David Li, Impax Asset Management
Impax AM, an affiliate of BNP Paribas Asset Management, manages funds investing in both environmental equipment providers and the companies that use the equipment.
An investible company would first have to pass the firm’s environmental screen, which includes criteria such as generating at least 20% of revenue derived from the areas of energy efficiency, new energy, water or waste treatment.
The investment team will then analyse governance. “The must-haves for a company’s governance would be compliance with local law, good practice in eliminating corruption and bribery, and a good auditor, which is typically one of the big four [accounting firms],” Li, who advises on the firm’s investments in Asia, told FSA.
However, gathering information can be challenging because the fund manger has to rely on the company’s own disclosure and transparency.
“We are not a detective nor police. We can only judge a company based on its corporate policies, structure and some of the track record. Their disclosure level can vary substantially,” said Li.
He admits that even after applying the ESG analysis, risk remains. So it is more practical “to invest in relative quality with the lowest risk in a diversified portfolio. We have set a limit for investment in a single company, sector or country [to mitigate risk]”, he added.
Li also said that ESG compliance and disclosure differs across countries, which may lead to comparison difficulties. In his funds, the companies are benchmarked and ranked according to the minimum local legal requirements.
“Obviously, we have to recognise the differences and cannot expect that, for example, India has the same quality as Germany. It is not practical to rule out companies that do not match the global best practices,” he said.
China opportunities
Li believes China will play an important role in Asia’s demand for clean environmental infrastructure. It will also be a significant driver of the ESG practice in the region due to fast urbanisation, he added.
“With the ongoing urbanisation, the living standard of China’s rural people is improving. It means that demand for clean water, technology and food, and the related infrastructure, will be rising. More importantly, the changes will compel the government to review their regulations in terms of pollution management, vehicle ownership and power generation.”
On the other hand, technological advancement in China provides investment opportunities. China is strong on energy efficiency and is a leader in power electronics, manufacturing automation and automotive technology globally, he noted.
Impax Asian Environmental Markets Fund, the fund Li manages, is available to professional investors only in Asia. It invests 34% of assets in China and Hong Kong-listed stocks, according to FE.
As of the end of February, Xinyi Glass, Towngas China and Lee & Man Paper Manufacturing were the top holdings in the fund.
The Impax Asian Environmental Markets Fund vs the China equity fund sector
