Despite the ongoing geopolitical challenges facing the global economy, climate issues have remained high on the news agenda although there appears to have been few new developments. 
However, Impax Asset Management’s Jon Forster believes that this conversation is far from monotonous when it comes to sustainability.
“I think these positive disruptions are a signal of incremental and accelerating health in those markets, such as China,” he said.
“I don’t think it’s a bad thing to be saying the same thing as you were five years ago.”
He added: “The fact that it’s diversifying, and new opportunities are emerging within that mix I think is a really potent sign of health in what we’re investing in.”
Alongside Bruce Jenkyn-Jones, Forster manages the £527m Impax Environmental Markets investment trust, which has a 16-year history of investing in sustainable companies primarily in energy, water, waste and agriculture.
The fact that talk about the environment continues to dominate despite all the ongoing macro disputes and distractions actually proves the worth of sustainable investment as a true growth opportunity.
Although Forster (pictured) added, that they were not completely immune from the effects of the global market falls and geopolitical tension, they do have a better path for growth than others might.
“I would never claim that we are immune to the global economic cycle, that would be unrealistic exaggeration of this secular growth story,” he said.
“We’re not immune to it, but maybe we’re a little bit insulated by the need for change. By the momentum in these markets.”
Forster explained: “Although automotive car sales might go down as they are at the moment in some regions. The penetration story of electric vehicle should mean that counter to the cycle those businesses can still thrive.
“I think that’s how I would characterise it, not immune but an interesting drive is underneath it. so that’s what we’re focused on.”
One of the big areas of opportunity is China. Although as the most polluted country in the world it is not traditionally associated with sustainable environmental projects, Forster said there are opportunities as it focuses on infrastructure.
He believes they will use infrastructure to plug the hole being created by their current economic slowdown, whose annual rate of expansion fell from 6.4 per cent to 6.2 per cent, the lowest levels since 1992. Although it is still growing at four times the rate of the US.
Forster said that China needs to achieve a certain level of economic growth in order to create jobs and maintain social stability, and infrastructure will be the solution especially in priority areas like environmental markets.
Having worked within the sustainable investment sector for over a decade Forster said that he is still continuously surprised by the seismic change coming through investment practices, a change he said is consumer driven and largely down to the ‘millennial’ age class.
“I’ve been positively surprised by the scale and pace of change in these disruptive events,” said the Impax Environmental Markets manager. “We are used to this kind of ongoing, gradual hypothesis. But the size and pace of change in the ‘War on Plastics’ for example is something we’ve never seen before and I think what’s changed is consumer awareness.
“The younger generation is instrumental in driving that consumer awareness and change that is putting us on a better trajectory towards where the economy will be in 30-40 years’ time.”
One of the biggest trends within the environmental sector and in consumer thinking has been renewable energy, particularly solar which last year surpassed coal in the amount of energy it produced each year for the first time ever in the US.
This indicated the rising popularity of renewable energy sources over established fossil fuels, even in a nation whose administration publicly supported a resurgence of the coal industry.
Despite these strides, however, Forster said that his Impax Environmental Markets fund has very nominal exposure to it.
“We have quite low exposure to renewable energy,” he said. “We fly slightly in the face of net zero emissions by 2050 target and that’s because, particularly in solar, they’re quite commoditised markets.
“If you look at the margins of returns they’re not very attractive and when you look at what works as a business model and a strategy there’s nothing, no business model there that endures over the long term.”
The trust’s main exposures instead are in the basic materials sector with just over 40 per cent the fund centralised there, with services and water in a close second and third place respectively.
Talking about his fund’s process Forster said: “We’re on pretty solid ground for finding these long-term winners and sticking to them.
“Having an investment case that is robust and endures is one of the best things that the trust can say about itself.”
One of his top holdings Generac – a back-up power generation company – which shares the top spot in the portfolio with an allocation of 2.51 per cent.
Generac is an example Forster’s investment in the energy storage sector.
Whilst he sees no current value in the businesses models of producing solar energy he sees great investment value in the storage process.
He said: “It’s getting very interesting. We talked to a solar company in the US that said for a commercial industrial user the payback from adding a battery to their solar system is two years.
“That’s really quick. That’s a really compelling opportunity because you can store the power and sell it at a better time of day rather than selling it in the midday when there’s so much generation going on.”
He added: “We’re looking at the who is going to dominate the software and intelligence around integrating those systems together.”
As the cost of solar has gone down 85-95 per cent in the past decade, said the Impax manager, it is likely to become easier and cheaper to produce and that creates more demand within the storage process.
Making his case for the environmental sector Forster said that it had changed from being an area where it appeared that returns and investors morals had to be separated and sacrificed in the investment process.
“One of the most fascinating and attractive things for me and why I love my work so much, is that the main reasons we’re interested in this is growth,” he said.
“And that’s all an investor needs to be thinking when they decide they maybe want to allocate it into more environmental markets. But the fact that you can have both I think is quite unique.
“You can have, we strongly believe, superior long-term performance and you’re also getting this substantial environmental benefit for free. So, I think that’s quite unique and more people seem to be interested and attracted to that kind of offering.”
Performance of trust vs sector & benchmark over 5yrs
Source: FE Analytics
Since launch in 2002, Impax Environmental Markets has made a total return of 240.03 per cent, compared with a gain of 67.18 per cent for the average IT Environmental peer and a 277.01 per cent return for the MSCI AC World benchmark.
The trust is currently trading at premium to net asset value (NAV) of 0.8 per cent, is 2 per cent geared and has ongoing charges of 1.04 per cent, according to data from the Association of Investment Companies.