towards a more sustainable global economy.

Global Equity Opportunities

The Impax Sustainability Lens identifies sub-sectors and companies that have lower risks and higher opportunities, benefiting from the transition to a more sustainable economy.

The Global Equity Opportunities investable universe is screened quarterly on a normative-basis by a third party ESG-research provider, in order to ensure that none of our companies breach any of the ten UN Global Compact Principles. We will not invest in companies that breach fundamental normative issues such as Human Rights, Labour Rights or are involved in corrupt practices.

A detailed ESG-analysis and proprietary ESG-scoring is fully integrated in the investment analysis and process, as it provides us with a more complete picture of the companies we invest in and results in a better assessment and understanding of the broader risks and opportunities. By analysing companies beyond the financials, we aim to identify company character and quality.

 

3. ESG Beta Solutions (screening and integration)

Impax offers solutions that systematically create market exposure incorporating ESG insights using quantitative optimization tools to manage risks relative to market benchmarks and target desired tilts in characteristics. These tilts involve integration of ESG ratings systematically alongside financial factors in portfolio construction through optimization.

We have developed two proprietary ESG rating frameworks employing a quantitative approach to ESG assessment.

  • Impax Gender Leadership Score: The Gender Leadership Score is a proprietary framework of gender leadership factors used to determine the constituents and weights of a global investment strategy designed to capture investment returns associated with gender diversity and women's leadership.
  • Impax Sustainability Score: The Sustainability Score is a proprietary, relative ranking framework designed to capture information regarding a company’s management and performance related to material ESG issues. The framework is used to determine the constituents and weights in U.S. large-cap smart beta portfolios.

 

01.3. If assets are managed using a combination of ESG incorporation strategies, briefly describe how these combinations are used. [Optional]

Across all Impax strategies we focus on the risks and opportunities arising from the transition to a more sustainable global economy. The analysis of environment, social, and governance (ESG) issues is complementary to our focus on risk management and quality and is integrated into the investment process of each of our strategies and portfolios. 

Impax ESG policy:

https://www.impaxam.com/sites/default/files/Impax_ESG_Policy_2019_0.pdf


LEI 02. Type of ESG information used in investment decision

02.1. Indicate what ESG information you use in your ESG incorporation strategies and who provides this information.

Type of ESG information

Indicate who provides this information  

Indicate who provides this information 

Indicate who provides this information 

Indicate who provides this information 

Indicate who provides this information 

Indicate who provides this information 

02.2. Indicate if you incentivise brokers to provide ESG research.

02.3. Describe how you incentivise brokers.

We incentivise brokers through quarterly payments for original and value-adding analysis and research, including ESG and sustainability research. We endeavour to participate in II, Extel, IRRI annual sell-side research voting, highlighting the importance of ESG and sustainability research on the sell-side. 

02.4. Additional information.[Optional]


LEI 03. Information from engagement and/or voting used in investment decision-making

03.1. Indicate if your organisation has a process through which information derived from ESG engagement and/or (proxy) voting activities is made available for use in investment decision-making.

03.2. Additional information. [Optional]

"ESG and Stewardship activities" (engagement and proxy voting) is a standing agenda item at the Investment Committee meeting and significant ESG issues and engagements are discussed at the daily meetings in the investment team. The Engagement Database enables viewing and tracking all historic and on-going engagements.

An internal research platform, the "Portal", enables storing and viewing relevant ESG related information about all our investee companies.   


(A) Implementation: Screening

LEI 04. Types of screening applied

04.1. Indicate and describe the type of screening you apply to your internally managed active listed equities.

Type of screening

Screened by

Description

For the Active US Equities and ESG Beta Solutions, we seek to avoid investing in companies:

  • Involved in the manufacture/sale of weapons; 
  • Manufacture tobacco products; 
  • Whose primary business is coal mining and production; 
  • Whose sole or majority operations are in oil sands; 
  • Whose reliance on coal, in the case of utilities, is above the national average, unless that utility has demonstrated a significant commitment to renewables and is reducing its dependence on coal.

Screened by

Description

Thematic Environmental Active Equities:

Our thematic listed equity funds seek out mis-priced companies that are set to benefit from the long-term trends of climate change, inadequate infrastructure, environmental constraints, changing demographics, urbanisation and the resultant increases in resource scarcity. Investment is focused on a small number of deeply researched global equity strategies across alternative energy, energy efficiency, water, waste and sustainable food. We positively screen for companies active in these areas, with a min. 20% of revenues.

US Equities:

Our actively managed US listed equity funds use positive or best-in-class criteria. The result, we believe, is an increased level of scrutiny that helps us construct investment portfolios made up of better-managed companies that are leaders in their industries, meet positive standards of corporate responsibility and are more focused on the long term.

 

 

Screened by

          Companies involved in the production / manufacturing of cluster munitions or anti-personnel mines would be screened out, as this constitutes a human rights breach.
        

Description

Thematic Active Equities and Global Active Equities:

The investable thematic environmental and global listed equity universes are screened on a normative-basis by a third party ESG-research provider on a quarterly basis, in order to ensure that none of our investee companies are in breach of any of the ten UN Global Compact Principles. We will not invest in companies that breach fundamental issues such as Human Rights, Labour Rights or are involved with corrupt practices.

Companies involved in the production / manufacturing of cluster munitions or anti-personnel mines would also be screened out, as this constitutes a de facto human rights breach.

 

04.2. Describe how you notify clients and/or beneficiaries when changes are made to your screening criteria.

The screening criteria are established by a deliberative process incorporating portfolio management, sustainability research, and senior management staff. Clients and beneficiaries are notified when substantive changes are made.

 

 


LEI 05. Processes to ensure screening is based on robust analysis

05.1. Indicate which processes your organisation uses to ensure screening is based on robust analysis.

          Third party independent committee verifies bi-annually the continued validity of the environmental inclusion criteria and definitions, underpinning our positively screened thematic environmental investment universe.
        

05.2. Indicate the proportion of your actively managed listed equity portfolio that is subject to comprehensive ESG research as part your ESG screening strategy.

05.3. Indicate how frequently third party ESG ratings are updated for screening purposes.

05.4. Indicate how frequently you review internal research that builds your ESG screens.

05.5. Additional information. [Optional]

Positive screening for environmental activity (active thematic equities)

Companies must have at least 20% of revenues from environmental or resource efficiency activities to be part of the Impax investment universe. Impax has dedicated staff developing and maintaining the investment universe. The entire universe is screened once a year to ensure that all companies still adhere to the minimum revenue target. Companies that no longer attain this minimum level of revenue are removed from the investable universe database. There is a third party independent committee that verifies bi-annually the continued validity of the environmental inclusion criteria and definitions, underpinning our positively screened investment universe.

Positive screening on ESG-criteria, best-in-class (US active equities)

Our actively managed US equity funds use positive or best-in-class criteria. The result, we believe, is an increased level of scrutiny that helps us construct investment portfolios made up of better-managed companies that are leaders in their industries, meet positive standards of corporate responsibility and are more focused on the long term.

Normative screening (active thematic equities and active global equities)

A third party ESG-research provider screens our investable universe every quarter to identify any potential UN Global Compact issues. Companies which are found to have minor issues are flagged and we monitor these particularly thoroughly and engage with these companies where relevant. Companies that are not compliant with the UN Global Compact principles are excluded from investment and excluded from our "A-list" or investable universe database. Companies involved in the production / manufacturing of cluster munitions or anti-personnel mines would also be screened out, as this constitutes as a human rights breach. We use external data providers to flag controversial business activities.

Screening of ESG criteria (ESG analysis) - across all equity strategies:

Impax's proprietary and integrated ESG-analysis is an integral part of the Impax investment process. Companies in our investable universe are ESG-analysed at a minimum annually. Our multi-step  investment process incorporates ESG parameters into the investment analysis of companies through a thorough examination of company management/board structures, governance, ownership, corporate behaviour and Environmental and Social policies, processes and disclosures, following a materiality approach. We produce a proprietary ESG-report for each company. In addition, for Hong Kong and China-based companies, we have a further "governance tool" in place and we have identified five governance metrics that each company entering our investable universe must have in place. 


LEI 06. Processes to ensure fund criteria are not breached

06.1. Indicate which processes your organisation uses to ensure fund criteria are not breached.

          Third party independent committee verifies bi-annually the continued validity of the environmental inclusion criteria and definitions, underpinning our positively screened environmental investment universe.
        

06.2. If breaches of fund screening criteria are identified - describe the process followed to correct those breaches.

Impax has developed systematic compliance procedures for our trading system to ensure that fund criteria are not breached. The system leverages IT infrastructure, compliance functions and checks across several departments to ensure compliance.

Positive screening for environmental activity (active thematic equities)

Companies must have at least 20% of revenues from environmental or resource efficiency activities to be part of the Impax investment universe. The entire universe is screened once a year to ensure that all companies still adhere to the minimum revenue target. Companies that no longer attain this minimum level of revenue are removed from the investable universe database. There is a third party independent committee verifies bi-annually the continued validity of the environmental inclusion criteria and definitions, underpinning our positively screened environmental investment universe.   

Normative screening (active thematic equities and active global equities)

A third party ESG-research provider screens our investable universe every quarter to identify any potential UN Global Compact issues. Companies which are found to have minor issues are flagged and we monitor these particularly thoroughly and engage with these companies where relevant. Companies that are not compliant with the UN Global Compact principles are excluded from investment and excluded from the investable universe. Companies involved in the production / manufacturing of cluster munitions or anti-personnel mines would also be screened out, as this constitutes as a human rights breach. We use external data providers to flag controversial business activities.

Screening of ESG criteria (ESG analysis) - (all equity strategies)

Impax's proprietary and integrated ESG-analysis is an integral part of the Impax investment process. Our investment process incorporates ESG parameters into the investment analysis of companies through a thorough examination of company management/board structures, governance, ownership, corporate behaviour and environmental and social policies, processes and disclosures, following a materiality approach. We produce a proprietary ESG-report for each company. If companies do not attain the required ESG quality, they will be excluded from our investable universe and can not be traded in our trading systems. In addition, for Hong Kong and China-based companies, we have a further "governance tool" in place. We have identified five governance metrics that each company entering our investable universe must have in place. 

We have a proprietary data analytics and risk tool that identifies and immediately flags any breaches to our screening rules and principles.

 

06.3. Additional information.[Optional]


(B) Implementation: Thematic

LEI 07. Types of sustainability thematic funds/mandates

07.1. Indicate the type of sustainability thematic funds or mandates your organisation manages.

07.2. Describe your organisation’s processes relating to sustainability themed funds. [Optional]

Environmental strategies

Impax Asset Management is dedicated to investing in the opportunities created by the transition to a more sustainable economy and the scarcity of natural resources and the growing demand for cleaner, more efficient products and services, through both listed and private equity strategies.

Impax's environmentally themed listed equity strategies seek out mis-priced companies that are set to benefit from the long-term trends of climate change, inadequate infrastructure, environmental constraints, changing demographics, urbanisation and the resultant increases in resource scarcity. We expect that these trends will drive earnings growth for well-positioned companies. Investment is focused on a small number of deeply researched global equity strategies across alternative energy, energy efficiency, water, waste, sustainable food and agriculture and related markets.

As part of our investment process, we develop and maintain a large database of our entire environmental thematic investment universe, currently c. 1,600 companies. We review and update the exact % of revenue (or other business activity indicator) derived from the environmental solution / activity for each company on an annual basis. This process ensures that our investee companies are and continue to be part of the economy and sectors benefiting from resource and environmental opportunities and to further develop and expand our investment universe. The companies we invest in must derive at least 50% or 20% of revenues (depending on the strategy) from Environmental Market activities.

One person in the Impax investment team is dedicated to maintaining and developing the environmental investment universe.

Impax is a thought-leader in defining environmental markets, for example through a partnership with FTSE to develop and manage the classification system underpinning the FTSE Environmental Markets Index Series.

Environmental Markets classification: https://www.impaxam.com/investment-philosophy/ftse-environmental-markets

Global Women's Leadership strategy

We have developed a proprietary rating framework that employ a quantitative approach to gender leadership assessment. The framework is incorporated into portfolios that use quantitative optimization tools to manage risks relative to market benchmarks and target desired tilts in characteristics. These tilts involve integration of gender leadership and ESG ratings systematically alongside financial factors in portfolio construction through optimization.

Impax Gender Leadership Score: The Gender Leadership Score is a proprietary framework of gender leadership factors used to determine the constituents and weights of a global investment strategy designed to capture investment returns associated with gender diversity and women's leadership.

https://paxworld.com/funds/pax-ellevate-global-womens-leadership-fund/


(C) Implementation: Integration of ESG factors

LEI 08. Review ESG issues while researching companies/sectors

08.1. Indicate the ESG factors you systematically research as part of your investment analysis and the proportion of actively managed listed equity portfolios that is impacted by this analysis.

ESG issues

Proportion impacted by analysis
Environmental

Environmental

Social

Social

Corporate Governance

Corporate Governance

08.2. Additional information. [Optional]

ESG-analysis is an integral part of the Impax investment process. Our actively-managed Listed Equities investment process incorporates ESG-parameters into the fundamental investment analysis of the companies in our investable universe. Our smart beta investment processes systematically incorporate proprietary ESG ratings alongside financial factors in portfolio construction through optimization.

As part of the ESG-analysis, we write a proprietary ESG-report. We review the ESG analysis periodically and if a material event occurs.

The ESG reports are available for the entire investment team in our research system, the "Portal" and in the risk management and portfolio review as well as portfolio construction materials.

ESG issues are a standing agenda item at the Investment Committee meetings and during the portfolio review meetings for the various listed equity strategies.

Impax's externally disclosed ESG policy:

https://www.impaxam.com/sites/default/files/Impax_ESG_Policy_2019_0.pdf


LEI 09. Processes to ensure integration is based on robust analysis

09.1. Indicate which processes your organisation uses to ensure ESG integration is based on a robust analysis.

09.2. Indicate the proportion of your actively managed listed equity portfolio that is subject to comprehensive ESG research as part your integration strategy.

09.3. Indicate how frequently third party ESG ratings that inform your ESG integration strategy are updated.

09.4. Indicate how frequently you review internal research that builds your ESG integration strategy.

09.5. Describe how ESG information is held and used by your portfolio managers.

          All ESG information is available in our research system "Portal", universe and market data databases and in Portfolio Review Meeting (PRM) documents.
        

09.6. Additional information.[Optional]

ESG-analysis is an integral part of the Impax investment process. Our actively-managed Listed Equities investment process incorporates ESG-parameters into the fundamental investment analysis of the companies in our investable universe. Our smart beta investment processes systematically incorporate proprietary ESG ratings alongside financial factors in portfolio construction through optimization.

As part of the active equity strategies' ESG-analysis, we write a proprietary ESG-report. We review the ESG analysis periodically and if a material event occurs.

The ESG reports are available for the entire investment team in our research system, the "Portal" and in the risk management and portfolio review as well as portfolio construction materials.

ESG issues are a standing agenda item at the Investment Committee meetings and during the portfolio review meetings for the various listed equity strategies.


LEI 10. Aspects of analysis ESG information is integrated into

New selection options have been added to this indicator. Please review your prefilled responses carefully.

10.1. Indicate which aspects of investment analysis you integrate material ESG information into.

Proportion of actively managed listed equity exposed to investment analysis

Proportion of actively managed listed equity exposed to investment analysis

Proportion of actively managed listed equity exposed to investment analysis

Proportion of actively managed listed equity exposed to investment analysis

Proportion of actively managed listed equity exposed to investment analysis

Proportion of actively managed listed equity exposed to investment analysis

10.2. Indicate which methods are part of your process to integrate ESG information into fair value/fundamental analysis and/or portfolio construction.

10.3. Describe how you integrate ESG information into portfolio weighting.

Impax Thematic active environmental strategies and Active Global Equities:

We conduct detailed, proprietary financial and ESG-analysis of companies considered for the investable universe and review the ESG-analysis periodically. We assign a proprietary ESG-rating for each company. If a company scores below our threshold-level, it is excluded from our investable universe. 

Our portfolio construction process takes ESG into account. Companies with ESG-scores below a certain level have their position sizes capped in the portfolios for risk management purposes. Companies with strong ESG-scores or with improving ESG-profiles, can give conviction to the portfolio manager to increase the position-sizes in the portfolio. 

The lead analysts can adjust the WACC on companies based on ESG factors.

Impax US Large Cap Active Equities:

We integrate ESG-data provided by the Sustainability Research team to inform stock selection and position sizing. For example, based on internal ESG-research, the portfolio managers have the confidence to make a global diversified industrial manufacturing company one of the largest active positions in the portfolio. This company is a leader in energy-efficient HVAC systems and has set targets for improving key sustainability issues, including GHG emissions, water and waste. It demonstrates strong gender diversity on the board and in senior management.

10.4. Describe the methods you have used to adjust the income forecast / valuation tool

The lead analysts of the Impax thematic active environmental strategies and active global equities can apply a higher WACC (weighted average cost of capital) on companies with higher company or sector-specific ESG risks and adjust financial and operative forecasts based on ESG-factors, risks or opportunities (e.g. water scarcity) or financial provisions (or estimated provisions) made by companies for e.g. pollution litigation or an asbestos class-action.

10.6. Additional information. [OPTIONAL]


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