The world’s biggest sustainable-focused fund manager says there are still opportunities in next Trump era

The world’s biggest sustainability-focused fund manager believes there is enough of a movement behind investing for good to survive in the next Trump era.

Supporters of Donald Trump gather for a victory parade in Florida after the election last month. Picture: AFP

When ESG becomes a dirty word how do you pitch sustainable funds?

That’s the question no doubt being pondered by Impax Asset Management, the world’s biggest listed sustainability-focused fund manager.

David Winborne, British-based Impax senior portfolio manager, says the election of outspoken anti-woke Donald Trump to be the next US president was definitely front of mind with the Australian superannuation funds he pitched to last week, and presents a setback of sorts.

“I think absolutely on the confidence side of things,” Mr Winborne told The Australian. “But from an operational perspective it’s not stopping it.”

Not that he’s keen for Impax to be called an environmental, social and governance fund manager. Rather, the firm describes itself as a specialist “in the transition to a more sustainable economy”.

The English firm has confidence it can manage the post-woke era because of its evolution since its 1998 beginning from investing in renewable energy to a broader-based mandate. That includes companies that transition buildings to LED lighting, which make voltage equipment for transmission and distribution networks, or make valves for water infrastructure, healthy food ingredients to replace ultra-processed methods, and companies that lead in the digital environment – whereby their technology enables efficiency savings, or benefits society.

Indeed, Impax’s Large Cap Fund holds shares in Microsoft and Alphabet, which both recently failed to achieve their own emissions targets, along with Nvidia and Apple.

“Not all of these drivers are pointing the same direction at once,” Mr Winborne said, but “there are lots of different things sort of pushing us, and pushing these opportunities”.

For instance, he says, technology changes are often “born out of necessity”.

“The reason a company might adopt energy efficiency technology is not through altruistic reasons to save the world, it is to save themselves costs. If they adopt enterprise resource planning, the ERP software solution enables them to manage their logistics more effectively. You’re doing that to basically save yourself fuel costs. The upshot of that is you also have a lower carbon profile.”

US President-elect Donald Trump, left, and Tesla and SpaceX CEO Elon Musk watch a fight during UFC 309 at Madison Square Garden in New York last month. Picture: AFP

His point being that there are companies making inputs that better society without needing to be shrouded in a cloak of green.

This is also not the first time Impax has had to clear any perceived Trump hurdles.

“If you look back to when Trump was last elected … to the performance of the Environmental Leaders Fund and Global Opportunities over the four years of his tenure, and actually both funds very handsomely outperformed over that time,” Mr Winborne said.

To be sure, much of that was a near-zero interest rate environment that overly inflated the value of some stocks.

“It’s incumbent on us to show that by investing in this particular opportunity you are not sacrificing financial returns,” says Mr Winborne. “What we’ve been able to demonstrate over the long term is outperformance by investing in this particular area. And we’ve got to continue to do that.”

Outperformance, however, is becoming harder to achieve. The company’s Global Opportunities Strategy has outperformed the MSCI All Country World Index only six of the past 10 years on a net basis, including this year to date.

For Impax there is the two-pronged challenge of waning interest in ESG and the fact many active investors are struggling to stop the outflow of funds under management to cheaper, exchange-traded products.

Earlier this year, ratings company Morningstar declared “index funds have officially won”, after Mr Winborne’s firm’s data showed that over five years $US1.4 trillion had disappeared from active funds and $US3 trillion had moved into passive funds such as exchange-traded index funds.

Meanwhile, the World Economic Forum found the transition to clean energy from carbon had “lost momentum” over the past three years based on the 120 countries it assessed.

Impax’s first-half earnings for 2024 saw revenue slide from the previous corresponding period as assets under management dropped 1.2 per cent during this period to £39.6bn ($77.4bn).

“Active fund management is under enormous pressure from the rise of passive investment,” said Mr Winborne. “If you’re going to survive as an active fund manager, you need to have sort of one or two things, either one really good performance, or to a unique niche. And that was actually the reason why I joined Impax, because I could see they had sort of both of those boxes ticked.”

He said predicting what Mr Trump will do is certainly a factor for Australian super funds. What he might do on tariffs is clearly of interest; the incoming president raised the prospect of tariffs of 60-100 per cent on Chinese goods, and up to 20 per cent on all other countries, during his election campaign.

“The second thing is his views on potential policies that have been quite supportive for sustainability over the last couple years, which had been passed by the Biden administration,” said Mr Wimborne, pointing to the Inflation Reduction Act and the CHIPS Act.

“Where there’s actually been a bit of continuity”, between Mr Trump and incumbent Joe Biden, is having “too much production overseas”, Mr Winborne said.

“Now, if you look at US manufacturing data over the last, say, 6-12 months, manufacturing activity in US has absolutely gone through the roof … and it’s because there’s a huge amount of momentum behind the reshoring trend, either in the semiconductor industry, or actually, just the general reshoring of the industrial base.”