It’s not all about renewable energy when it comes to green investing as there is a range of rapidly growing areas delivering sustainable growth in environmental and resource-efficiency markets, according to Impax Asset Management Jon Forster.
Forster, who is a co-manager of Impax Environmental Markets alongside Bruce Jenkyn-Jones, said renewable energy makes just 10 per cent of the £482.5m investment trust he has run since 2002.
Instead, the team is finding opportunities in a wide range of areas including water, waste management & recycling, sustainable food and agriculture.
Whilst last year the faster growing story was electric vehicles, Forster said in 2018 the war on plastic has come to the fore.
“Most people don’t appreciate the breadth of what we are looking at,” the fund manager said. “It is a much richer, more diverse but rapidly growing group of sectors than people generally realise.
“It is not just renewable energy, which people seem to be fixated on when it comes to environmental markets.”
He added: “We are seeing good growth in many areas which are not correlated with each other. One of the strongest performing areas in 2018 is the war on plastics.”
Recycling rate (per cent) for plastic packaging for EU since 2005
Source: Eurostat
According to the Impax manager, a confluence of factors, which include a change of consumer awareness and the increasing policy change aimed at stopping pollution of the oceans, has made the war on plastics gain importance over the last year.
“We have programs like the Blue Planet II having very substantial public outcry and a desire for change,” the manager explained. “At the same time, we’ve had China instituting some import bans on contaminated recyclables.
“Europe and North America used to export millions of tons of contaminated recyclables over to China. They pick through it and they feed it back to their economy.
“In China they’ve got significant environmental problems on their own and they are basically saying ‘we are not going to sort out your problem anymore’. So, they got these bans in place which means that we [Europe] have to sort out our problems.”
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Those two things together, he noted, are driving a lot of policy change, which is illustrated by the increasing measures adopted by many institutions aimed at reducing the use of plastics and/or finding ‘greener’ alternatives.
“In Europe they are looking to target 90 per cent of recycling of single-use plastic bottles by 2025,” he said. “The UK is looking to introducing a deposit scheme, which is the best thing to do if you want 90 per cent of recycling.
“You pay a deposit when you buy a bottle of coke and you post your bottle back into a reverse vending machine and re-claim it.”
As such, Forster said there are several areas targeting disposable plastics where the team is increasingly finding opportunities.
Infrastructure
The need for more recycling facilities to process things such as plastic bottles or containers and the implementation of specific targets or bottle deposit schemes are leading to a growing need for infrastructure.
An example of company specialised in recycling solutions Impax Environmental Markets holds is Tomra, a Norwegian multinational company that produces reverse vending machines and sensor-based machines for sorting and recycling.
Tomra is a dominant supplier of technology into this market and is the largest reverse vending machine producer in the world.
Transition from plastic to other materials.
Another theme the team is taking advantage of is the growing adoption of eco-friendly alternatives in order to avoid the adverse effect of plastic on both people’s health and the environment.
“There are already meat trays that are no longer going to be plastic and are moving towards a coated fibre instead as an alternative to the plastic tray. We believe that is an opportunity, so we are looking at fibre-based packaging,” said Forster.
Performance of stock over 3yrs
Source: FE Analytics
A holding of Impax Environmental Markets’ portfolio that plays into this theme is DS Smith, a British company that provides corrugated packaging solutions throughout Europe as well as plastic packaging solutions worldwide.
New materials
Related to the transition from plastic to other materials is the new materials theme, which consists of finding suitable biodegradable substitute to plastics.
“This has always been a very difficult area. We are trying to have the right performer, a material that works and that has a viable quality and price,” said the manager.
“It is taking a lot of time but there is much more of these materials out there and we’ve had a bit of fair following wind from these developments and the desire from retailers to find alternative materials.”
Dutch food and biochemicals company Corbion is an example of holding the team holds which is currently benefitting from the increasing relevance of this theme.
Software and technology
The final area on the team’s radar is software and technology. According to Forster, cloud computing, cheaper memory and cheaper data processing together with connectivity and cheaper communications are creating an “internet-sort-of-things opportunity” where companies can capture and analyse data from industrial environments.
This, he noted, unlocks great potential for cost inefficiency saving and transforming the industrial environment.
“We are seeing more software businesses providing all these solutions that are investment opportunities,” the manager added.
“We didn’t have pure software businesses before, but they are quite attractive, they are quite different from the other things we have in the trust.”
One of the names the team owns is PTC, a developer and provider of software-based product management and development solutions.
Performance of trust vs sector & benchmark since launch
Source: FE Analytics
Since launch, Impax Environmental Markets has delivered a 192.02 per cent total return compared with a gain of 43.46 per cent for the average fund in the IT Environmental sector and a 232.32 per cent gain for the MSCI AC World index.
The trust is trading at a 0.1 per cent premium to its net asset value (NAV), is 4 per cent geared and has ongoing charges of 1.05 per cent, data from the Association of Investment Companies (AIC) shows.