Impax Environmental Markets plc

Annual Financial Report Announcement

For the year ended 31 December 2020

LEI: 213800RAR6ZDJLZDND86

Investment objective

The investment objective of Impax Environmental Markets plc (the "Company") is to enable investors to benefit from growth in the markets for cleaner or more efficient delivery of basic services of energy, water and waste.

Investments are made predominantly in quoted companies which provide, utilise, implement or advise upon technology-based systems, products or services in environmental markets, particularly those of alternative energy and energy efficiency, water treatment and pollution control, and waste technology and resource management (which includes sustainable food, agriculture and forestry).

FINANCIAL INFORMATION

Financial Information

Performance Summary²

1.        These are alternative performance measures.

2.        Total returns in sterling for the year to 31 December.

3.        Source: Bloomberg and FactSet.

ALTERNATIVE PERFORMANCE MEASURES ("APMs")

The disclosures as indicated in footnote 1 above are considered to represent the Company's APMs. Definitions of these APMs and other performance measures used by the Company, together with how these measures have been calculated, can be found in the Annual Report and Accounts.

Chairman's Statement

2020 was an extraordinary year for the world. The sectors in which Impax Environmental Markets (the "Company", or "IEM") invests have not been immune to the considerable changes brought upon us by the virus commonly known as COVID-19. After a first half marked by extreme volatility, in which IEM lagged its global equity benchmark (the MSCI All Countries World Index or "MSCI ACWI"), the subsequent six months saw a remarkable recovery in equity markets and a period of striking outperformance by the Company, reflecting a further strengthening of the investment hypothesis underpinning environmental markets.

After a precipitous sell-off in equity markets in February and March 2020 in response to the rapid spread of COVID^‑19, it has been interesting to witness the extent to which investors have looked past the severe economic impacts of the pandemic, surely the worst any of us has seen in peacetime. Markets have certainly been supported by massive stimulus measures taken by governments and central banks and by the resilience of some industry sectors, such as technology and home entertainment, which have been beneficiaries of the disruption. Investors may also be betting on the success of the vaccination programmes and the economic boost expected from the release of pent-up demand.

When COVID-19 emerged in the first quarter of 2020, some observers feared the virus would distract policymakers, business leaders and investors from other sustainability challenges, including climate change. Instead, the opposite has occurred, with positive climate policy developments in the EU, China, the US and elsewhere. Many commentators observed that the apparent ability of the coronavirus to jump from animals to humans was a reflection of unsustainable practices, a warning shot that must be heeded if we are to avert future disasters, be they health related or environmental. At the same time, the optimists observed that the extraordinary mobilisation of resources to combat COVID-19 provides a template for a similar response to climate change. What is beyond doubt is that the pandemic has helped push environmental concerns to the centre of the stage and that what we are witnessing is a long-awaited reset of society's acceptance of its responsibility for stewardship of the planet.

Coronavirus has focused interest on the long-term shift to a more sustainable economic model, and we have seen a significant increase in attention to strategies meeting this interest. While we are currently witnessing a rash of new investment vehicles hoping to capitalise on a heightened interest in the sectors in which we invest, IEM is differentiated from the majority of new product launches. The award-winning fund manager, Impax Asset Management, works solely in this field with two decades of experience, and IEM provides detailed impact reporting to authenticate the investment claims made. The furrow that IEM has been ploughing since 2002 is no longer a lonely one and the sudden awareness of sustainability concerns among investors is to be welcomed, notwithstanding the greater competition for investable assets in our sector. The Company is not immune to investment fashions and the Manager's Report highlights some areas of the portfolio where prices are at levels which challenge existing valuation models.

PERFORMANCE

Increased investor interest in our sector had a noticeable effect on asset prices, which in turn drove strong performance by IEM over 2020 as a whole. During the year to the end of December 2020 (the "Period"), IEM's NAV total return was 31.0%, with our shares delivering a total return of 28.9%. This compared favourably with the 12.7% increase in the MSCI ACWI. This outperformance was achieved largely through good stock selection and occurred against the backdrop of a relatively in-line performance by small and mid-cap companies, in which the Company is overweight compared with the MSCI ACWI. Detailed performance attribution can be found in the Manager's Report.

On the other hand, the Company significantly trailed the FTSE Environmental Technologies 100 Index ("FTSE ET100"), which was up by an eye-watering 90.3%. Two-thirds of this underperformance was the result of underexposure to the electric vehicles sector, which outperformed strongly. Tesla in particular - even at the start of the year the largest constituent of the index - had a remarkable year, rising by nearly 400%. For those like IEM who were not aboard this leviathan, keeping pace with the FTSE ET100 was effectively impossible. Our Manager has always been clear that it has not been a buyer of Tesla, and this is discussed in more detail in the Manager's Report.

Your Board is not alone in believing that the Company's results have been highly satisfactory; in the past year IEM and its Manager have received numerous awards in recognition of its performance and details are given in the Annual Report and Accounts.

INVESTMENT CASE

IEM's strategy is to gain exposure, at attractive valuations, to well-managed companies that are positioned to benefit from three principal investment themes: alternative energy and energy efficiency; water treatment and pollution control; and waste technology and resource management, with a particular focus on sustainable agriculture. During the Period, the momentum we had seen in 2018 and 2019 towards action on climate change - benefitting the first theme - dramatically accelerated around the world, defying concerns that the pandemic would obstruct progress on climate policy.

Perhaps the most striking development was the announcement in September by China, the world's largest CO₂ emitter, that it would become carbon neutral by 2060. This announcement was swiftly followed by commitments from Japan and Korea to become net-zero by 2050, which is in line with the EU's target. For its part, the EU ended the year with an undertaking to expand its 2030 emissions goal to a 55% reduction against 1990 levels, up from 40% previously. That EU effort is underpinned by an investment of nearly €550 billion of EU funds in climate action over seven years - the largest single financial commitment to tackling climate change made to date. This figure could yet be eclipsed by developments across the Atlantic.

During the US presidential election campaign, Joe Biden made climate change concerns a cornerstone of his platform, spelling out a US$2 trillion climate and clean energy plan in pursuit of a carbon-free power sector by 2035 and a net-zero economy by 2050. With President Biden now in the White House and the Democrats in control of both the Senate and Congress, he has a good chance of enacting his promised programme, so it is to be hoped that a wide array of environmentally friendly actions will be seen in the USA over the coming years. The USA's acceptance in January of the Paris Accord on climate change is an important early example of this change of tack.

The scope of these plans is remarkable. They are reflected in growing corporate sustainability commitments and increasing consumer concern about climate change and other sustainability issues; some might say that it has been a long time coming in the USA, but it does seem that we are at last witnessing a sea change in attitudes - at least amongst that part of the American populace which is prepared to base its opinions on science, not rhetoric. The gas guzzler has not yet reached the end of its thirsty journey, but the combination of policy, corporate strategy and public concern, supported by the increasing cost-competitiveness of more sustainable technologies and business models, promises strong support for IEM's investment themes.

DIVIDEND

The Company's net revenue return for the Period was £5.3 million, compared with £6.8 million earned in 2019, as earnings for companies in the portfolio were impacted by the pandemic. There were 204.1 million ordinary shares in issue at the start of the year and this grew to 265.8 million by the end of 2020, reflecting the issuance of 61.7 million treasury and new shares, raising gross proceeds of £207.4 million.

The Board recognises that the steady expansion of the Company's capital base dilutes the earnings per share if a single dividend is paid on all shares in issue at a record date which falls after the end of the Period. At that point, the Company's shareholders will include not only those who came onto the register towards the end of the year in which the underlying earnings were accumulated, but also those shares which were issued between the end of the financial year and a record date which might be some five months later. This dilutes the earnings which should ideally be attributed to those who have been on the register all year. One way to mitigate this is to accelerate distributions by paying one or more interim dividends during the Period, or shortly thereafter.

By declaring an interim dividend in lieu of a final in March 2020 in respect of the 2019 financial year, we were able to moderate the degree of dilution. We have followed a similar principle for the 2020 financial year with the introduction of an extra dividend paid following the half year results. Thus, the Board announced a first interim dividend of 1.3 pence per Ordinary Share, paid on 28 August 2020 to shareholders on the register on 7 August 2020, with an ex- dividend date of 6 August 2020. A second interim dividend of 1 penny per Ordinary Share was paid on 12 March 2021 to shareholders on the register at 19 February 2021, giving a total distribution of 2.3 pence for the year. As last year, there will be no final dividend, though it is our intention to return to that practice as and when the Company stops growing its capital base.

The Board's policy is to pay out substantially all earnings by way of dividend. Our focus is on capital appreciation, which in 2020 has been very significant. At 2.3 pence per Ordinary Share, dividends per share for 2020 are 23% lower than the 3.0 pence paid for 2019, reflecting dividend cuts from a number of our underlying investments. Our earnings per share, based on the weighted average number of qualifying shares in issue through the year, were 2.22 pence per share and to facilitate a total dividend of 2.3 pence the Board has drawn on revenue reserves.

GEARING

The Board's view is that gearing is a positive feature of investment trusts and it worked with Impax Asset Management ("IAM" or the "Manager") to draw down an additional £20m revolving credit facility towards the end of the first half, leaving the Company's total £50m debt facilities fully drawn. As at the end of 2020, the Company's net gearing was 2.2%, slightly below the 2.8% reported for the prior year, and reflects strong performance and material share issuance during the year, together with approximately 0.6% higher cash levels at the end of the Period compared to the prior year. The Board has given consideration to increasing the level of gearing and this remains an option for the future. At present, however, there is strong investor demand for our shares and we are aware that current capacity constraints at the Manager mean that any increase in our capital by way of borrowings is likely to result in a concomitant reduction in our ability to issue equity, so we are giving priority to the latter, not least because issuance is an important part of our premium management policy.

PREMIUM/DISCOUNT

The Company's Ordinary Shares traded at an average premium to NAV of 4.6% over the Period. The highest premium, of 13.8%, was on 20 March 2020, while the lowest point during the year was a discount of 8.3% on 19 March 2020, reflecting the extreme, short-term market volatility in the early phases of the COVID-19 pandemic. There was strong demand for the Company's shares through the year and this was particularly pronounced in the first and fourth quarters.

The Company has been issuing shares throughout the Period to meet demand and manage the premium. At the AGM in May 2020, shareholders gave the Board authority to issue just over 23 million Ordinary Shares, approximately 10% of the shares then in issue, in the 12 months leading up to the 2021 AGM. At a General Meeting in August, shareholder approval was granted for the issuance of an additional 12.2 million Ordinary Shares, representing an expansion of approximately 5%. Since the latter meeting, the Company has continued to experience strong demand for its Ordinary Shares such that, on 8 January 2021, the last shares covered by the above approvals were issued. At a General Meeting on 12 January 2021 the Company received a fresh authority to issue a further 26.3 million Ordinary Shares, approximately 10% of the shares then in issue.

Shareholders should note that, following discussions between the Board and the Manager, IAM has requested that, in order to manage overall flows into the strategy within which the Company sits, the Board should aim to control the issuance of new shares in the Company so that not more than approximately 10% of IEM's share capital is issued in a year. The Company and its brokers will endeavour to manage demand within these constraints but the Board notes that, should the Company's share issuance authority run out ahead of renewal, or should demand outstrip the rate of issuance agreed with IAM, there is the prospect of an increasing share price premium to net asset value, which the Board would find hard to control.

SHAREHOLDER COMMUNICATIONS

We seek to communicate as effectively as possible with all our shareholders. As an environmental investor, we favour digital communication on account of its low environmental impact. A recent re-design of our website provides our shareholders with access to a wider range of content. Our website can be found at www.impaxenvironmentalmarkets.co.uk, and regular updates are posted on our @IEMplc Twitter account.

ANNUAL GENERAL MEETING

The Company's AGM will be held at 7th Floor, 30 Panton Street, London, SW1Y 4AJ on 20 May 2021 at 2:00 pm. In 2020, COVID-19 regulations obliged us to hold what was in effect a closed meeting with only two shareholders present and no opportunity for questions. As restrictions and social distancing measures remain in place, the Board will again make arrangements such that the legal requirements to hold the meeting are satisfied through the attendance of two shareholders. Physical attendance by any other shareholders at the meeting will not be possible, however the Board invites you to attend the meeting via a webinar. Voting will be by proxy in advance of the AGM with the results declared at the meeting where shareholders will also have the opportunity to hear a presentation from our investment managers, Jon Forster and Bruce Jenkyn-Jones, and ask questions of your Board and the Manager.

Shareholders who have questions that they intend to raise at the AGM are encouraged to submit them by 17 May 2021 to the Company's email address, clientservices@impaxam.com, so that they can be addressed at the meeting. Otherwise, shareholders can submit written questions to the Board and the Manager by way of the webinar once the meeting has commenced.

Details of registration for the webinar and how to cast your vote can be found in the Notice of Meeting in the Annual Report and Accounts. The Board is cognisant of the importance to shareholders of having the ability to meet the members of the Board and representatives of the Manager face to face, and is committed to ensuring that future AGMs and general meetings include a physical meeting, where conditions allow.

THE BOARD

The Board has a succession plan to promote regular refreshment and diversity, whilst maintaining Board stability and continuity of skills and knowledge.

William Rickett, non-executive director and Chairman of the Remuneration Committee, has expressed his intention to step down from the Board and will retire at the forthcoming AGM. The Board is very grateful to Mr Rickett for his many invaluable contributions since he joined IEM in 2011, a decade during which the Company's size, investable universe and fortunes have changed almost beyond recognition.

It is my intention to retire from the Board at the 2022 AGM, by which time I will have been a Director of IEM for nine years. With the assistance of an external search agency, the Board has recently appointed a new Director, Simon Fraser, who will stand for election at the forthcoming AGM and it is intended that he will take over from me as Chairman next year. Mr Fraser's details appear in the Annual Report and Accounts and the Board is delighted to have recruited an individual whose experience we believe to be highly relevant to the future of the Company.

OUTLOOK

In my Chairman's Statement for 2019, I reported that IEM had recently been admitted to the FTSE-250 Index, the main criterion for this being a market capitalisation of some £700 million. Twelve months on, following a year of strong price performance and successful share issuance, our market capitalisation is nearly double that threshold and we are enjoying the benefits to which I have previously alluded, namely a reduced expense ratio, wider coverage and improved liquidity for our shares. The fact that this has been achieved during a period of extreme disruption to markets and when most people have been obliged to work from home during extended lockdown periods is a great tribute to our Manager and to many whose names do not feature in this report, but who have worked behind the scenes at Impax and our service providers to keep the lights on during some dark days.

While it is becoming clear that the world has yet to emerge from the COVID-19 quagmire, the prospects for IEM are very promising. We will certainly face more competition in our sector, but at the same time environmentally focussed investing is expanding rapidly and there is room for still more participants. Governmental support for environmental initiatives has never been greater and now looks like being led by the United States, something that was unimaginable just a few months ago.

We have great confidence in the robustness of the Company's long-term investment hypothesis, namely that companies developing solutions to sustainability challenges and natural resource constraints will outperform the wider market. There are plenty of challenges on the horizon; valuations in equity markets globally are stretched and investors may be irrationally optimistic about overcoming the pandemic and the extent and resilience of subsequent economic growth. Nonetheless, I am confident that the Manager's record of stock selection discipline will help mitigate these risks.

Last year, writing in the early days of COVID-19, I concluded by saying that, while strong nerves were needed, from every crisis some winners emerge, and that IEM was likely to be one of them. Would that all my forecasts proved to be so prescient! This year I conclude by thanking Bruce Jenkyn-Jones and Jon Forster for making it happen, coping with a tumultuous year in a focussed and unruffled manner; and thereby providing our shareholders with a set of results of which your Board is proud.

John Scott, Chairman
6 April 2021

Manager's Report

We are pleased with the performance of IEM during 2020, which reflects the strong fundamentals of the companies in which it invests and the accelerating global outlook for growth in environmental markets. Over the Period, the Company's NAV total return of +31.0% was 18.3% ahead of the MSCI ACWI, but 59.3% behind the FTSE ET100.

The Company's second-half outperformance against the MSCI ACWI reversed a small underperformance, of 2.1%, in the first six months of the Period. Small and mid-cap companies, to which IEM is overexposed compared with the MSCI ACWI, outperformed during the second half, leaving them in line with the wider market for the full year. IEM's outperformance is a result of the strengthening outlook for environmental markets post-COVID, and especially for the renewable energy and energy efficiency subsectors which are particularly set to benefit from the accelerated drive towards "net‑zero" economies.

However, following its underperformance against its Environmental Markets benchmark (the FTSE ET100) in the first half, IEM lost further ground in the second half of the year, lagging by a total of 59.3% over the year. Of this, around two-thirds can be explained by electric vehicle names that we have chosen not to own, most significantly Tesla. We provide an update on this below. The remaining third was due to the lagging performance of more cyclical and indebted names, which we flagged in the interim report, and which were sold down due to concerns about their ability to weather the pandemic. It should be noted that this category recovered somewhat in the second half.

This underperformance provides a reminder that the FTSE ET100 is an extremely volatile and cyclical benchmark, which can become dominated by 'in vogue' sub-sectors, such as electric vehicles. As managers of IEM, we continue to target a more diversified portfolio, with a balance of cyclical and defensive holdings spread across a range of environmental markets and across regions, and with a considerably lower risk profile than the FTSE ET100.

KEY DEVELOPMENTS AND DRIVERS FOR ENVIRONMENTAL MARKETS

Net-zero policies underpin renewables and energy efficiency

As discussed in the Chairman's Statement, the COVID-19 crisis has acted as a powerful catalyst for global policy on carbon emissions reduction, as governments attempt to address climate change risks which, like COVID-19, could derail global economic growth. The Energy & Climate Intelligence Unit calculates that around two thirds of global GDP (measured in purchasing power parity) is now covered by net-zero commitments. In addition, the International Energy Agency ("IEA") forecasts that a trajectory to a 2050 net-zero scenario would imply a 17% fall in primary energy demand between 2019 and 2030 in a global economy that is twice as large, and an increase in the renewables share of global electricity supply from 27% in 2019 to 60% in 2030. The growth implications for companies in the Renewable Energy and Energy Efficiency subsectors are material and have been rapidly priced into market expectations.

Renewable Energy represents a core exposure within IEM, accounting for around 12% of NAV at the end of the Period. This environmental sector, which comprises a number of sub-sectors, delivered more than 100% performance during the Period for IEM, like it did for the FTSE ET100; long-term holding Xinyi Solar (Solar Power Generation Equipment, Hong Kong) rose 265% over the Period. The performance of the sector, we believe, factors in a significant proportion of growth prospects. We have therefore been taking profit selectively and continue to look for better value opportunities in less well-covered stocks (see Portfolio Positioning, below).

Energy Efficiency remains the single biggest subsector exposure in IEM, accounting for 25% of NAV at the end of 2020. We maintain a preference for this theme, which offers the lowest-cost route to carbon emissions reductions, without subsidies, and at cheaper valuations in aggregate than in renewables. The outlook is positive for Power Network Efficiency holdings, including smart grid company Itron and back-up power and energy storage firm Generac (both US), both of which will play a role in facilitating integration of higher levels of renewables into the energy mix. We also see attractive growth prospects for heat-pumps, given penetration of only 3% in the EU and 1% in the US and with efforts by governments to phase out fossil fuel-based boilers. We expect this to benefit market leader and long-term holding NIBE (Buildings Energy Efficiency, Sweden).

Prospects for electric vehicles and the hydrogen economy

The Period has seen strong performance both in well‑proven but currently expensive technologies, such as electric vehicles ("EVs"), and in more speculative areas such as hydrogen.

Demand for EVs is growing strongly among climate‑concerned consumers, while regulatory interventions - such as the UK bringing forward the date of its ban on new internal combustion engine cars from 2040 to 2030 - promise to underpin growth: Deloitte forecasts EVs capturing roughly a third of new car sales globally by 2030¹.

1          Deloitte, Electric Vehicles - Setting a course for 2030, https://www2.deloitte.com/uk/en/insights/focus/future-of-mobility/electric-vehicle-trends-2030.html

This has driven strong investor demand for exposure to the theme, especially for manufacturers such as Tesla (US) and Nio (China). We have chosen to avoid these names for a combination of valuation and ESG concerns, and a preference for broad market exposure rather than to a single brand. Our investment, which accounts for around 7% of NAV, therefore focuses on suppliers of critical components to a wide range of manufacturers, who offer durable competitive advantage and cheaper valuations. These include LEM (Industrial Energy Efficiency, Switzerland), Littlelfuse (Transport Energy Efficiency, US) and Umicore (Recycling and Value‑Added Waste Processing, Belgium).

Hydrogen, meanwhile, is generating growing excitement about its potential contribution to net-zero targets, especially for parts of the global economy that are hard to de-carbonise, including heating, industrial processes and heavy-duty transport. Germany has a €9bn hydrogen strategy, while France has pledged €7bn in funding. Industrial giants, oil and gas companies and renewable energy pioneers are making increasingly large bets on the emergence of the hydrogen economy.

Our position, however, is that we see a limited transportation market beyond perhaps heavy-duty trucks and certain Asian markets, while the falling cost of renewables and storage likely limits opportunities in power generation. This leaves the de-carbonisation of carbon-intensive industries such as steel and cement as the key opportunity. While we continue to monitor the sector, and look for viable business models at appropriate valuations, IEM does not currently have any exposure to hydrogen.

Software and digitisation driving resource efficiency

The COVID-19 pandemic and resulting shutdowns have acted as accelerants to the adoption of technology and digital infrastructure, as economic activity has migrated online. Across many areas of the economy, digital technology has moved beyond proof of concept, ensuring that it is firmly established as a cornerstone of a functional modern economy. The transition to a more digital economy has positive sustainability consequences, promising lower transport pollution and greater flexibility around working practices, among other things.

The industrial world has been a key beneficiary of digitisation and the Internet of Things ("IoT"). The use of cloud-based software has enabled flexibility in product design for engineers working from home whilst, on the factory floor, connected equipment that can be operated and monitored remotely has increased flexibility in manufacturing. In addition, applications such as augmented reality helped enhance the collaboration across an increasingly connected workforce. These trends have created a positive backdrop for companies offering industrial software, which benefit from structural growth drivers and a resilient demand environment. The total addressable market for industrial IoT solutions today is estimated to be close to $3bn and is expected to double over the next three years. Similarly, the market opportunity for computer-aided engineering software is close to $7bn today and could more than triple over the next decade.

Approximately 10% of the IEM portfolio is invested in companies with exposure to the digitisation theme, such as PTC, which specialises in computer-aided design and product lifecycle management, and Altair Engineering, which offers product design and engineering tools (both Industrial Energy Efficiency, US). In addition, Advantech (Industrial Energy Efficiency, Taiwan), which produces connected manufacturing software, and Trimble (Sustainable & Efficient Agriculture, US), which provides building information modelling, are well-positioned to profit from digitisation.

Opportunities from protecting biodiversity and promoting societal diversity

COVID-19 and the response to the pandemic have exposed profound vulnerabilities in human society and fragilities in our relationship with nature. Resulting structural changes are likely to lead to long-term effects on business models, elevating both risks and opportunities across varied time horizons. These potential effects were the subject of a report published last year by IAM.

Two structural changes are worthy of note: an increased focus on protecting biodiversity; and efforts to address persistent inequalities of race, gender and education.

Recognising the value of biodiversity and protecting wild areas from further encroachment is already reflected in IEM holdings. Examples of companies responding to the theme include Lenzing (Sustainable & Efficient Agriculture, Austria), which produces natural alternatives to cotton, Borregaard (Sustainable & Efficient Agriculture, Norway), which produces biochemicals, and sustainable forestry company Rayonier (Sustainable Forestry & Plantations, US). We are redoubling our efforts to identify related opportunities in other markets.

The pandemic has also highlighted the importance of promoting societal diversity. The Manager is increasing engagement with investee companies to encourage them to develop broader talent pools and reduce operational and reputational risk through supply chains.

Protecting biodiversity and promoting societal diversity represent two important enhancements to IAM's investment process, both in terms of ideas generation and in company analysis and engagement. We expect these enhancements to identify opportunities for improved returns and to reduce risk.

ABSOLUTE PERFORMANCE CONTRIBUTORS AND DETRACTORS

Contributors

As per the 2020 interim report, and as noted above, IEM's Renewable Energy and Energy Efficiency holdings performed well, reflecting policy commitments to transition leading economies towards net-zero emissions. The Renewable Energy sector was particularly strong, led by solar names including Xinyi Solar and SolarEdge (both Solar Energy Generation Equipment, Hong Kong and US, respectively). They were followed by wind holdings such as Vestas (Wind Energy Generation Equipment, Denmark) and renewable energy developers and independent power producers ("IPPs"), especially EDP Renovaveis (Renewable Energy Developers & IPPs, Portugal).

Within energy efficiency, the acceleration of moves towards a digital economy helped drive particularly robust performance in software holdings PTC and Altair Engineering (both Industrial Energy Efficiency, US). Standby generators and energy storage company Generac (Power Network Efficiency, US) performed well, as did heat pump manufacturer NIBE (Buildings Energy Efficiency, Sweden).

Finally, the accelerating adoption of natural ingredients, biochemicals and biofuels drove significant gains in Sustainable & Efficient Agriculture holdings Corbion (The Netherlands), Borregaard (Norway), Koninklijke DSM (The Netherlands), and Darling (Recycling & Value‑Added Waste Processing, US).

Detractors

Companies with cyclical exposures vulnerable to the COVID-19 pandemic underperformed over the Period but, as noted above, they staged something of a recovery in the second half. Detractors included Welbilt (Sustainable & Efficient Agriculture, US), whose exposure to food service markets such as restaurants was a negative, packaging firm DS Smith (Recycling and Value-Added Waste Processing, UK), suffered from weakness in industrial packaging, and companies exposed to the hard-hit automotive sector, namely Ricardo (Transport Energy Efficiency, UK), Sensata (Transport Energy Efficiency, US) and Norma (Pollution Control Equipment, Germany).

In addition, emerging market water utility holdings underperformed. Sabesp (Brazil) was hit by regulatory uncertainty, while Beijing Enterprises Water (Hong Kong) was punished for high debt levels and an extended transition period towards positive cashflow.

PORTFOLIO POSITIONING, VALUATION AND RISK

IEM held a portfolio of 61 listed holdings at the end of the Period. The portfolio is well-diversified across environmental sectors and regions, with detail in the Annual Report and Accounts.

We are pursuing a 'barbell' approach to portfolio construction, seeking a balance of holdings with defensive and cyclical business models. The focus of our activity in 2020 was to diversify cyclical exposures and find attractive new defensive opportunities, for example by adding healthcare exposure to the portfolio.

Since the 2020 interim report was published, the Company has exited two indebted names with COVID-19 related cyclical exposures which had significantly recovered during the second half, namely Sensata and Welbilt (see above). Given the acceleration of "net-zero" policy formation, we also reviewed holdings with residual exposure to fossil fuels and internal combustion engines. As a consequence, IEM exited Horiba (Environmental Testing & Gas Sensing, Japan).

We are also looking for opportunities in renewables beyond "consensus names" that are likely to be fully valued, given strong investor interest in the sector. To this end, during the Period we added Terna Energy (Renewable Energy Developers & IPPs, Greece), which is focused on the Greek market, where its attractive assets and strong pipeline, backed by licences, are well‑positioned to take advantage of good wind resources. We also continue to see opportunities in technology, adding IPG Photonics and Monolithic Power (both Industrial Energy Efficiency, US). IPG manufactures industrial optical fibre lasers with much higher energy efficiency than baseline carbon dioxide lasers. Monolithic Power produces analogue semiconductors which integrate multiple components on a single chip, enabling greater energy efficiency across a range of end markets.

At the end of the Period, the portfolio traded at a price of 26.9 times next-12 month-earnings, with a 39% premium to the MSCI ACWI. This premium is well above the historical average of 20-25% and reflects rising investor interest in sustainable investments and the environmental markets sector. This interest is making valuations challenging, especially in 'hot' sectors such as renewables and energy efficiency. We believe we can navigate these challenges given the Company's global remit and the diverse range of sectors in which it can invest. We also see encouraging signs of a recovery in earnings, with an analysts' consensus of 16% growth in earnings over the next 12 months, compared with 14% for the MSCI ACWI.

OUTLOOK

We believe that the investment hypothesis underlying environmental markets has never been stronger. Despite the profound immediate social and economic disruption caused by COVID-19, the pandemic is likely to prove a longer-term spur to address the range of sustainability challenges that we face. Rather than undermining climate action, it has helped to catalyse a concerted global effort to address climate change and drive towards net-zero economies, which bodes well for long-term growth prospects.

However, we believe global equity markets are materially pricing in successful vaccine rollouts around the world and a rapid economic recovery. This carries downside risk and we could see considerable volatility from any bumps in the road.

The combination of buoyant equity markets and investor enthusiasm for the sustainability theme is increasing valuations within IEM's investable universe. Nonetheless, we are confident we can manage that challenge through a continuing focus on diversification at the stock, sector and regional levels, and by maintaining valuation discipline.

PRINCIPAL RISKS AND UNCERTAINTIES

The Board is responsible for the management of risks faced by the Company and, through delegation to the Audit Committee, has established procedures to manage risk, oversee the internal control framework and determine the nature and extent of the principal risks the Company is willing to take in order to achieve its long-term strategic objectives. The Audit Committee carries out, at least annually, a robust assessment of the principal risks and uncertainties and reviews ongoing monitoring of both controls risks and controls. This ensures heightened and emerging risks are identified outside of the normal cycle of Board and Audit Committee meetings.

The Audit Committee undertook a comprehensive review of the Company's risk management framework and controls during the year. This resulted in enhanced risk documentation and reporting to the Board and Audit Committee. The risks are documented on a risk register, grouped in four main categories: Strategic and Business Objective Risks; Investment Management Risks; Operations - Service Providers Risks; and Compliance, Regulatory and Corporate Governance Risks. Risks are rated by impact and likelihood of occurrence, with the assessed rating charted on a risk matrix. The risk register is reviewed on an ongoing basis in an attempt to capture all risks and put appropriate mitigation in place. The review takes into account changing factors including, but not restricted to, changes to markets (both macro and micro), stakeholders, operations, regulation and emerging risks. The top risks identified by this process are set out in the table below, and the Board considers these to be the principal risks of the Company.

The Board considered the risks posed by the COVID-19 pandemic, both market and operational risk. The ongoing economic impact of measures introduced to combat its spread were discussed in depth by the Board throughout the year, with updates on operational resilience received from the Manager, Administrator and other key service providers. The Board is satisfied that the key service providers had, and continue to have, the ability to continue their operations efficiently in a remote or virtual working environment, whilst safeguarding their staff. The Manager continues to provide regular updates to the Board on the financial impacts of the pandemic on the portfolio performance and investee companies, as well as the long term effects and opportunities for the sectors in which the Company invests.

TREND: INCREASING NEUTRAL REDUCING

VIABILITY STATEMENT

The continuation of the Company is subject to the approval of shareholders every three years, with the next vote at the Company's AGM in 2022. The continuation of the Company was unanimously approved at the Company's 2019 AGM. The Directors have assessed the viability of the Company for the period to 31 December 2025 (the "Viability Period"). The Board believes that the Viability Period, being approximately five years, is an appropriate time horizon over which to assess the viability of the Company, particularly when taking into account the long-term nature of the Company's investment strategy, the principal risks outlined above and its gearing. Based on this assessment, the Directors have a reasonable expectation that the Company will be able to continue to operate and to meet its liabilities as they fall due over the Viability Period.

In its assessment of the prospects of the Company, the Board considered each of the principal risks and uncertainties set out above which included consideration of severe but plausible downside scenarios (such as a market downturn, and adverse impacts arising from COVID-19, Brexit or climate change) and the liquidity and solvency of the Company. The Board also considered the Company's income and expenditure projections and the fact that the majority of the Company's investments comprises readily realisable securities which could, if necessary, be sold to meet the Company's funding requirements including buying back shares in order for the Company's discount control policy to be achieved. Portfolio changes, market developments, level of premium/discount to NAV and share buybacks/share issues are discussed at quarterly Board meetings. The internal control framework of the Company is subject to a formal review on at least an annual basis.

The level of the ongoing charges is dependent to a large extent on the level of net assets, the most significant contributor being the investment management fee. The Company's income from investments and cash realisable from the sale of its investments provide substantial cover to the Company's operating expenses, and any other costs likely to be faced by the Company over the Viability Period of their assessment. Proceeds from the sale of the Company's investments could be used to repay the Company's borrowings which at the date of this report represented, in aggregate, less than 5% of the Company's investments.

The Directors' assessment included a detailed review of the market and operational risks associated with the COVID‑19 pandemic. The ongoing economic impact of measures introduced to combat its spread were discussed in depth with the Manager and continually monitored by the Board throughout the year. The Manager and other key service providers have provided regular updates on operational resilience in light of the pandemic. The Board is satisfied that the key service providers have the ability to continue their operations efficiently in a remote or virtual working environment.

Statement of Directors' Responsibilities

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable laws and regulations.

Company law requires the Directors to prepare accounts for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice, including FRS 102 'The Financial Reporting Standard applicable in the UK and the Republic of Ireland'. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company as at the end of the year and of the net return for the year. In preparing these accounts, the Directors are required to:

·         select suitable accounting policies and then apply them consistently;

·         make judgements and estimates which are reasonable and prudent; and

·         state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the accounts.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and which disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the accounts comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The accounts are published on the www.impaxenvironmentalmarkets.co.uk and www.impaxam.com websites which are maintained by the Company's Manager, Impax Asset Management (AIFM) Limited ("IAM"). The work carried out by the auditor does not involve consideration of the maintenance and integrity of these websites and, accordingly, the auditor accepts no responsibility for any changes that have occurred to the accounts since being initially presented on the website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Directors' confirmation statement

The Directors each confirm to the best of their knowledge that:

(a)     the accounts, prepared in accordance with applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and

(b)     this Annual Report includes a fair review of the development and performance of the business and position of the Company, together with a description of the principal risks and uncertainties that it faces.

Having taken advice from the Audit Committee, the Directors consider that the Annual Report and financial statements taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position and performance, business model and strategy.

For and on behalf of the Board

John Scott

Chairman

6 April 2021

Income Statement

The total column of the Income Statement is the profit and loss account of the Company.

The supplementary revenue and capital columns are provided for information purposes in accordance with the Statement of Recommended Practice issued by the Association of Investment Companies. All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued during the year.

Return on ordinary activities after taxation is also the "Total comprehensive income for the year". 

Balance Sheet

Approved by the Board of Directors and authorised for issue on 6 April 2021 and signed on their behalf by:

John Scott

Chairman

Impax Environmental Market plc incorporated in England with registered number 4348393.

Statement of Changes in Equity

The Company's distributable reserves consist of the Share purchase reserve, Capital reserve attributable to realised profits and Revenue reserve.

Statement of Cash Flows

*          Cash inflow includes dividend income received during the year ending 31 December 2020 of £9,391,000 (2019: £10,619,000) and bank interest of £7,000 (2019; £26,000).

CHANGES IN NET DEBT NOTE

Notes to the Financial Statements

1 ACCOUNTING POLICIES

The Company is an investment company within the meaning of Section 833 of the Companies Act 2006.

The accounts have been prepared in accordance with applicable UK accounting standards. The particular accounting policies adopted are described below.

(a) Basis of accounting

The accounts are prepared in accordance with UK Generally Accepted Accounting Practice ("UK GAAP") including FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' and the Statement of Recommended Practice 'Financial statements of investment trust companies and venture capital trusts' ("SORP") issued by the Association of Investment Companies in October 2019.

The accounts have been prepared on a going concern basis. Details of the Directors' assessment of the going concern status of the Company, which considered the adequacy of the Company's resources and the impacts of the COVID-19 pandemic, are given in the Annual Report and Accounts.

Amounts in the accounts have been rounded to the nearest £'000 unless otherwise stated.

(b) Investments

Securities of companies quoted on regulated stock exchanges and the Company's holdings in unquoted companies have been classified as 'at fair value through profit or loss' and are initially recognised on the trade date and measured at fair value in accordance with sections 11 and 12 of FRS 102. Investments are measured at subsequent reporting dates at fair value by reference to their market bid prices. Any unquoted investments are measured at fair value which is determined by the Directors in accordance with the International Private Equity and Venture Capital guidelines.

Changes in fair value are included in the Income Statement as a capital item.

(c) Reporting currency

The accounts are presented in sterling which is the functional currency of the Company. Sterling is the reference currency for this UK registered and listed company.

(d) Income from investments

Investment income from shares is accounted for when the Company's right to receive the income is established, which is usually considered to be the ex-dividend date. Overseas income is grossed up at the appropriate rate of tax but UK dividend income is not grossed up for tax credits.

Special Dividends are assessed on their individual merits and may be credited to the Income Statement as a capital item if considered to be closely linked to reconstructions of the investee company or other capital transactions.

All other investment income is credited to the Income Statement as a revenue item.

(e) Nature and purpose of equity and reserves:

Share capital represents the 10p nominal value of the issued share capital.

The share premium account arose from the net proceeds of new shares and from the excess proceeds received on the sale of shares from treasury over the repurchase cost.

The capital redemption reserve represents the nominal value of shares repurchased for cancellation.

The share purchase reserve was created following shareholders' approval and confirmation of the Court, through the cancellation and transfer of £44,125,000 in December 2002 and £246,486,789 in July 2009 from the share premium account. This reserve may only be used for share repurchases, both into treasury or for cancellation. When shares are subsequently reissued from treasury, the amount equal to their repurchase cost is reflected in this reserve, with any proceeds in excess of the repurchase cost transferred to the share premium account.

The capital reserve reflects any:

·          gains or losses on the disposal of investments;

·          exchange movements of a capital nature;

·          the increases and decreases in the fair value of investments which have been recognised in the capital column of the income statement; and

·          expenses which are capital in nature

Any gains in the fair value of investments that are not readily convertible to cash are treated as unrealised gains in the capital reserve.

The revenue reserve reflects all income and expenditure recognised in the revenue column of the income statement and is distributable by way of dividend.

The Company's distributable reserves consist of the share purchase reserve, the capital reserve and the revenue reserve.

(f) Expenses

All expenses are accounted for on an accruals basis. Expenses are recognised through the Income Statement as revenue items except as follows:

Management fees

In accordance with the Company's stated policy and the Directors' expectation of the split of future returns, three quarters of investment management fees are charged as a capital item in the Income Statement. There is no performance fee arrangement with the Manager.

Finance costs

Finance costs include interest payable and direct loan costs. In accordance with Directors' expectation of the split of future returns, three quarters of finance costs are charged as capital items in the Income Statement. Loan arrangement costs are amortised over the term of the loan.

Transaction costs

Transaction costs incurred on the acquisition and disposal of investments are charged to the Income Statement as a capital item.

(g) Taxation

Irrecoverable taxation on dividends is recognised on an accruals basis in the Income Statement.

Deferred taxation

Deferred taxation is recognised in respect of all timing differences that have originated but not reversed at the financial reporting date, where transactions or events that result in an obligation to pay more tax in the future or right to pay less tax in the future have occurred at the financial reporting date. This is subject to deferred tax assets only being recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of the timing differences can be deducted. Deferred tax assets and liabilities are measured at the rates applicable to the legal jurisdictions in which they arise.

(h) Foreign currency translation

All transactions and income in foreign currencies are translated into sterling at the rates of exchange on the dates of such transactions or income recognition. Monetary assets and liabilities and financial instruments carried at fair value denominated in foreign currency are translated into sterling at the rates of exchange at the balance sheet date. Any gain or loss arising from a change in exchange rates subsequent to the date of the transaction is included as an exchange gain or loss in the Income Statement as either a capital or revenue item depending on the nature of the gain or loss.

(i) Financial liabilities

Bank loans and overdrafts are measured at amortised cost. They are initially recorded at the proceeds received net of direct issue costs.

(j) Cash and cash equivalents

Cash comprises cash and demand deposits. Cash equivalents, which include bank overdrafts, are short term, highly liquid investments that are readily convertible to known amounts of cash, are subject to insignificant risks of changes in value, and are held for the purpose of meeting short-term cash commitments rather than for investment or other purposes.

(k) Estimates and assumptions

The preparation of financial statements requires the Directors to make estimates and assumptions that affect items reported in the Balance Sheet and Income Statement. Although these estimates are based on management's best knowledge of current facts, circumstances and, to some extent, future events and actions, the Company's actual results may ultimately differ from those estimates, possibly significantly.

The assumptions regarding the valuation of unquoted financial instruments are disclosed in note 2.

(l) Dividend payable

Final dividends payable to equity shareholders are recognised in the financial statements when they have been approved by shareholders and become a liability of the Company. Interim dividends payable are recognised in the period in which they are paid. The capital and revenue reserves may be used to fund dividend distributions.

(m) Treasury shares

Treasury shares are recognised at cost as a deduction from equity shareholders' funds. Subsequent consideration received for the sale of such shares is also recognised in equity, with any difference between the sale proceeds and the original cost being taken to share premium account. No gain or loss is recognised in the financial statements on transactions in treasury shares.

2 INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS

During the year, the Company incurred transaction costs on purchases totalling in aggregate £346,000 (2019: £304,000) and on disposals totalling in aggregate £109,000 (2019: £142,000). Following MiFID II, the Manager has rebated £145,000 in respect of transaction research costs for the year ended 31 December 2020 (2019: £85,000), and £33,000 in relation to prior periods. Transaction costs are recorded in the capital column of the Income Statement.

The Company received £203,182,000 (2019: £150,950,000) from investments sold in the year. The book cost of these investments when they were purchased was £155,016,000 (2019: £110,929,000). These investments have been revalued over time and until they were sold any unrealised gains/losses were included in the fair value of the investments.

Classification of financial instruments

FRS 102 requires classification of financial instruments within the fair value hierarchy be determined by reference to the source of inputs used to derive the fair value and the lowest level input that is significant to the fair value measurement as a whole. The classifications and their descriptions are below:

Level 1

The unadjusted quoted price in an active market for identical assets or liabilities that the entity can access at the measurement date.

Level 2

Level 2 investments are holdings in companies with no quoted prices. Inputs other than quoted prices included within Level 1 that are observable (i.e. developed using market data) for the asset or liability, either directly or indirectly.

Level 3

Inputs are unobservable (i.e. for which market data is unavailable) for the asset or liability.

The classification of the Company's investments held at fair value is detailed in the table below:

The movement on the Level 3 unquoted investments during the year is shown below:

Unquoted investments are valued using relevant financial data available on those investments and applying International Private Equity and Venture Capital guidelines. This includes, where appropriate, consideration of price of recent market transactions, earnings multiples, discounted cash flows, net assets and liquidity discounts.

At the year end the Company had one active unlisted holding, Ensyn. The Company's holding in Ensyn has been valued in US dollars based on peer analysis prepared by the Manager and translated into sterling using the applicable foreign exchange rate at the Company's year end. The Manager valued holdings in Ensyn at a price of US$7.50 per share as at 31 December 2020 (2019: US$15.00 per share).

3 INCOME

4 INVESTMENT MANAGEMENT FEES

5 OTHER EXPENSES

Full detail on directors' fees in the year is provided in the Directors' Remuneration Implementation Report in the Annual Report and Accounts. Employer's National Insurance upon the fees is included as appropriate in Directors' other costs. At 31 December 2020, Directors and national insurance fees outstanding were £12,800 (2019: £12,000).

6 FINANCE COSTS

Facility arrangement costs amounting to £72,000 are amortised over the life of the facility on a straight-line basis.

7 TAXATION

(a) Analysis of charge in the year

(b) Factors affecting total tax charge for the year:

The standard UK corporation tax rate at 31 December 2020 was 19% (2019: 19%). The tax charge differs from the charge resulting from applying the standard rate of UK corporation tax for an investment trust company.

The differences are explained below:

(c) Investment companies which have been approved by HM Revenue & Customs under section 1158 of the Corporation Tax Act 2010 are exempt from UK tax on capital gains. Due to the Company's status as an Investment Trust, and the intention to continue meeting the conditions required to obtain approval in the foreseeable future, the Company has not provided for UK deferred tax on any capital gains or losses arising on the revaluation of investments.

(d) The capital gains tax provision represents an estimate of the amount of tax provisionally payable by the Company on direct investment in Indian equities. It is calculated based on the long term or short term nature of the investments and the unrealised gain thereon at the applicable tax rate at the year end.

Movements on the capital gains tax provision for the year

(e) The Company has unrelieved excess management expenses and non-trade relationship deficits of £65,308,000 (2019: £56,468,000). It is unlikely that the Company will generate sufficient taxable profits in the future to utilise these expenses and therefore no deferred tax asset has been recognised. The unrecognised deferred tax asset calculated using a tax rate of 19% (2019: 19%) amounts to £12,400,000 (2019: £10,700,000).
 

8 RETURN PER SHARE

Net return per Ordinary Share is based on the above totals of revenue and capital and the weighted average number of Ordinary Shares in issue during each year.

There is no dilution to return per share as the Company has only Ordinary Shares in issue.

9 DIVIDENDS

(a) Dividends paid in the year

(b) Dividends paid and payable in respect of the financial year, which is the basis on which the requirements of s1158-1159 of the Corporation Tax Act 2010 are considered

The Board declared two dividends in respect of the year and expects to continue paying two dividends annually. Previously only one dividend was paid. In addition the Board intends to revert to paying a final dividend, which can be voted on by shareholders, once the Company has ceased to grow its capital base substantially.

10 TRADE AND OTHER PAYABLES

11 BANK LOANS AND CREDIT FACILITY

On 6 September 2018, the Company entered into five-year fixed rate multi-currency US$20 million and £15 million loans with Scotiabank Europe plc ("Scotiabank"). The loans expire on 6 September 2023.

The Company also has a £20 million multi-currency revolving credit facility ("RCF") with Scotiabank of which £2.5 million was committed, but undrawn, at the beginning of the year. During the year, the RCF commitment was increased by £17.5 million and the full £20 million of the facility was drawn down in two currencies, US$12.6 million and £10 million. The facility expires on 6 September 2023.

A summary of the Company's borrowings follows.

The maturity profile of the bank loans and credit facility follows.

The Company's loans and revolving credit facility contain the following covenants, with which failure to comply could necessitate the early repayment of the loan:

1)      Adjusted asset coverage should not be less than 4:1.

2)      Net Asset Value should not be less than £260,000,000.

3)      The maximum permitted borrowing should not exceed that permitted in the Company's Articles of Association as described in the Gearing section of the Investment Policy in the Annual Report and Accounts.

12 SHARE CAPITAL

The Company received aggregate gross proceeds of £207,403,000 (2019: £73,671,000) from the issue of shares and net proceeds of £205,527,000 (2019: £72,934,000) after issue costs of £1,876,000 (2019: £737,000). Since the year end a further 12,093,850 Ordinary Shares have been issued for aggregate gross proceeds of £54,748,000, and net proceeds of £54,474,000 after issue costs of £274,000,

13 CAPITAL RESERVE

Unrealised gains on investments

14 NET ASSET VALUE PER SHARE

15 TRANSACTIONS WITH THE MANAGER AND RELATED PARTY TRANSACTIONS

Details of the management contract can be found in the Directors' Report in the Annual Report and Accounts. Fees payable to the Manager are detailed in note 4. Since 1 January 2018, the Manager has agreed to rebate commission which relates to research fees to the Company with such amounts disclosed in note 2.

The Directors' fees are disclosed in note 5 and the Directors' shareholdings are disclosed in the Directors' Remuneration Implementation Report in the Annual Report and Accounts.

16 FINANCIAL RISK MANAGEMENT

As an investment trust, the Company invests in equities for the long-term so as to enable investors to benefit from growth in the markets for cleaner or more efficient delivery of basic services of energy, water and waste, as stated in the Company's investment objective. In pursuing its investment objective, the Company is exposed to a variety of risks that could result in either a reduction in the Company's net assets or a reduction of the profits available for dividends. These risks include market risk (comprising currency risk, interest rate risk, and other price risk), credit risk and liquidity risk and the Directors' approach to the management of them is set out below. These metrics are monitored by the AIFM. The objectives, policies and processes for managing the risks, and the methods used to measure the risks, are set out below.

Market risks

The potential market risks are (i) currency risk, (ii) interest rate risk, and (iii) other price risk. Each is considered in turn below.

(i) Currency risk

The Company invests in global equity markets and therefore is exposed to currency risk as it affects the value of the shares in the base currency. These currency exposures are not hedged. The Manager monitors currency exposure as part of its investment process. Currency exposures for the Company as at 31 December 2020 are detailed in the table at the end of this note.

Currency sensitivity

The below table shows the strengthening/(weakening) of sterling against the local currencies over the financial year for the Company's financial assets and liabilities held at 31 December 2020.

1         Percentage change of sterling against local currency from 1 January to 31 December

Based on the financial assets and liabilities at 31 December 2020 and all other things being equal, if sterling had strengthened by 10%, the profit after taxation for the year ended 31 December 2020 and the Company's net assets at 31 December 2020 would have decreased by the amounts shown in the table below. If sterling had weakened by 10% this would have had the opposite effect.

(ii) Interest rate risk

The Company is typically fully invested in global equities but will from time to time hold interest bearing assets. These assets are cash balances that earn interest at a floating rate and, typically, UK Treasury Bills when large amounts of cash are held.

With the exception of cash, no significant interest rate risks arise in respect of any current asset. The Company, generally, does not hold significant cash balances, with short-term borrowings being used when required. Cash held as a current asset is sterling and is held at the variable interest rates of the custodian. Movement in interest rates will not materially affect the Company's income and as such no sensitivity analysis is required.

The Company had two bank loans in place during the year. The loan interest on the current loans is based on a fixed rate and as such no sensitivity analysis is required.

The Company's £20 million multi-currency revolving credit facility is based on a floating interest rate of Libor plus a margin of 1.70% per annum. If interest rates had increased or decreased by 25 basis points the impact to the Company's profit or loss would be:

(iii) Other price risk

The principal price risk for the Company is the price volatility of shares that are owned by the Company. The Company is well diversified across different sub-sectors and geographies and has a volatility level similar to global stock market indices such as the MSCI ACWI Index to which the Company has had an annualised tracking error of 6.6% over the ten year period to 31 December 2020. The historic 3-year (annualised) volatility of the Company to 31 December 2020 is 7.2% (2019: 11.4%).

At the year end the Company held investments with an aggregate market value of £1,112,889,000 (2019: £674,892,000). All other things being equal, the effect of a 10% increase or decrease in the share prices of the investments held at the year end would have been an increase or decrease of £111,288,900 (2019: £67,489,200) in the profit after taxation for the year ended 31 December 2020 and the Company's net assets at 31 December 2020.

Overall sensitivity

The Manager has used the Parametric VaR to calculate value at risk ("VAR"). This model has been used to estimate the maximum expected loss from the portfolio held at 31 December 2020 over 1 day, 5 day, 10 day and 21 day periods given the historical performance of the fund over the previous five years. The data in the previous five years is analysed under discrete periods to provide 1 in 10, 1 in 20 and 1 in 100 possible outcomes. The results of the analysis are shown below.

The above analysis has been based on the following main assumptions:

·      The distribution of share price returns will be the same in the future as they were in the past.

·      The portfolio weightings will remain as they were at 31 December 2020.

The above results suggest, for example, that there is a 5% or less chance of the NAV falling by 4.47% or more over a 5 day period. Similarly, there is a 1% or less chance of the NAV falling by 2.83% or more on any given day.

Credit risks

BNP Paribas Securities Services (the "Depositary") has been appointed as custodian and depositary to the Company.

Cash at bank at 31 December 2020 included £29,773,000 (2019: £5,637,000) held in its bank accounts at the Depositary. The Company also held £264,000 (2019: £8,181,000) in its accounts with NatWest Group plc (formerly known as Royal Bank of Scotland Group plc). The Board has established guidelines that, under normal circumstances, the maximum level of cash to be held at any one bank should be the lower of i) 5% of the Company's net assets and ii) £30 million. These are guidelines and there may be instances when this amount is exceeded for short periods of time.

Substantially all of the assets of the Company at the year end were held by the Depositary or sub-custodians of the Depositary. Bankruptcy or insolvency of the Depositary or its sub-custodians may cause the Company's rights with respect to securities held by the Depositary to be delayed or limited. The Depositary segregates the Company's assets from its own assets and only uses sub-custodians on its approved list of sub-custodians. At the year end, the Depository held £1,112,312,000 (2019: £673,703,000) in respect of quoted investments.

The credit rating of the Depositary was reviewed at the time of appointment and is reviewed on a regular basis by the Manager and/or the Board.

Credit risk arising on transactions with brokers relates to transactions awaiting settlement. Risk relating to unsettled transactions is considered to be low as trading is almost always done on a delivery versus payment basis.

There is credit risk on dividends receivable during the time between recognition of the income entitlement and actual receipt of dividend.

Liquidity risks

The Company invests in a range of global equities with different market capitalisations and liquidities and therefore needs to be conscious of liquidity risk. The Manager monitors the liquidity risk by carrying out a 'Maturity Analysis' of the Company's listed equities based on the 3 Month Average Liquidities of each investment and assuming 15% of the daily traded volume.

Quantitative disclosures

The results of the Managers maturity analysis at 31 December 2020 are reported in the following table as a percentage of the portfolio that could be liquidated over different time periods. On 31 December 2020, 1.45% of the portfolio by value (excluding unquoted investments) might have taken more than three months to be realised.

The Company may invest up to 10% of its net assets into pre-IPO investments which are possible candidates for flotation.

Financial liabilities by maturity at the year end are shown below:

*          Bank loans, Revolving Credit Facility and capital gains tax provision.

Financial assets and liabilities

All liabilities carrying amount approximates fair value.

The Company's financial assets and liabilities at 31 December 2020 comprised:

Capital management

The Company considers its capital to consist of its share capital of Ordinary Shares of 10p each, its distributable reserves and its borrowings.

At 31 December 2020 there were 265,877,138 Ordinary Shares in issue. No shares were held in treasury at the year end. (2019: 225,737,355 Ordinary Shares were in issue; of these shares 21,598,109 were held in treasury).

The Company has a stated premium/discount policy. The Manager and the Company's broker monitor the demand for the Company's shares and the Directors review the position at Board meetings. Further details on share issues during the year and the Company's policies for issuing further shares and buying back shares (including the Company's premium/discount policy) can be found in the Directors' Report in the Annual Report and Accounts.

The Company bought back no Ordinary Shares during the year (2019: nil).

The Company's policy on borrowings is detailed in the Directors' Report.

17  FINANCIAL INFORMANTION

This announcement does not constitute the Company's statutory accounts.  The financial information for 2020 is derived from the statutory accounts for 2020, which will be delivered to the registrar of companies.  The statutory accounts for 2019 have been delivered to the registrar of companies.  The auditors have reported on the 2020 and 2019 accounts; their reports were unqualified and did not include a statement under Section 498(2) or (3) of the Companies Act 2006.

The Annual Report for the year ended 31 December 2020 was approved on 6 April 2021.  It will be made available on the Company's website at www.impaxenvironmentalmarkets.co.uk.

The Annual Report will be submitted to the National Storage Mechanism and will shortly be available for inspection at: https://data.fca.org.uk/#/nsm/nationalstoragemechanism.

This announcement contains regulated information under the Disclosure Guidance and Transparency Rules of the FCA.

6 April 2021

Secretary and registered office:

PraxisIFM Fund Services (UK) Limited

1st Floor, Senator House

85 Queen Victoria Street

London

EC4V 4AB

For further information contact:

PraxisIFM Fund Services (UK) Limited

Tel: 020 4513 9260