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).

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 approach and research

Impax views integration of sustainability expertise and methodology as continuously evolving and assesses how these add value in the investment process. This aspect of the investment process takes into consideration emerging issues and risks that are material for investee companies. This is achieved using a combination of company analysis, sustainability analysis, examining the types of issues that Non-Government Organisations (NGOs) and think tanks are focused on, and analysis of planned and forthcoming legislation and policy.

This approach has enabled Impax to focus on various externalities before they emerge as fully-fledged risks and opportunities – through the Firm’s unique combination of top-down proprietary tools used in idea generation and bottom-up security level analysis. Seeking to stay ahead of events is a challenge, but one that Impax has been successfully achieving for over 25 years through a profound understanding of the transition to a sustainable economy.

Impax believes the most differentiated aspect of its use of ESG information is that the investment team conducts its own proprietary analysis for active strategies, rather than relying on third party scores, putting significant emphasis on direct due diligence and engagement with companies. Impax believes that ESG analysis cannot be purely based on companies’ disclosures and, to understand the character and quality of companies, deep due diligence is required on the management of material risks. This is especially important in areas where data is scarce, such as human capital, employee satisfaction and productivity.

Impax’s proprietary fundamental ESG analysis is fully embedded within Impax’s investment processes and Sustainability and Stewardship professionals are embedded within the investment teams. Impax’s methodology and approach is dynamic and potential additions to the analysis are continuously considered. For example, in recent years, Impax has developed a proprietary model for analysing physical climate risk exposures (across eight extreme climate hazards, both acute and chronic) for companies’ assets and facilities (currently looking forward 10 and 30 years), based on open-source climate models. This risk analysis is combined with extensive engagement with investee companies where these risks are deemed to be the most material.

Impax Sustainability Centre

In October 2023, Impax’s growing Sustainability & Stewardship and Policy & Advocacy teams combined to form the Impax Sustainability Centre. The Sustainability Centre acts as Impax’s centre of excellence providing services, tools and knowledge on investing in the Transition to a Sustainable Economy (TSE). The Sustainability Centre allows Impax to meet the growing expectations of clients, regulators and other stakeholders. It also enables Impax to maintain a competitive edge in dealing with the rapidly expanding range and depth of sustainability issues that require the Firm’s attention. The Sustainability Centre is led by Co-Heads Lisa Beauvilain (Global Head of Sustainability & Stewardship) and Chris Dodwell (Global Head of Policy & Advocacy) who share management responsibilities and report directly into Impax’s CEO.

Sustainability Centre team

The Sustainability Centre is a centre of excellence, providing services, knowledge, tools and expertise on investing in the transition to a more sustainable economy across the four pillars as outlined below:

• Pillar 1 - Investment sustainability & stewardship

Through this pillar, the SC provides leadership, advice and oversight of investment-related sustainability research, thematic and sustainable universe development, impact measurement, development of proprietary tools and methodologies, management of the fundamental and systematic ESG analysis and processes, and stewardship work including proxy voting and company-specific and thematic engagement, as well as policy insights for the investment process. The SC provides advice, coordination and peer review of ESG-analysis and company-specific engagement which are fully integrated in Impax’s investment process and owned by the lead analysts of the companies.

• Pillar 2 – Advocacy & outreach

The focus of this pillar is to support policy makers who are working to create enabling environments that will accelerate the transition to a sustainable economy. Impax is active across a range of channels, from traditional reactive approaches such as working through industry associations, responding to consultations, and participating in issue-specific initiatives and sign-on letters - to more innovative pro-active interventions such as publishing Impax’s perspectives and commentaries, funding research, piloting new approaches, partnering with clients, and bilateral discussions with policy makers. Impax’s efforts around “systematic stewardship” fall under this pillar. Systemic stewardship combines company thematic engagement and policy advocacy as levers for accelerated change.

• Pillar 3 – Thought leadership

Through this pillar, the SC deliver thought-leadership content that supports the investment process, as well as content produced for external audiences. The SC’s thought leadership output provides Impax’s house view on important and evolving topics, supports research partnerships with academia and clients, and provides Impax’s firm-wide sustainability training and development.

• Pillar 4 – Client advisory and reporting

Under the fourth pillar, the SC advise on sustainability in Impax’s product development, sustainable finance regulatory responses and reporting including the metrics and methodologies used by the client advisory and reporting working group. The SC develops Impax’s firm-wide sustainability policies and is responsible for providing sustainability expertise and insights to Impax’s clients.

Sustainability Centre leadership

The leadership within the Sustainability Centre team has specific responsibilities as described below.

• Lisa Beauvilain, Global Head of Sustainability & Stewardship, Co-Head of the Sustainability Centre – responsible for pillars one and four
• Chris Dodwell, Global Head of Policy and Advocacy, Co-Head of the Sustainability Centre - responsible for pillars two and three
• Charlie Donovan, Senior Economic Advisor - responsible for leading Impax’s thought leadership work and firm-wide sustainability training and development
• David Loehwing, Head of Sustainability & Stewardship, North America – responsible for oversight and development of Impax’s sustainability methodologies, frameworks, and analytics
• Heather Smith, Head of Stewardship – responsible for implementing Impax’s company engagement and voting strategy, including development of themes, metrics, and reporting
• Julie Gorte, Ph.D., Senior Vice President, Sustainable Investing – responsible for Impax’s systematic engagement efforts and actively participates in policy advocacy in the US and in working groups with many of Impax’s membership organisations
• Miriam Benarey, Sustainability & Stewardship – responsible for managing sustainable investment processes, including development of sustainability metrics, and reporting, as co-head of the Beyond Financial Returns (BFR) working group
• Nana Li, Head of Sustainability & Stewardship, Asia-Pacific – responsible for sustainability research, thought leadership, and engagement in the Asia-Pacific region
• Paolo Macri, Sustainable Investment Research – responsible for oversight and development of thematic universes, related data and impact measurement and reporting
• Shahbano Soomro, Deputy Head of Policy and Advocacy - responsible for providing policy insights into the investment process

Integration of roles and responsibilities

The investment teams include many analysts with strong backgrounds in, and deep understanding of ESG topics. The lead investment analysts are responsible for both financial and ESG analysis, and related engagements with the investee companies under their coverage, for Impax’s active listed investments.

The Sustainability Centre is responsible for the oversight, peer-review and scoring of the ESG analysis, coordination of focus areas of engagement and continuous further development of the ESG, sustainability and stewardship approaches and methodologies.

Additional oversight comes from the Compliance team, which conducts monitoring on the investment process, as well as from Investment Control and the Product Committee, which is responsible for the governance and transparency of the product manufacturing and distribution processes.

The Compliance team has trading flags and blocks in place for companies whose ESG reviews might be due for an update, for companies whose ESG scores do not meet the minimum threshold, or for companies that are in breach of normative exclusions such as UN Global Compact (human rights, labour rights etc.). Companies that do not have a timely, scored and peer reviewed ESG analysis in place, or that are in breach due to exclusionary activities, cannot be purchased for portfolios.

The Head of Sustainability & Stewardship, in conjunction with Investment Control, monitors and reports on any companies whose ESG reviews are overdue or whose position sizes are near portfolio limits. There is an on-going flow of ESG-related information to the investment team on new sustainability or stewardship developments. There are standing agenda items for ESG, engagement and policy developments at investment team meetings and the Investment Committee meetings. Material events, changes to company ESG scores, and progress on ESG and sustainability engagements are presented and discussed under the standing agenda item “Sustainability & Stewardship”.

All portfolio managers and analysts are involved in engagement activities and Impax’s Investment Committee has a standing “Sustainability & Stewardship” agenda item to continuously inform and discuss engagement issues across the investment teams.

Governance

The Board of Directors sets the overall business strategy and risk appetite and has overall responsibility for reviewing the Firm’s ESG investment standards and monitoring compliance. One Board Director is specifically assigned “Climate” responsibility at the board-level and another Equity, Diversity & Inclusion (E,D&I). These Directors attend the Impax Environment and E,D&I Forums as observers.

The Management Committee (MCo) assists the Chief Executive, providing input and advice, in designing, facilitating and overseeing the actions necessary to deliver Impax’s business plan. Meeting monthly, MCo consider group wide issues, including the prioritisation of resources to our business divisions and subsidiaries, to provide the support required to set and achieve their objectives as well as meet their legal and regulatory obligations.

The Senior Leadership Team (SLT) is responsible for providing advice and support to MCo, and communicating and executing decisions made by the MCo throughout the business. The SLT acts as a consultative body for MCo, providing analysis and recommendations on current issues and ensuring that decisions are cascaded effectively through the business.

The Investment Committees oversee investment activities, performance, and risk. ESG and stewardship is a key an agenda item, including updates on engagement projects and outcomes. Regular updates from all Investment Committee meetings are provided to the Executive Committee and the Board.

The Sustainability Policy Committee (“SPC”) oversees, reviews, and approves Impax’s ESG, sustainability and stewardship-related policies and positions. It convenes as required and reports significant policy developments to the Investment Committees.

The Sustainability and Stewardship Expert Group (“SSEG”) facilitates the coordination of Sustainability & Stewardship work at Impax and acts as a conduit for information sharing and thought leadership among Impax’s S&S experts and main stakeholders. The role of the SSEG is to coordinate work and raise awareness among Impax S&S experts on Sustainability and Stewardship matters within, such as client reporting & advisory related matters, Impax Lens Committee, product development etc. The SSEG is led by Lisa Beauvilain and David Loehwing. Each meeting has a rotating moderator. Members of the Impax Sustainability Centre as well as other Impax experts and stakeholders participate as per the specific agenda items.

Key collective responsible Investment (RI) initiatives of which Impax is a signatory/member:

• Compliance with the UN Global Compact principles (including human rights, labour rights, environment, and anti-corruption) is a normative investment requirement for Impax. The Impax investible universe is screened for adherence to the UN Global Compact principles. An external research provider is used to support this screening activity. The underlying research provides assessments covering the UN’s Global Compact Principles, International Labour Organization’s (ILO) Conventions, OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights (UNGPs).
• Net Zero Asset Managers Initiative (NZAM). Impax joined the Net Zero Asset Managers Initiative in October 2021 and made its Initial Target Disclosure in November 2022.
• UK Stewardship Code. Impax has been a signatory of the Financial Reporting Council’s UK Stewardship Code since 2011. The code aims to enhance the quality of engagement between institutional investors and companies to help improve long-term returns to shareholders and the efficient exercise of governance responsibilities.
• Principles for Responsible Investment (PRI). Impax has been a signatory of the PRI since 2008. The PRI aims to help investors integrate ESG considerations into investment decision making and supports sharing best practice in active ownership.
• Task Force on Climate-related Financial Disclosures (TCFD). Impax has been a signatory of the TCFD recommendations since 2017. The TCFD develops voluntary, consistent climate-related financial risk disclosures for companies providing information to investors, lenders, insurers and other stakeholders.
• Task Force on Nature-related Financial Disclosures (TNFD). Impax has been actively involved in the preparatory work for the TNFD as a member of the informal working group and is now continuing its support through the TNFD Forum, focusing on the development of decision-useful metrics for assessing nature-related risks and opportunities. Impax will continue to participate in discussions around management and disclosure standards on nature-related risks.

Other key collective RI investment groups of which Impax is a signatory/member:

• CDP
• Institutional Investors Group on Climate Change
• Regional Climate Change e.g., IIGCC, AIGCC, or Ceres
• Investor Network on Climate Risk
• Regional Responsible Investment or Sustainable Finance e.g., RIAA, UKSIF, USSIF
• Climate Action 100+
• Corporate Governance Networks
• 30% club or 40:40 Vision or ILPA D&I Initiative
• The Global Impact Investing Network (GIIN)
• FAIRR Initiative

Other:

United Nations Environment Programme Initiative; World Resources Institute, Asian Corporate Governance Association (ACGA), Powering Past Coal Alliance; The Glasgow declaration on zero emissions cars and vans, PRI’s Deforestation Letter, Share Action Investor Decarbonization Initiative, Women’s Empowerment Principles, PRI Sustainable Stock Exchanges.

Please see a more detailed list of Impax memberships here: Memberships - Impax Asset Management (impaxam.com)

Dialshifter

Our organisation is helping to support the Paris Climate Agreement and the Race to Net Zero by…

As an asset manager, Impax supports meeting the goals of the Paris Agreement by:

• Pricing climate risk accurately: adjusting portfolios, screening-out fossil-fuel investments and using tools to minimize exposure to transition risks
• Engaging carbon-intensive companies: identifying priority sectors/companies and engaging on detail of transition plans
• Investing in climate solutions: generally calculated as a share of AUM, linked to definitions of green/taxonomies, with avoided emissions as a key metric of impact

Impax focuses particularly on investing in climate solutions. As a signatory of the Net Zero Asset Managers Initiative, we support the goal of net-zero emissions by 2050 or sooner.

SDR Labelling: Sustainability Impact label

• Consumer Facing Disclosure