Portfolio Adviser • Portfolio Adviser October 2024 • View from the top

Ian Simm, founder and CEO at Impax Asset Management, discusses his trajectory from a tandem bike ride across the Sahara to being one of the pioneer investors focusing on transitioning to a sustainable economy. By Lauren Hardy

I an Simm, founder and CEO of Impax Asset Management, decided not to become a medical doctor while leading an expedition to cross the Sahara Desert by tandem bicycle.

“I was travelling with this Algerian guy, who was older and wiser than me. And, as a result of that conversation, I decided I would pursue a career in environmental matters, which I had always been passionate about,” he says.

“I had thought I wanted to be a doctor, but it was during this pivotal moment, when I was literally in the middle of the desert, having received a place at medical school, that I decided to reject the offer. So, I posted the letter and turned down my placement. This was in 1989, right at the start of my career.”

Simm tells Portfolio Adviser he had no personal connections, or any kind of background, within financial services. He received a first-class honours degree in physics from Cambridge University, although he chose the subject “mostly because I was intrigued as to how the world works. I didn’t particularly want to be a physicist, because that involved electronics and things”.

“I spent nearly 10 years working out what to do in this area, because there was no obvious career path in terms of any kind of environmental improvement at the time,” he continues.

“I was a project manager at McKinsey & Company where I worked in their sustainable development team soon after it was launched. I completed a degree in environmental economics and tried to set up a business in South Africa within the solar energy sector.

“And, in 1998, I began the process of helping the World Bank design a solar energy fund. The World Bank then asked if I would help run the fund, and that’s how it all got going.

“The initial motivation was environmental improvement. What started as a World Bank contract ended up with me running a 12-year fund investing in solar energy companies.”

From winning the mandate from the World Bank 26 years ago, Impax is now one of the largest investors focused on transitioning towards a more sustainable economy. Having first listed on the AIM market in 2001, the company now has assets under management of £37bn (as at end of September 2024). Its suite of products includes the Impax Environmental Markets investment trust, the Ireland fund range, listed equity strategies across Asia, the US and global markets, private markets, multi-asset capabilities and, more recently, fixed-income strategies.

“Right from the outset, I was very focused on the idea that environmental improvement would only work if it was financially stable, meaning the profits or investment returns had to be attractive to clients,” Simm explains. “Frankly, in those days – and probably still today – there is very little money in the system which is philanthropic or concessionary, such that you don’t have to try to beat the market in order to survive.

“So, what we have done over the years is develop an investment philosophy, which is that there is an attractive rate of return to be made from investing in companies that are solving environmental problems, and which are advancing the transition to a more sustainable economy.”

But while investing in assets paving the way to a more sustainable future is well understood by the majority today, this was far from the case some 20 years ago when Simm was in the throes of building and expanding the business.

“Today, more than 90% of our assets under management are in listed equities,” the CEO says. “I began investing in listed equities in 1999, so very soon after the World Bank started its mandate, as a result of a phone call I received from an insurance company in Denmark, which wanted help to design a fund investing in what they called ‘environmental technology’.

“In 1999, there was a big internet surge in the run-up to the dotcom bubble, and this company had the idea that environmental technology was going to one day become as big as the internet.

“I recruited Bruce Jenkyn-Jones, who still works at Impax today [as co-CIO of listed investments], and the two of us spent the summer of 1999 working out what an environmental technology fund could actually constitute. We wrote what I think was probably the world’s first green taxonomy, which was a list of all those industries which would fall under the heading of ‘environment’.

“We ended up using the term ‘environmental markets’ rather than ‘environmental technology’, because in 1999, the wheels were starting to wobble a bit there and technology seemed pretty risky.”

Simm and Jenkyn-Jones wanted to convey the idea that there were market areas making solid returns – such as clean energy or water recycling – while also improving the environment.

“If you follow that train of thought, you don’t need a label of ‘green’ or ‘ESG’ or ‘impact’. You can talk about thematic investing, or investing in quality growth companies that are set to make fabulous returns on invested capital,” he explains. “But if you pursue that idea, you can never get away from the fact that some people will label your fund ‘green’ or ‘impact’, but that’s not how we label it.

“We prefer not to label it in that way, because it introduces issues around ethics and social responsibility which are subjective. We have had to navigate people’s attempts to put labels on what we do.”

Given Simm’s views on ‘ESG’ as a concept, the question as to whether the rising and falling popularity of ESG has impacted the business seemed irrelevant. Rather, how has the firm been dealing with the ups and downs of ethical investing on the one hand, and long-term concerns about climate change on the other?

“On climate change, I think there are two key issues taking place. One is that there’s a big political debate in the US as to whether a country should be acting to address climate change and its impact. Unfortunately, it has become a massively contentious, and hyperbolic, political issue. It’s really a debate that is almost exclusively limited to the US. Investors sitting in the US are having to be quite careful in terms of how they deploy money and how they communicate with clients, to avoid being tripped up by those who are determined to steer money away from climate solutions, even if it means being litigious.

“Everybody in the clean energy area is having to be careful about how they label their activities. So, there is the political side of climate change, which is frankly more of a temporary problem, because the underlying issue of climate change, and the world’s rising average temperatures, increasing storms and wildfires, are becoming worse and worse. Eventually, politics is going to have to get out of the way.

“The second issue, which is probably more important, is that underlying markets and opportunities linked to companies providing great goods and services, in terms of creating solutions and managing climate change risk, are continuing to grow.

“We are navigating away from the politics and focusing on market opportunities which are creating great risk-adjusted returns, while at the same time being clear to our clients we are not just getting swept up in some kind of fashionable momentum, which is perhaps subject to pushback.

“Then, on the non-financial side, we are very thoughtful about how we set out the non-financial results of the impact of our companies, such as water supply or air quality.”

Given Impax’s size, history and expertise, it’s not unexpected that the company should offer a broad suite of products to investors. But the roll-out of new strategies has taken place gradually.

Simm says, between 1998 and winning the World Bank contract, to 2010, the team simply focused on trying to find new clients for the two different types of investing it had on the table at that point – private investing, such as for the likes of World Bank; and investing in listed equities.

It was during this period, in 2002 specifically, Impax launched its investment trust, Impax Environmental Markets. Two years later, its Ireland-domiciled Ucits range launched, followed, in 2005, by the private equity energy business.

“That was the entrepreneurial startup phase,” Simm says. “Over the past 15 years, we have applied more strategy in terms of how big the company becomes, what an optimal range of funds is, and how we put this together to make a profitable company.

“As a result, we now have quite a structured approach to the equity business, about 60% of which is in thematic funds. Then we have our investment trust, which represents our Specialists strategy, which is also thematic.

“In 2015, we launched a product we now run for a number of clients, including St James’s Place, which we call our Global Opportunities strategy. This is now our largest product at around 26% of AUM.”

More recently, Impax bought US-based firm Pax Impax Management, which increased the firm’s fixed-income capabilities. This asset class has been added to further since via two smaller acquisitions, one of which is based in Denmark, the other of which – Sky Harbor – offers a broader European client base and is scheduled to complete complete by the end of the year. “We now have a structured plan to grow in high yield and investment grade, and maybe in other areas as well,” Simm says. “We now have a couple of fixed-income funds in our Irish range, and we’ll have some more Ucits funds after the second of our two acquisitions completes.

“We have focused on credit rather than government bonds, because that is where our strength lies. High yield is also particularly interesting in the context of small and mid-sized companies.”

Simm explains that, strategically, it is a good time for the business to increase its fixed-income capabilities. “It’s not a surprise the industries we’ve been backing, for example wind or solar energy, have reached maturity where they are well understood and of sufficient scale to make them attractive to debt providers or fixed-income capital providers, because they have secure cashflows.

“It’s a sign of the maturity of the market these investments are so suitable for fixed income. If you look at markets from a high level, there is now more capital in fixed income than equities.

“The first step was to have two funds in the US. Then, we brought across some European managers and two European funds on our Irish platform. So today, we have two funds in the US and two in Europe, across two teams. Then the third team, which is the second acquisition from this year, will be more European funds.

“The obvious thing is to raise more money into those funds in total, but to then also think about whether we could attract other teams in the future.”

As it stands, however, thematic investing remains one of the largest components of Impax Asset Management’s suite of products. The most recent launch in this area was its Global Social Leaders strategy last year, which aims to invest in companies that offer strong and positive corporate cultures, while providing products or services that benefit society.

“The thematic investing idea is a way of ensuring your investment managers can be deeper experts in what they’re investing in,” the CEO reasons. “The problem with global equities at a high level is that it’s such a broad concept. The fund manager will know a little bit about a lot, but is not necessarily an expert in any particular field.

“Whereas if you run a thematic fund, you can employ people who are specialists in a particular area. For example, we have been running a water fund since 2009 and a food fund since 2012, for BNP Paribas. You could argue that, in fact, Impax Environmental Markets is thematic in itself, because it encompasses clean energy and materials.

“The idea behind Global Social Leaders is twofold. First, it provides access to returns made from industries linked to social questions such as health and education, which then receive investment. Second, if you screen for companies being run in an effective way in terms of corporate culture and where staff satisfaction is high, you will achieve better returns.”

Another relatively recent launch was Impax Sustainable Infrastructure in 2022, which aims to provide investors with both growth and income, while avoiding sustainability risks associated with the so-called ‘traditional’ infrastructure universe.

“Most infrastructure funds are invested in what we call poured concrete, whereas we have more of a bias towards virtual infrastructure such as telecoms and digital companies,” Simm says. “So, it’s about giving investors something which isn’t available elsewhere in the market.”

The ESG (environmental, social and governance) acronym is not one that sits comfortably with Simm, and is a term he tries to distance Impax from as much as possible.

“‘ESG’ was literally invented by some people I know who, in 2004, were invited to give a presentation at the UN Global Impact Conference, and they thought it would be interesting to talk about whether there was a connection between governance, which is a feature of capitalism, and environmental and social issues, which for many people at the time were ethical topics.

“If you remember the Enron and Worldcom scandals in 2001 and 2002, governance was a hot topic. But these consultants had an interesting idea, that maybe there was a connection between environmental issues, social issues and governance – the ethical side of capitalism – so they created ESG as a type of catchy packaging for the topic, in order to present a complex and interesting theory.

“But sadly, post the global financial crisis in 2008, somebody latched onto it as a simplistic explanation as to why we’re in a financial crisis – because we didn’t have enough ESG in our financial system.

“It really took off in 2015/16, during the time of the Paris Climate Conference, and now we’re stuck with it.”

However, Simm notes ESG is “a bizarre construct” because it “jams together capitalism on the one hand and ethical issues on the other”. “These are hugely broad topics that don’t necessarily correlate. Then, of course, there are so many qualitative factors in there, in terms of people’s different moralities and so on.”

Q: What would be your ‘top tip’ to PA readers to help them run a better business?

Long-distance travel to Impax’s offices, particularly those in Hong Kong and Tokyo.

Anticipating and seeing amazing technology and business breakthroughs as we transition to a more sustainable economy.

Ensuring there’s an appropriate balance between protecting consumers on the one hand and supporting jobs and economic growth in a successful UK investment management sector on the other.

Spend sufficient time in the ‘real world’, see businesses in action, learn about other cultures and gain experience of what makes people tick.