Impax/ESG stocks: steady inflows support sustainability thesis

Talk about climate change. Criticism of sustainable investment has boiled over since the end of the pandemic, particularly in the US. That will not worry Ian Simm, founder of UK sustainability stalwart Impax Asset Management. Business has held up nicely of late, suggesting that the sustainability investment thesis is itself sustainable.

Despite seesawing equity prices, Impax has brought in more money to manage. In its first quarter — ending December — net inflows climbed £797mn to a total of £37.9bn under management. That is down 8 per cent from last year’s peak. Even so, the direction has reversed upwards since June. Indeed, Impax has had only one quarter of net outflows in the past six periods, not bad in a serious bear market.

Sustainable funds still attracted $22.5bn of net inflows globally in the third quarter of 2022, according to Morningstar. Over the same period, the broader market suffered $198bn of outflows.

Even with this persistent fund inflow, Simms has more work to do convincing the stock market of Impax’s potential growth. It is hard to dismiss the fact that its share price has plummeted 43 per cent over the past year. That looks no better than midsized peers such as Polar Capital, Liontrust and Jupiter. To a limited degree that may reflect the backlash against sustainable investment and worries about greenwashing.

Steadier revenues mean earnings have held up relatively well. As a result Impax’s share valuation is easier on the investor’s eye than it was a year ago. At under 19 times forward earnings, Impax trades closer to where it did prior to the boom in ESG funds four years back, though still at a premium to most local rivals. Assuming the secular shift into sustainable investment continues, that valuation multiple falls further in the year after.

All this bodes well for patient Impax shareholders, As underlying earnings catch up with its depressed share price, the investment group should enjoy the fruits of steady expansion.