Annual Report & Accounts

For the year ended 31 December 2021

Impax Environmental Markets plc

Celebrating

twenty years

Impax Environmental Markets plc Annual Report and Accounts 2021

CONTENTS

STRATEGIC REPORT

Investment Objective 1

Financial Information 1

Performance Summary 1

Chairman’s Statement 2

Manager’s Report 6

Environmental Impact Report 10

Climate Disclosure

Structure of the Portfolio 16

Environme

ntal Markets Classification 17

Ten Largest Investments 19

Details of Individual Holdings 21

Investment Policy, Results and Other Information 23

Engaging with our Stakeholders 30

Sustainability and Stewardship

GOVERNANCE

Board of Directors 38

Directors’ Report 40

Corporate Governance 45

Directors’ Remuneration Policy 49

Directors’ Remuneration Implementation Report 50

Report of the Audit Committee 53

Statement of Directors’ Responsibilities 55

Independent Auditor’s Report 56

FINANCIALS

Income Statement 60

Balance Sheet 61

Statement of Changes in Equity 62

Statement of Cash Flows 63

Notes to the Financial Statements 64

INVESTOR INFORMATION

10 Year Financial Record 78

Alternative Performance Measures 79

Glossary 81

Directors, Manager and Advisers 82

Notice of Annual General Meeting 83

ANNUAL

REPORT

2021

Designed and printed by Perivan

Impax Environmental Markets plc | Annual Report and Accounts 2021 | 1

2020

2020 2020

2020

2021

2021 2021

2021

496.4p 21.3%

13.1%

30.1%

19.6%

411.2p 31.0%

90.3%

28.9%

12.7%

547.0p

422.5p

10.2%

2.7%

£1,480m

0.85%

£1,093m

0.95%

FINANCIAL INFORMATION

At 31 December 2021

PERFORMANCE SUMMARY

For the year ended 31 December 2021 % Change

Investment objective

496.4p 21.3%

Net asset value (“NAV”) per Ordinary Share NAV total return per Ordinary Share

547.0p 30.1%

Ordinary Share price Share price total return per Ordinary Share

10.2% 19.6%

Ordinary Share price premium to NAV

MSCI AC World Index

£1,480m

0.85%

13.1%

Net assets

Ongoing charges

FTSE ET100 Index

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 on pages 79 and 80.

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).

These are alternative performance measures.

Total returns in sterling for the year to 31 December 2021.

Source: Bloomberg and FactSet.

2 | Impax Environmental Markets plc | Annual Report and Accounts 2021

STRATEGIC

REPORT

Chairman’s Statement

‘growth’ companies tend to come under pressure – the

need to find solutions for climate change and resource

management is unabated. One prominent example is

the significantly higher cost of fossil fuels which should

stimulate further investment in renewable energy, from

which IEM should ultimately be a beneficiary.

PERFORMANCE

A strong start to 2021 saw the Company outperform both

its global equity comparator index (the MSCI All Countries

World Index or “MSCI ACWI”), and its environmental

markets comparator index, the FTSE Environmental

Technology 100 index (“FTSE ET100”) in the first half.

Despite the material underperformance during the final

quarter of small- and mid-caps, which form the majority of

IEM’s holdings, performance for the year remained ahead

of both comparator indices. During 2021, the total return of

the net asset value (“NAV”) per share of the Company was

21.3% and the share price total return was 30.1%, compared

to a total return of the MSCI ACWI of 19.6% and the FTSE

ET100 of 13.1%.

THE INVESTMENT CASE

The Company’s investment thesis is that companies

offering solutions to environmental challenges will

outperform the broader market as we transition towards

a more sustainable global economy. While to many this

may have seemed fanciful just ten years ago, the thesis

today not only occupies the centre of the stage, it is one

which is now pursued by many others who have latterly

entered a sector which, not long ago, IEM had largely

to itself. During 2021, the run-up to the high-profile UN

COP26 climate talks brought unprecedented focus on the

global effort to address climate change, despite the year

ending with something of a mixed result from the Glasgow

Conference, and climate policy disappointments elsewhere,

notably in the US.

Perhaps the most significant outcomes of COP26 were

achieved before the delegates arrived. By the time the

talks began in November, more than 130 countries had

set or were considering net-zero goals, mostly with a

2050 target date. During the negotiations, India became

the latest large economy to do so, and although its 2070

deadline is probably realistic, this disappointed many

environmentalists. By the end of 2021, 136 countries,

representing around 90% of global GDP, had committed

to net-zero emissions. The COP also catalysed broader

involvement by companies and financial institutions

alongside governments. Significant coalitions were formed

to commit to the phasing out of coal, cutting methane

emissions, ending the sale of internal combustion engine

vehicles and addressing deforestation.

For the year ended 31 December

2021, the performance of Impax

Environmental Markets plc (the

“Company”, or “IEM”) remained ahead

of its broad equity market comparator

index, and materially outpaced its

environmental markets comparator

index. The successes of 2021 have,

however, been overshadowed by

what we have witnessed since

January 1st. The first quarter of 2022

has seen extreme market volatility,

linked to a large extent to fears of a

Russian invasion of Ukraine and the

horrors which have followed since

the war started. Our share price has

fallen significantly, before staging a

modest recovery, with buyers of IEM

reappearing and our shares once again

trading at a premium.

It is nonetheless pleasing to report that IEM has recorded

another successful year, both on a relative and an absolute

basis. Whilst the emergence in November and December of

the Omicron variant had a negative effect on our portfolio

at the time of writing in early 2022, the likely medium

-term

impact of this latest manifestation of COVID-19 is still

uncertain; but it is clear that the variant causes less severe

illness than earlier COVID-19 variants.

Rising inflation also created headwinds for the performance

of many of the sectors in which IEM invests. Somewhat to

the surprise of central banks, inflation - originally described

by the Bank of England as ‘transitory’ - is proving to be

higher and longer lasting than most analysts expected,

aggravated by persisting supply chain challenges and

labour shortages. To these pressures have been added

soaring energy costs towards the end of the year.

These inflationary pressures are encouraging the

US Federal Reserve to accelerate the tapering of its

quantitative easing measures, reducing an important

support for asset prices, and contributing to expectations

of further interest rate increases. Whilst neither the advent

of inflation nor the prospect of higher interest rates is

benign for the Company - since in this environment share

prices of smaller companies and those of higher valued

John Scott

Chairman

Impax Environmental Markets plc | Annual Report and Accounts 2021 | 3

The role of the asset management sector in the transition

to net zero is significant; financial institutions managing

US$130 trillion of assets committed, through the Glasgow

Financial Alliance for Net Zero (GFANZ), to achieve net-zero

emissions by 2050. As a signatory of the Net Zero Asset

Managers Initiative, Impax Asset Management (“IAM” or

the “Manager”) supports the goal of net-zero emissions

by 2050 or sooner, in line with global efforts to limit

warming to 1.5°C. It is also encouraging to note that during

COP26 the Manager became a signatory to additional

climate-focused initiatives – the Natural Capital Investment

Alliance and the Principles for Responsible Investment’s

Deforestation Commitment (more information on page 36).

On a less encouraging note, many countries failed to tighten

their emissions targets in line with the growing urgency

indicated by the climate science. Modelling by Climate

Action Tracker suggests that countries’ existing 2030

targets would lead to 2.4˚C of warming this century, well

above the 1.5˚C aimed for by the Paris Agreement. More

policy action to drive accelerated mitigation of emissions

will be needed, as will greater investment in adaptation to

the impacts of a changing climate. IEM portfolio companies

are providing solutions to both mitigation and adaptation,

as is discussed in more detail in the Manager’s Report.

The path of climate policy development will be an

uneven one, as demonstrated by the failure of the Biden

administration in the US to pass its Build Back Better

legislation through the Senate by the end of 2021. The

version passed by the House of Representatives in

November contained US$555 billion of spending on clean

energy, alongside funding for childcare and health, but for

now this remains in limbo.

Despite these setbacks, climate change and other

sustainability challenges remain important policy priorities

in many countries and have become a major concern to

consumers and most electorates. Notwithstanding the huge

disruption caused by a pandemic which is already two years

old, there is no evidence that the COVID-19 pandemic has

pushed sustainability issues down the political agenda.

DIVIDEND

The Company’s net revenue return for the year was

£9.4 million, compared with £5.3 million earned in 2020.

The increase in net revenue is attributable to the growing

size of the Company and also reminds us of the impact on

portfolio company earnings in 2020 due to the pandemic.

There were 265.9 million Ordinary Shares in issue at the

start of the year, growing to 298.1 million by the end of

2021, reflecting the issuance of 32 million new shares.

As previously outlined, the Board recognises that the

steady expansion of the Company’s capital base has the

effect of diluting earnings per share if a single annual

dividend is paid irrespective of when the new shares are

issued; the problem is exacerbated the longer the period

between the end of the financial year and the dividend

record date. The Company’s dividend policy, as approved

by shareholders at the May 2021 AGM, is to declare two

dividends each year and, while the Company’s capital base

is growing, to pay both of these by way of interim dividends

in order to make the distribution earlier and thereby reduce

the dilutive effect.

Accordingly, the Board announced a first interim dividend

for the 2021 financial year of 1.3 pence per Ordinary Share

(2020: 1.3 pence), paid on 27 August 2021 to shareholders

on the register at 6 August 2021, with an ex-dividend date

of 5 August 2021.

The second interim dividend for the 2021 financial

year, of 1.5 pence per Ordinary Share, was declared

on 29 December 2021, for shareholders on the

date of 6 January 2022. The dividend was paid on

28 January 2022. This equates to a total dividend for the

2021 financial year of 2.8 pence per Ordinary Share (2020:

2.3 pence). It remains the Board's intention to pay out

substantially all earnings by way of dividends, the quantum

of which is affected both by the level of dividends received

by the Company and by the number of shares in issue at the

relevant record date. Revenue earnings for the year were

3.29 pence per share. The Board has retained 0.4 pence per

share of these earnings to replenish the revenue reserves,

having drawn upon them to pay the 2020 dividends.

GEARING

The Board considers gearing to be a positive feature

of investment trusts, and the Company’s existing debt

facilities, totalling £50 million, remain in place. However,

utilisation of the Company’s financing remains low, with

gearing of 1.6% at year end as the extent of borrowing is

dwarfed by the recent growth of the Company's NAV as

explained below (this compares with net gearing of 2.2% at

the end of 2020).

Whilst our Manager continues to advise of capacity

constraints with our investment bias towards the smaller

end of the market, any increase in our capital by way of

borrowings results in a concomitant reduction in our ability

to issue equity, so we are giving priority to the latter, not

least to try and prevent an excessive premium developing.

Should demand for the Company’s shares reduce on a

sustained basis, then expanding the investment capacity via

increased gearing remains an option.

PREMIUM/DISCOUNT

The Company’s Ordinary Shares traded at an

average premium to NAV of 6.0% over the year to

31 December 2021. This is higher than the average 4.6%

over the course of 2020. COP26 and the broader focus

on sustainability throughout society contributed towards

demand for IEM shares in Q4, with the premium reaching

“ The role of the asset management sector in the transition to net zero

is significant; financial institutions managing US$130 trillion of assets

committed, through the Glasgow Financial Alliance for Net Zero, to

achieve net-zero emissions by 2050.”

4 | Impax Environmental Markets plc | Annual Report and Accounts 2021

STRATEGIC

REPORT

its high of 15.3% at the start of December. The low was 0.1%

in June 2021. The Board is keen to contain this premium, but

also notes that, given our capped investment strategy, it is

limited in its ability to do so by issuing new shares.

The Company issued 32 million shares throughout the

year to meet demand, representing approximately 12% of

IEM’s issued capital at the start of the year, raising gross

proceeds of £153.5 million. In the first quarter of 2022,

investor demand continued with a further 6,237,100 new

shares being issued, raising £29.6 million. In February 2022,

however, the premium disappeared and the Company's

shares traded at a discount and the Board decided to

utilise its authority to purchase 112,900 of its own shares.

These shares were bought back into treasury, but were

subsequently reissued at a premium to NAV so that no

shares are now held in treasury.

The premium or discount to underlying NAV is constantly

monitored by your Board and the Company’s brokers. At

the time of writing, with intense fighting in Ukraine still

underway, markets are seeing high levels of volatility and

there have been days when investor demand has allowed

a modest amount of new issuance. The Board takes this

opportunity to reiterate what was said in the 2020 Annual

Report, namely that, following discussions between IEM and

the Manager, Impax Asset Management 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 the Company’s share capital is

issued over the course of a calendar (and financial) year.

The Company and its brokers will continue to endeavour

to manage demand within these constraints, but the Board

notes that, should the Company’s share issuance authority

become exhausted ahead of renewal, or should demand

outstrip the rate of issuance agreed with the Manager, there

is the prospect of an increasing share price premium to net

asset value, as we saw during the fourth quarter of 2021,

which the Board would find hard to control.

ISSUANCE AUTHORITY

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. In addition, at the May 2021 AGM the Company was

granted authority to issue a further 27.8 million Ordinary

Shares, approximately 10% of the shares in issue at the date

of the Notice of AGM. This authority lasts until the May 2022

AGM, and there remain 18.3 million Ordinary shares under

that authority for issuance. If that is exhausted ahead of the

May AGM, we will look to call a General Meeting to request

renewed authority from shareholders.

The Directors continue to believe that the expansion of

the Company's capital base works to the advantage of

shareholders. The Company's market capitalisation at

31 December 2021 was £1.6 billion, which provides a high

degree of liquidity in its shares, as well as extensive coverage

by analysts and membership of the FTSE-250 index.

Furthermore, with growth comes a further improvement

in IEM's ongoing charges ratio, which fell to 0.85%

(2020: 0.95%).

ANNUAL GENERAL MEETING

The Company’s AGM will be held at 7th Floor, 30 Panton

Street, London, SW1Y 4AJ on 18 May 2022 at 2:00 pm. In

accordance with IEM’s articles of association, a continuation

vote is required to be held at this year’s AGM. This provides

for IEM’s shareholders to vote, once every three years,

on whether the Company should continue operating, or

otherwise be wound up and cash returned to shareholders.

The Board has considerable confidence in its Manager and

strongly believes that IEM offers an attractive opportunity

for investors to obtain exposure to environmental and

resource efficiency markets and recommends that

shareholders vote in favour of the resolution.

An ordinary resolution will be put to shareholders at the

forthcoming AGM to increase the maximum aggregate

directors’ fees payable in any one year from £200,000 to

£250,000. The proposed increase will allow flexibility to

increase the number of directors in fulfilling the Board's

succession plan.

Shareholders will also have the opportunity to hear

a presentation from our investment managers, Jon

Forster, Bruce Jenkyn-Jones and Fotis Chatzimichalakis

and ask questions of the Board and the Manager. The

Board welcomes the addition of Mr Chatzimichalakis as

co-manager of the portfolio, further strengthening our

investment management team.

The Board is mindful of the fact that some shareholders

may be reticent to travel and attend the AGM in person. The

Manager will make a presentation at the AGM and this will

be recorded and posted on the Company’s website after the

event for shareholders to view.

The Board encourages all shareholders to exercise their

votes by means of registering them with the Company’s

registrar ahead of the meeting, online or by completing

paper proxy forms, and to appoint the Chairman of the

meeting as their proxy. Information on voting can be

found in the Notice of Meeting on pages 83 to 86. The

Board is cognisant of the importance to shareholders

of having the ability to meet the Directors of the Board

and representatives of the Manager face to face, and is

committed to ensuring that AGMs and general meetings

include a physical meeting, where conditions allow.

The Directors have carefully considered all the resolutions

proposed at the forthcoming AGM and believe them to

be in the best interests of shareholders and the Company

as a whole. Accordingly, the Directors recommend that

shareholders vote in favour of each resolution, as will the

Directors in respect of their own shareholdings.

THE BOARD

The Board would like to express its sorrow at the passing

of Simon Fraser, who died suddenly in August last year

at the age of 62, less than a week after the publication

of our interim results which announced, inter alia, the

intention that he would succeed me as Chairman in

May 2022. Simon joined the Board as a non-executive

director in March 2021, applying his deep knowledge and

experience of investment trusts and global markets to

make a valuable contribution to IEM during his brief tenure.

It was particularly apt that the AIC saw fit to make its first

posthumous Lifetime Achievement Award in recognition of

Simon’s many contributions and successes in the world of

asset management.

Chairman's Statement continued

Impax Environmental Markets plc | Annual Report and Accounts 2021 | 5

In these difficult and unexpected circumstances, I have

agreed to continue to serve as Chairman pending the

identification of a successor and I am therefore offering

myself for re-election at the forthcoming AGM. Whilst

this means I will have been on the Board for more than

nine years, the Board believes that my continuing service

as Chairman, and the continuity that it affords during

the search for a successor, is in the best interests of the

Company and its shareholders.

On 1 August, Nick Hurd joined the Board as a non-executive

director. Mr. Hurd was a Member of Parliament for

14years until 2019, and was a government Minister for

almost nine years, including spells as Minister of State for

Climate Change and Industry. He also served as Chair of

the Environment All-Party Parliamentary Group and as a

member of the Environmental Audit Committee and the

Climate Change Bill Committee. He is currently Chair of

Access – The Foundation for Social Investment; Chair of

impact investing platform i(x) investments; and is a senior

adviser to a number of companies contributing to the

Sustainable Development Goals. He serves on the Advisory

Board of the UK Green Finance Institute and the UK Impact

Investment Institute and is a Global Ambassador for the

Global Steering Group for Impact Investment.

OUTLOOK

The Company enters 2022, marking 20 years since its

inception, facing a challenging world. Few of us appreciated

the true extent of these challenges as it seemed to most

commentators that a full scale war on the borders of Europe

was unimaginable. Our primary focus was elsewhere: high

levels of uncertainty relating to the impact of the COVID-19

pandemic, inflation which is likely to stay higher for longer

and quantitative easing coming to an end. All of these

concerns remain valid, but are dwarfed by the consequences

of the Russian invasion of Ukraine on 24 February and which

has dominated the headlines ever since. It is to be hoped,

for the benefit of all those whose suffering we see daily on

our screens, that the conflict is brought to a speedy and

humane conclusion.

Even before the Ukrainian invasion, the Company’s share

price had declined significantly from the heights seen in

2021. Some of this will have been in response to the build-

up to the daily warnings regarding Russia’s intentions, but

the fall was also a reflection of the widespread rotation

from ‘growth’ stocks of the type which IEM tends to own,

to the ‘value’ stocks which had been out of favour. Having

ended 2021 with a share price of 547 pence, representing

a premium of 10.2% to NAV and close to its all-time high of

584.5 pence, later in February 2022 the shares at one point

traded as low as 396 pence, before partially recovering to

467 pence at close of business on 31 March 2022.

It is also important to note that IEM displays higher volatility

compared with its broader market comparator, the MSCI

ACWI, as referenced by its higher ‘tracking error’. As the

investment managers discuss in more detail, IEM’s portfolio

is skewed towards small caps, industrials and utilities,

and away from financials and energy, meaning that its

performance will frequently diverge – both negatively

and positively – from the benchmark. The relatively close

tracking of the MSCI AWCI in 2021 is a feature seldom

seen in our performance record and is unlikely to be

repeated in 2022, especially if rising interest rates lead to

outperformance by the financial sector where IEM typically

has no investments. The investment managers also see high

valuations in parts of the environmental markets universe,

making it harder for them to identify attractive investments

in what has become a highly competitive sector. As I noted

above, we used to have the environmental investment space

largely to ourselves –

but no longer.

Within all the horrors that we are witnessing, there are some

positives. I believe that the West has come to realise that

dependence on Russian hydrocarbons must end, with the EU

already announcing that it will cut and ultimately eliminate

all fossil fuel imports from Russia. To compensate, we will

be obliged to reduce our consumption of oil and gas by,

amongst other measures, investing dramatically more in

wind and solar power, improving insulation and raising levels

of energy efficiency. All of these themes play well for the

IEM narrative. We also have to remember that this document

is primarily a report on the year that has passed and that

in 2021 our Manager delivered another year of excellent

performance. Although 2022 has so far been unkind to your

Company, as well as to markets in general, this must be

seen in the context of IEM's remarkable investment record

since inception. The Directors retain their confidence in IEM’s

compelling investment hypothesis and take this opportunity

to reiterate their support and appreciation for the

investment management team that has driven the success of

your Company.

John Scott, Chairman

4 April 2022

INTRODUCING FOTIS CHATZIMICHALAKIS

Fotis became co-Portfolio Manager for IEM plc, alongside Jon Forster and Bruce Jenkyn-Jones in October 2021.

Fotis is an experienced senior research and impact analyst who has been with Impax for six years. He specialises

in Energy Efficiency, Pollution Control and Water, themes which are strongly represented in IEM. Fotis has clearly

demonstrated his capabilities and competence as a member of the investment team and has been part of the

IEM Portfolio Construction team for four years. Fotis has a background in engineering (in particular renewable

energy and other green technologies) and joined Impax after graduating from the University of Edinburgh with

an MSc focused on Sustainable Energy and Finance.

6 | Impax Environmental Markets plc | Annual Report and Accounts 2021

STRATEGIC

REPORT

Jon Forster Fotis Chatzimichalakis

We begin our report by extending

a warm welcome to Fotis

Chatzimichalakis in his new role as

co-portfolio manager, alongside Jon

Forster and Bruce Jenkyn-Jones. Fotis

has spent six years at Impax in equity

research and impact analysis, and

has made an excellent contribution

to IEM’s performance through his

individual stock picks and his thorough

understanding of the overall portfolio.

Following exceptional performance in 2019 and 2020,

and given the high volatility seen in the last two months

of 2021, we are pleased with IEM’s performance over

the year. NAV performance was 1.7% ahead of the

MSCI ACWI, losing 0.7% of relative performance during

the second half, due to significant underperformance

of small- and mid-cap companies, especially during

the fourth quarter. This performance was achieved

despite 0.7% detracting from performance due to IEM’s

overweight allocation in utilities and lack of energy

and financials exposure, with financials outperforming

in the current inflationary environment. Performance

was 8.2% ahead of the FTSE ET100, catching up some

of the underperformance seen in 2020, albeit losing

3.6% of relative performance during the second half.

Outperformance came principally from holdings owned

in IEM that are not in the FTSE ET100.

The Environmental Markets Classification system devised

by Impax Asset Management, which the Company uses

to define the universe of stocks in which it can invest,

has been updated by the Manager as of 1 January 2022.

More detail is available on pages 17 and 18 of this report.

Within the main groups, a number of changes have

also been made. This overhaul reflects the evolution

of sectors and sub-sectors within the environmental

markets theme and will provide better transparency on

IEM’s exposure to the theme’s various sectors.

KEY DEVELOPMENTS AND DRIVERS FOR

ENVIRONMENTAL MARKETS

COP26 continues momentum for climate action, but

more effort will be needed

The UN climate talks in Glasgow were promoted by the

host UK government as the last chance to “keep 1.5°C

alive”, referring to the more ambitious global warming

goal agreed in Paris in 2015. Ahead of COP26, countries

were due to have updated the emissions pledges

they made in 2015 – their ‘Nationally Determined

Contributions’, in the UN jargon – to reflect advances in

climate science and recognising the growing urgency

of the threat posed by climate change. While many of

them did so, key countries, including China, Russia and

Australia, failed to increase the ambition of their targets.

In addition, an attempt to commit signatories to

“phasing-out” unabated coal-fired power generation

failed, with the Glasgow Climate Pact instead referring

to “phasing-down” coal. Similarly, language around

fossil fuel subsidies was watered down. Rich countries

failed to meet their promise to channel US$100bn

per year in climate finance to developing countries.

Overall, governments’ 2030 targets are currently

inadequate, and they have been asked to revisit and

strengthen their goals by the end of 2022.

More positively, rules on carbon markets were agreed,

climate finance targets have been raised, and a number

of ‘coalitions of the willing’ emerged to address key

drivers of climate change. More than 50 countries

joined the ‘Coal to Clean’ alliance, pledging to phase

out coal-fired power. More than 100 countries agreed to

cut emissions of methane, a potent greenhouse gas, by

30% by 2030. More than 30 countries and car makers

pledged to stop selling internal combustion engines by

2040. And more than 130 governments committed to

stopping deforestation by 2030. These alliances will be

supported by cross-cutting initiatives focused on finance

and innovation. These include the Glasgow Financial

Alliance for Net Zero (GFANZ), with commitments

from 450 firms representing US$130 trillion in assets,

and various Glasgow Breakthrough groups, with

governments working with industry on power, road

transport, steel, hydrogen and agriculture.

Manager’s Report

Bruce Jenkyn-Jones

Impax Environmental Markets plc | Annual Report and Accounts 2021 | 7

Fotis Chatzimichalakis

On balance, and despite some disappointments,

COP26 provided renewed confidence in how to get

national economies on the track to net zero. The

various coalitions will enable progress to be made in

key areas of the real economy, and in tackling some of

the most important drivers of climate change. They will

create numerous opportunities for IEM, in clean power

generation, energy efficiency and food and agriculture.

Inevitably, the growing impacts of climate change will

require investment in adaptation, which will benefit a

number of IEM portfolio companies.

The decarbonisation of heating

One of the larger barriers to a net-zero global economy

is the use of fossil fuels in heating; in Europe, for

example, buildings account for 40% of final energy

consumption and 36% of greenhouse gas emissions,

with heating accounting for 70% of the building stock’s

energy needs. Tightening energy efficiency standards

for buildings have driven growth in insulation, LED

lighting, and more efficient HVAC (heating, ventilation

and air conditioning) systems, but some 85% of heating

and cooling is still reliant on fossil fuels.

This is set to change. In its EU Energy System Integration

Strategy, the European Commission said it expects

40% of residential heating to be electrified by 2030.

EU governments are putting in place timelines to phase

out fossil fuel boilers and policy support for alternative

technologies such as heat pumps. Current penetration

rates of around 5% are expected to reach 20% by 2030,

driving annual growth rates of 15-20%. NIBE (Buildings

Energy Efficiency, Sweden), held by IEM for 15 years, is

a leader in heat pump markets and is well positioned to

capitalise on this growth.

Simultaneously, rising temperatures globally will drive

a growing need for cooling. High efficiency HVAC

systems, such as those supplied by Lennox (Buildings

Energy Efficiency, US) will continue to see above-market

growth, driven by regulation and pure economics.

Increased use of software and technology is creating

“smart buildings” with active shading, motion-activated

heating and cooling, etc. Finally, an increased focus on

wellbeing and awareness of the benefits of fresh air are

expected to drive increased uptake in heat recovery

ventilation systems. We continue to look for incremental

exposure to these growth opportunities.

Supply chains and inflation

Last year was characterised by extreme disruption to

global supply chains and related inflationary pressure,

and we expect this disruption to persist in 2022,

with mostly negative impacts on portfolio company

performance. These disruptions and inflation were

caused by a combination of the unexpectedly rapid

economic recovery from the COVID-19 pandemic and

periodic lockdowns, particularly in Asia, exacerbated

by a pandemic-related shift in demand from services to

physical goods.

The resulting increase in costs of raw materials,

shipping and labour posed significant challenges for

smaller industrial companies. They tend to have lower

purchasing power than their larger competitors, and

those with in-house manufacturing tended to suffer

more than those which outsourced manufacturing to

bigger suppliers.

As an example, Vestas (Wind Power Generation

Equipment, Denmark) issued two profit warnings

in 2021, blaming, among other things, increased

commodity and freight prices, and congestion outside

harbours. Clean energy companies such as Vestas

often face deadlines by which projects must be under

construction or operational, meaning they have little

option but to absorb higher costs.

Similarly, Itron (Power Network Efficiency, United States)

reported that its results were negatively impacted

by component constraints, which affected its ability

to meet customer demand and its cost structure,

according to its CEO. He forecast that component

supply would likely remain problematic into 2022.

We share that assessment. We favour companies with

defensible market positions and, overall, we are pleased

with most portfolio companies’ ability to pass increases

in input prices on to their customers. However, while

we expect supply chain issues and inflation to abate in

2022, they will exert a drag on company performance.

Healthcare’s nascent sustainability transition

There is increasing consensus among scientists that

climate change is already impacting human health

negatively (respiratory and cardiovascular diseases have

been linked to worsening air quality) and altering the

geographical prevalence of certain infectious diseases.

While healthcare companies offer products and services

that help address these challenges, they are also part

of the problem. The healthcare sector has the largest

carbon footprint of any service sector and is responsible

for 4-5% of global emissions, more than aviation and

shipping combined. Interestingly, awareness of this

issue has been low within the clinical community and

it was not until the adoption of the Paris Agreement in

2015 that healthcare companies have started to tighten

processes to assess and manage their carbon emissions.

Beyond carbon emissions, the environmental footprint

of healthcare extends to water use, and ground

and water pollution. According to the World Health

Organization, the most widely used raw material in

pharmaceutical manufacturing is water, highlighting

the importance of appropriate water management

measures aimed both at minimising water consumption

and managing wastewater. The occurrence of

pharmaceuticals in the environment is of growing

concern worldwide, as they have been detected in water

and soil systems posing risks to humans and wildlife that

range from the spreading of antimicrobial resistance,

to interference with reproduction and increased cancer

incidence in humans.

Approximately 4% of the IEM portfolio is invested

in companies that provide solutions to mitigate and

manage the environmental footprint of healthcare.

For example, Repligen (Water Treatment Equipment,

US) makes bioprocessing equipment used in the

manufacturing of biologic drugs and vaccines, resulting

in lower energy use, water consumption and chemical

waste. Eurofins (Logistics, Food Safety & Packaging,

France) is a life sciences company providing laboratory

testing services to analyse and monitor water, soil and

air quality.

8 | Impax Environmental Markets plc | Annual Report and Accounts 2021

STRATEGIC

REPORT

ABSOLUTE PERFORMANCE CONTRIBUTORS

AND DETRACTORS

Contributors

The themes highlighted in the Interim Report remain

relevant for the year as a whole.

Energy Efficiency holdings delivered excellent

performance. Performance was led by Generac (Power

Network Efficiency, US), the dominant supplier of

back-up power systems to US households struggling

with an increasingly volatile climate and associated

power outages, and NIBE (Buildings Energy Efficiency,

Sweden), a leading player in global heat pump markets,

which, as discussed above, have a material role to play

in the decarbonisation of heating. Ongoing digitisation

of industrial markets drove strong performance in

IEM’s software holdings, including Altair (Industrial

Energy Efficiency, US) and new holding Descartes

(Transport Energy Efficiency, US), and also in our digital

infrastructure names, including Switch and Monolithic

Power (both Industrial Energy Efficiency, US).

Food, Agriculture and Forestry holdings also delivered

positive performance, notably in our natural ingredient

names, which are benefitting from a secular shift

away from synthetic or fossil fuel-derived alternatives,

including Koninklijke DSM (Netherlands) and Borregaard

(Finland). Sustainable Forestry holding Rayonier (US)

also delivered a stand-out performance, benefitting

from strength in construction markets and following

integration of astute acquisitions.

Finally, IEM’s Water Infrastructure holdings, including

Aalberts (Netherlands), Advanced Drainage (US) and

Watts (US) performed well, benefitting in part from

strength in construction markets, but, in addition,

showing encouraging execution in current inflationary

and supply chain-constrained markets.

Detractors

As at the interim stage, Renewable Energy remained

the main headwind during the year. Weakness reflected,

in part, profit taking after exceptional performance in

2020, compounded by moves by Exchange Traded

Funds to diversify holdings, which added additional

selling pressure. The mixed outcome of COP26,

failed passage of the US Build Back Better Bill (which

contained significant additional support for renewables)

also negatively impacted sentiment and, finally, supply

chain disruption posed challenges, especially for Vestas

(Wind Power Generation Equipment, Denmark). We

currently find valuations more attractive in renewables

and have been adding selectively to existing holdings.

RELATIVE PERFORMANCE ANALYSIS

PERFORMANCE RELATIVE TO MSCI ACWI

12 MONTHS ENDED

31 DECEMBER 2021

NAV total return 21.3

MSCI ACWI total return 19.6

Relative performance 1.7

Analysis of Relative performance

Portfolio total return 21.7

MSCI ACWI total return 19.6

Portfolio outperformance 2.1

Borrowing:

Gearing effect 0.4

Finance costs (0.1)

Management fee (0.8)

Other expenses (0.1)

Trading costs (0.2)

Effect of share issues 0.5

Tax (0.1)

Total 1.7

PERFORMANCE RELATIVE TO FTSE ET100

12 MONTHS ENDED

31 DECEMBER 2021

NAV total return 21.3

FTSE ET100 total return 13.1

Relative performance 8.2

Analysis of relative performance

Portfolio total return 21.7

FTSE ET100 total return 13.1

Portfolio outperformance 8.6

Borrowing:

Gearing effect 0.4

Finance costs (0.1)

Management fee (0.8)

Other expenses (0.1)

Trading costs (0.2)

Effect of share issues 0.5

Tax (0.1)

Total 8.2

Manager’s Report continued

Impax Environmental Markets plc | Annual Report and Accounts 2021 | 9

PORTFOLIO POSITIONING, ACTIVITY,

VALUATION AND RISK

At the end of the year, IEM’s portfolio comprised 61 listed

holdings, together with one active unlisted investment.

Portfolio detail is provided on pages 19 to 22 and

positioning by sector and region is set out on page 6.

Positioning is broadly consistent with that presented

in the Interim Report, with a healthy balance of cyclical

and defensive positions and broad diversification across

environmental sectors and regions. IEM has a tracking

error against MSCI ACWI with greater exposure to

industrials and utilities than the benchmark, and no

financials or energy. It is noted that, from a “style”

perspective, the Company has material exposure to

“quality” and “growth”.

Turning to activity, after a very active first half of the

year second half activity aimed for lower turnover and

portfolio consolidation. The Company made two new

investments, namely discoverIE (Transport Energy

Efficiency, UK), a small-cap company selling highly

customised electrical components into renewable

energy, transportation and the industrial Internet of

Things markets, and Northland Power (Renewable

Energy Developers & IPP’s, Canada), which has a strong

focus and position in the rapidly growing offshore

wind markets and brings differentiated exposure

to the portfolio. We exited four holdings: Arcadis

(Environmental Consultancy, Netherlands) and ENN

Energy (Pollution Control, Hong Kong), on the basis of

valuation; Umicore (Recycling & Value-Added Waste

Processing, Netherlands) following negative news flow

on prospects for its battery material business; and

Ricardo (Environmental Consultancy, UK) following

management change.

Valuation headwinds and increased uncertainty in the

immediate term must be acknowledged. But whilst

valuations have come down recently, and absolute

valuations are looking more in line with historic levels,

relative valuations are still elevated. Valuation remains

a key challenge, particularly in sectors exposed to

net-zero scenarios. The Manager has twenty years of

experience navigating environmental markets and the

associated valuation “hot spots”, so will continue to

search for and invest in innovative companies that may

not be fully understood by the broader market or may

have been sold more on sentiment than for reasons

relating to changes in underlying earnings or long-term

fundamentals.

OUTLOOK

2022 has started on a challenging note, with the

US Federal Reserve’s pivot towards a rapid end to

quantitative easing and the prospect of multiple interest

rate rises to address inflation prompting an aggressive

market rotation out of “quality” and “growth” names,

which are a core part of IEM’s holdings, and into “value”

sectors such as energy and financials, which do not

generally meet the objectives of the Company.

More recently, Russia’s invasion of Ukraine has sent

shockwaves around the globe, leading to further market

volatility and economic uncertainty, in addition to the

loss of life and suffering of the Ukrainian people on the

ground. The Manager echoes the Chairman’s hope for a

speedy and humane resolution to this conflict.

In terms of implications for the Company, the situation

on the ground remains fluid and highly unpredictable,

with potentially dramatic implications for markets.

Notwithstanding this, the Manager provides the following

update: firstly the Company does not own any Russian,

Belarusian or Ukrainian listed or domiciled holdings;

secondly, the Company’s holdings have circa 1% direct

revenue exposure to these countries; thirdly, the rapid

escalation of natural gas and power prices have a mixed

but in aggregate neutral impact on earnings, with energy

intensive industries such as packaging and natural

ingredients facing increased costs, but renewable IPPs

with power price exposure seeing tailwinds; fourthly,

the long term impact is likely favourable for growth

prospects for the Company as the EU, for example,

focusses on security of energy supply and seeks to

reduce its reliance on Russian oil and gas by accelerating

deployment of renewable energy and stepping up

initiatives to increase energy efficiency across industries.

Acknowledging the challenging backdrop noted above,

we maintain our focus on investing in the highest

“quality” businesses across Environmental Markets, as we

believe these specialist companies will see enduring and

growing demand and will be best positioned to navigate

an environment of slowing global growth, inflationary

and supply chain challenges, and COVID-19 related risks.

We remain convinced of the long-term growth prospects

for Environmental Markets and, by extension, the

long

-term performance outlook for the Company.

Jon Forster

Bruce Jenkyn-Jones

Fotis Chatzimichalakis

10 | Impax Environmental Markets plc | Annual Report and Accounts 2021

STRATEGIC

REPORT

IEM invests globally in companies providing solutions to resource scarcity and

environmental pollution. Investee companies must be “pure plays” generating at

least 50% of their revenues from sales of environmental products or services in

the energy efficiency, renewable energy, water, waste or sustainable food markets.

At 31 December 2021, the portfolio’s weighted average revenue exposure to

these markets was approximately 82%. The focus of the investment process on

companies delivering environmental solutions naturally results in environmental

benefits which Impax quantifies at the end of each year on the basis of the most

recent portfolio company disclosures available.

IN 2020, A £10M INVESTMENT IN IEM SUPPORTED

Source: Impax Asset Management.

These figures refer to the past. Past performance is not a reliable indicator of future results. Impact of £10m invested in the strategy for

one year. Based on most recently reported annual environmental data for holdings in the portfolio as at 31 December 2020. Impax’s impact

methodology is based on equity value.

The net CO2 emissions avoided by portfolio companies’ activities are calculated by looking at the total emissions from

the activities of companies during the year minus the emissions avoided by the use of their products and services

for one year. For additional context, this year we have enhanced this reporting by separating out Scope 1, 2 and 3

emissions, as explained in the chart below.

As an example, renewable energy developer EDP Renovaveis created 3,700 tCO

2 emissions (including some Scope3

emissions) through its operations including installing wind and solar power generation equipment and corporate

activities in 2020. Once installed the emissions avoided by the operation of this equipment vs the incumbent power

generation system is 18,467,000 tCO

2 resulting in a net avoidance of 18,463,300 tCO2.

IEM demonstrates significant net carbon benefits through the use of portfolio companies’ products and services,

assuming just one year of use, when considering Scope 1, 2 and 3 emissions, and emissions avoided.

Environmental Impact Report and case studies

Impax Environmental Markets plc | Annual Report and Accounts 2021 | 11

IEM SUPPORTS THE REDUCTION OF 1,300 tCO2 FROM THE ENVIRONMENT PER £10M INVESTED:

-8,000

-6,000

-4,000

-2,000

2,000

4,000

6,000

Global economy

NET CO

IMPACT PER £10M INVESTED FOR ONE YEAR

1,500 – 4,900

Scope 1 & 2 CO

emitted (tCO

)

Scope 3 CO

emitted (tCO

)

avoided

(tCO

)

-1,300 Net

Impact

IEM plc

Estimated total emissions 2020

[GtCO

. The black bar reflects the

range of estimates of value invested.

Includes direct emissions and direct

energy used by portfolio companies

Includes emissions from portfolio

companies’ supply chains

Over one year’s use of companies’

products and services

Avoided – emitted (tCO

)

When considered at the portfolio level the emissions avoided materially exceed those emitted, resulting in net

emissions avoided of 1,300tCO

2 per £10m invested. As context, Impax estimates that the current economy delivers

emissions of approximately 3,200 tCO

It is the energy efficiency and emission abatement solutions delivered by

IEM portfolio companies which are part of enabling the global economy to reduce emissions to net zero overall.

IEM MAPPED TO UN SUSTAINABILITY GOALS

These figures refer to the past. Past performance is not a reliable indicator of future results.

. Source: Global Carbon project, Carbon brief, using 2020 figures. Global AUM for 2020 as provided by PwC for the low figure and Global Wealth for 2020 as

provided by Credit Suisse for the high figure. GtCO

2e is gigatonnes of CO2 equivalent.

. Impax Asset Management, 31 December 2020. Impax’s impact methodology is based on equity value.

3. This number has been updated to GBP from IEM's 2021 Half Year Report where the emissions of the global economy were stated in USD as 2,400 tCO

4. Source: Data as at 31 December 2021. Figures are based on Impax internal data. Impax’s investment process does not identify alignment with SDGs as a specific

objective. Instead, the nature of Impax’s investment philosophy results in some meaningful revenue exposure within IEM.

The UN’s Sustainable Development Goals (“SDGs”),

agreed in 2015, comprise a series of 17 sets of targets

to be met by 2030. These goals are increasingly being

referenced by investors and are helpful in comparing

funds’ relative impact outcomes. There is an intrinsic

link between the intentionality of the IEM investment

process’s focus on environmental markets and the

delivery of environmental benefit which is reassuring

for investors seeking to understand returns on their

investment, beyond the financial outcome.

Impax has mapped the IEM portfolio to show how

companies’ activities align with the goals based on their

environmental market revenue exposure.

IEM has 83% revenue exposure to the SDGs overall with

greatest linkage to:

•

Goal 9, industry innovation and infrastructure which

relates to holdings in industrial energy efficiency;

•

Goal 11, sustainable cities and communities which

relates to holdings in pollution control solutions,

recycling and waste management; and

•

Goal 6, clean water and sanitation which relates to

holdings in water utilities and infrastructure.

16%

11%

28%

16%

10%

Clean water &

sanitation

83%

Total

Affordable &

clean energy

Industry,

innovation &

infrastructure

Sustainable

cities &

communities

Responsible

consumption &

production

Life on land

12 | Impax Environmental Markets plc | Annual Report and Accounts 2021

STRATEGIC

REPORT

Environmental Impact Report and case studies continued

Case Studies

DESCARTES SYSTEMS – CANADA,

NORTH AMERICA

Descartes provides inter-enterprise

software for supply chain

management, especially for delivery-

intensive companies.

Investment Opportunity

The combination of the explosion of e-commerce

and the increasing complexity of global trade has put

enormous strain on global supply chains which, in

turn, has put operational and pricing pressure on the

logistics sector. In addition, the environmental intensity

of the logistics sector is attracting increasing scrutiny.

This is incentivising industry players to address

operational and environmental inefficiencies.

Descartes’ software and services offer these benefits,

creating cost and emissions savings for their clients.

Descartes is also the only neutral third party offering

a global network connecting key industries. Increasing

environmental regulation and corporate sustainability

commitments will be a long-term contributor to the

structural growth of the logistics technology market.

Environmental Benefit

Logistics, and the movement of goods along supply

chains and to consumers, is responsible for a large

proportion of transportation related emissions and

pollution. The fragmentation and inefficiencies

of the logistics market lowers asset utilisation

and exacerbates the impacts of an already very

environmentally intensive sector. Descartes’ business

model is entirely focused on improving the efficiency

of logistics processes through digital transformation.

Impact Achieved

In the US alone, the number of empty or “deadhead”

miles among all carriers is approximately 20%

highlighting the inefficiency of logistics in terms of

speed, cost and environmental impact. Descartes

enables goods to be moved through supply chains and

delivered to consumers more efficiently, generating

substantial transport related energy and emissions

savings: taking vehicles off the road, reducing miles

travelled and improving the asset utilisation of

logistics vehicles.

NIBE INDUSTRIER – SWEDEN,

EUROPE

NIBE is an international heating

technology company, producing heat

pumps, boiler and water heaters, and

electrical heating elements.

Investment Opportunity

Heat pumps use the temperature differential between

the ground (or air) and the inside of the house to

provide heating and cooling. Efficient temperature

control in buildings is a growing market, consistent with

a climate adaptation scenario, where the requirements

for heating/cooling will increase with the increasing

extremes of climate events, and consistent with a

climate mitigation scenario, as the decarbonisation of

heating is key for a net-zero economy.

NIBE is well positioned to benefit from this growth. The

company manufactures a wide range of eco-friendly,

energy-efficient solutions for indoor climate comfort in

homes, apartment blocks and commercial properties,

plus components and solutions for intelligent heating

and control in industry and infrastructure.

Environmental Benefit

NIBE has a vision to create world-class solutions in

sustainable energy, and the decarbonisation of heating

a critical task in the drive towards net zero. Heat

pumps also contribute to the production of renewable

energy, taking heat from the sun by recovering energy

stored in the ground, air and water.

Impact Achieved

All the buildings in the world currently account for

around 40% of total energy use and around one third

of global emissions of greenhouse gases

and 65% of

residential energy demand goes into space heating

Based on the cut in emissions from the type of heating

systems NIBE’s heat pumps replaced in 2019 alone,

the reduction was 228,000 tonnes of CO

2 for the year.

This is approximately the same amount as the total

emissions from all buses, mopeds and motorbikes in

the whole of Sweden.

These heat pumps correspond

to generation of 1,350,000 MWh of renewable energy.

1 https://truckingresearch.org/wp-content/uploads/2021/11/ATRI-Operational-Cost-of-Trucking-2021-FINAL.pdf

https://www.nibe.com/nibe-group/nibe-creates-energy-efficiency

3 https://www.lse.ac.uk/granthaminstitute/news/heating-homes-do-energy-saving-measures-reduce-energy-consumption-in-social-housing/

4 https://www.nibe.com/nibe-group/examples-of-sustainable-energy-solutions

Impax Environmental Markets plc | Annual Report and Accounts 2021 | 13

Climate Disclosure

INTRODUCTION

As a Company specialising in investing in companies

developing innovative solutions to resource challenges

in environmental markets, the greatest contribution IEM

can make to achieving the goals of the Paris Climate

Agreement is through the Manager’s investment

decisions. We report on the environmental impact of

our investments (pages 10 to 12) and the Manager's

engagement efforts with respect to our investee

companies (pages 33 to 35).

Engagement with the companies in which the Manager

invests, often in collaboration with its broader client

base and other stakeholders, as well as its advocacy for

transformational policy are also relevant.

Reporting standards continually advance, broadening

and deepening the information that is available for

shareholders and other stakeholders. We are an advocate

of this shift in our industry and therefore welcome the

reporting recommendations presented by the Task Force

on Climate-Related Financial Disclosures (“TCFD”), which

is becoming a global standard for reporting climate risks

and opportunities.

The Financial Stability Board ("FSB") is an international

body created after the 2008 financial crisis to monitor

financial system stability. FSB established the TCFD in

2015 to develop recommendations for more efficient and

effective climate-related voluntary financial disclosures

to promote more informed investment, credit and

insurance underwriting decisions.

The TCFD recommendations provide a framework

intended to help investors and others in the financial

community better understand and assess climate-related

risks and opportunities. They are structured around

four pillars: governance, strategy, risk management, and

metrics and targets.

As an Investment Trust, the Company is not currently

subject to the Listing Rule requirement to comply

with the TCFD reporting. IEM is, however, a keen

supporter of the ambitions of both the TCFD and the

FRC

as can be seen from this report. We believe our

support of the TCFD recommendations will contribute

to improved global disclosure of climate-related risks.

This, in turn, will help asset owners, including IEM and

our shareholders, better assess these risks and support

sound investment decisions.

This Climate Disclosure section focuses on the potential

impact of climate change on the Company, including

how it may affect the value of the investments, and the

policies and procedures we put in place to manage these

risks. In addition, this report also discloses how we are

managing the impact of IEM on the climate, through our

Manager’s investment activity.

GOVERNANCE AND OVERSIGHT OF CLIMATE

RISKS AND OPPORTUNITIES

The Board of Directors has oversight of climate risks

and opportunities. The management and monitoring of

the Company’s climate-related investment activities is

delegated to the Manager. As an investment manager

specialising in the transition to sustainable economy,

the Manager has dedicated climate-related resources

and committees, led by members with sustainability and

climate expertise.

The Manager provides to the Board reporting about

the Company’s investment activities, which includes

climate-related risks and opportunities material to

new investments. IEM’s ESG Policy, which the Manager

adheres to, sets out the approach taken to assess the

environmental risks faced by investee companies.

The Board reviews annual reporting of the Scope

1, 2, 3 and abated CO

2 emissions of the portfolio,

alongside broader environmental metrics related to the

Environmental Markets opportunity set.

The Board also considers the physical climate risks

to the operations of its third-party service providers,

including the Manager. Physical climate change risk is

separately identified on the Company’s risk register

and this risk, though not a key risk after mitigation, is

reported on page 27.

The Board and the Manager are aligned with global

efforts to limit warming to 1.5°C. A large percentage of

investee companies play an active role in climate change

mitigation (to support the goal of net-zero emissions by

2050 or sooner) and/or adaptation (to develop resilience

and adequate infrastructure to withstand extreme

climate events if warming is not limited to 1.5°C or net-

zero goals are not reached soon enough).

CLIMATE RISKS AND OPPORTUNITIES AS

PART OF OUR STRATEGY

Climate and environmental risks and opportunities have

been at the core of IEM’s investment strategy for two

decades. All of IEM’s investments are in environmental

and climate solutions, aligned to the transition to a more

sustainable economy. (Please see page 18 for more

information on the environmental sectors that constitute

the portfolio.)

To this extent, the Company has a dedicated Investment

Manager, specialising in the area, with resources to

understand, top-down and bottom-up, the risks and

opportunities brought on by climate change from

a financial point of view. The Manager incorporates

climate change considerations through integrated ESG

analysis in the investment process and specifically

addresses environmental challenges as part of the

investment strategy.

For more detail, refer to the Financial Reporting Council's Climate

Thematic Report.

14 | Impax Environmental Markets plc | Annual Report and Accounts 2021

STRATEGIC

REPORT

The strategy is not only about addressing risks, but also

about identifying opportunities. As a thought-leader, the

Manager has working groups developing analysis and

understanding from an investment perspective, of the

emerging products, technologies and services which

provide solutions to mitigate or adapt to climate change

and resource challenges in the environmental markets.

In addition, the Board has included climate change

risk in the risk register to facilitate ongoing oversight

of the Manager and third-party service providers.

The Board assesses the impact and resilience of the

Company’s investments and their operations, as well as

the operations of key service providers, and uses this to

inform strategy to ensure the potential risk impact and

likelihood are within the Company’s risk appetite.

RISK MANAGEMENT OF CLIMATE RISKS

Climate change has been identified as a risk in IEM’s risk

broad range of interconnected risks including physical

and transition risks.

Managing risk is an essential part of the investment

process and ongoing portfolio management. The

Manager identifies and manages climate-related risks and

opportunities across the investment lifecycle, and reports

to the Board:

1. Investment universe formation – the Manager

seeks companies with material (>50% revenues)

to Environmental Markets which includes climate

adaptation and mitigation solutions.

2. Fundamental company analysis – carbon emission and

abatement costs as well as physical climate risks are

assessed through integrated company-level analysis.

As one of the leaders in this field, the Manager has

developed a proprietary model to assess investee

companies' localised and asset-level physical climate

risks.

3. Company engagement – the Manager also actively

engages with our investee companies to encourage

improved climate risk management, processes, and

disclosures. Over the past 12 months, climate change

has been a strategic engagement priority of the

Manager.

Company Disclosures

Disclosure by our investee companies is critical to

helping us assess climate change-related risks, and the

Manager works actively with companies to improve

climate change-related disclosures. The Manager uses

its voting power to support shareholder proposals that

encourage companies to improve disclosure of climate

change-related risks. During this financial year, the

Manager voted on behalf of IEM in favour of all climate

and environmental resolutions possible. Further details

on voting are provided on page 35.

CLIMATE METRICS AND TARGETS

Investment-related climate and carbon metrics

The Company reports key impact metrics for the

IEM investment portfolio: net CO

2 emissions avoided;

water treated, saved or provided; renewable electricity

generated; and total materials recovered / waste treated.

The focus on investments in environmental solutions and

sustainable companies has informed the approach to

measuring the carbon profile of our investment activities.

The Board believes that looking at the net carbon impact

– including both direct and indirect carbon emissions, but

also carbon avoidance at investee company and overall

portfolio levels – provides a more relevant and complete

picture. This has been reported since the Company’s

2015 Annual Report. Please see pages 10 to 11 for

more information.

In the future, the Company will continue to report

the net carbon impact of the Company’s investments

alongside carbon emissions data, as required by

upcoming regulations.

Operations-related climate and carbon metrics

The Company has no Scope 1 (direct emissions) or

Scope 2 (emissions related to electricity consumption)

emissions. However, in the course of operating the

business, the Company’s key providers do have Scope

1 and 2 emissions. As such, the Board is considering

the Scope 1 and 2 emissions of its two main providers

– Impax Asset Management (the Manager) and Sanne

(the fund administrator and company secretary –

formerly PraxisIFM). This year, the Board has attributed

a portion of the Manager’s emissions to IEM (AUM of

IEM as percentage of the total AUM service provider is

responsible for) and intend to do the same for Sanne

in the future.

IEM has Scope 3 (business travel) emissions, in respect

of the attendance of directors at Board meetings. In

2021, travel and lockdown restrictions as a result of

the COVID-19 pandemic in the first half of the year

meant that travel was minimal as Board meetings

were conducted virtually. The Board is committed to

monitoring and reducing its emissions where possible but

must acknowledge that its Scope 3 emissions are likely to

increase for 2022 as in-person meetings resume.

There are no Scope 3 emissions to be attributed to Impax

Asset Management, who host the meetings at its offices,

or from Sanne, who travel to the meetings from its office

by public transport.

Climate Disclosure continued

Impax Environmental Markets plc | Annual Report and Accounts 2021 | 15

IEM CO2 Emissions

2021

Kg CO2e

Scope 1 0

Scope 2 0

Scope 3 348

TOTAL 348

Impax Asset Management CO2 Emissions

2021

(IAM TOTAL

- LONDON

ONLY)

Kg CO2e

2021 ATTRIBUTABLE TO IEM PLC

(AVERAGE AUM OF IEM OVER

AVERAGE AUM IAM – LONDON

MANAGED

ONLY)

Kg CO2e

Scope 1 &2 1,871 86

Scope 3 0 0

TOTAL 1,871 86

Physical climate risk

The Manager has assessed the physical climate risks to the

London office of Impax Asset Management and concluded

that these risks are relatively low.

Climate and Carbon Targets

Investments:

In November 2021, the Manager joined the Net Zero Asset

Managers (“NZAM”) Initiative. Signatories commit to

supporting the goal of net zero greenhouse gas emissions by

2050 or sooner, in line with global efforts to limit warming

to 1.5°C. It also commits to support investing aligned with

net-zero emissions by 2050 or sooner. As a new signatory,

Impax Asset Management has one year from the date of

joining to develop an interim target for 2030 using one of

the approaches approved by the NZAM initiative, before

submitting it to the Investor Agenda.

The Board is comfortable that the NZAM initiative is

well aligned with IEM’s existing investment philosophy

and its 20+ years’ experience of investing in climate and

environmental solutions. The Board believes that these

commitments from the Manager will bring benefits to the

management of IEM’s investments as well.

A list of the Manager’s initiatives and memberships is

included on pages 35 and 36.

Operations:

The Board is pleased that the Manager’s London office is

a certified green building (rated “excellent” by BREEAM

(Building Research Establishment Environmental

AssessmentMethod) and managed by an ISO 14001 aligned

Building Management System).

The Board will expect its key service providers to report on

their Scope 1 and 2 emissions at least annually, together with

any steps taken to reduce emissions.

Details of the methodology used

Reporting according to the GHG Protocol: Scope 2 emissions

figure stated above follows the market-based accounting

methodology. Source of emission factors applied to

calculate emissions from electricity consumption is IEA

(2020) UK electricity grid mix emission factor. Scope 3

(travel) emissions figure stated above follows the distance-

based methodology. Source of emission factors applied to

calculate emissions of travel is the UK Government DEFRA

GHG Conversion Factors for Company Reporting.

16 | Impax Environmental Markets plc | Annual Report and Accounts 2021

STRATEGIC

REPORT

Structure of the Portfolio

As at 31 December 2021

Breakdown by environmental markets classification system

IEM FTSE ET100 Index

Breakdown

by region

North America, 52%

Europe, 34%

Asia Pacific, 13%

Rest of World, 1%

Breakdown by

company profitability

Profitable, 98%

Unprofitable, 2%

Breakdown by

market capitalisation

Large Cap

(US$20bn to US$200bn), 20%

Mid Cap (US$5bn to

US$20bn), 55%

Small Cap

(US$0.5bn to US$5bn), 23%

Micro Cap

(less than US$0.5bn), 2%

33%

64%

18%

12%

15%

10%

18%

Energy Efficiency

Environmental

Support Services

Food, Agriculture

& Forestry

Pollution Control

Renewable &

Alternative Energy

Waste Management

& Technologies

Water Infrastructure

& Technologies

Investment policy classification

1. Alternative Energy and Energy Efficiency.

2. Waste Technologies and Resource Management.

3. Water Treatment and Pollution Control.

Note to investors:

Market capitalisation bands have been revised since the Company’s previous report (previously Large Cap >US$5bn;

Mid-Cap US$2bn - US$5bn; Small-Cap US$0.5bn - US$2bn). This is to provide greater clarity for investors regarding

the characteristics of the portfolio, and in line with current market practice.

Impax Environmental Markets plc | Annual Report and Accounts 2021 | 17

Environmental Markets Classification

Impax Asset Management (“Impax”) is the Company's Manager. It has undertaken a comprehensive review of

its Environmental Markets Classification system and the following sets out the changes which take effect from

1 January 2022, and will thus be used in applicable future reporting.

In the 20 years since IEM was listed, the investment opportunity set within Environmental Markets has grown

substantially.

We believe well-defined classification systems, or taxonomies, play an important role for investors like ourselves

who are seeking to navigate environmental risk and/or increase their exposure to rapidly expanding environmental

markets. Impax Asset Management produced one of the world’s first green taxonomies in 1999, which in 2007 was

adopted by FTSE Russell as the foundation for what they now call their Green Revenues Classification. The Manager

continues to support them in a biannual review of this.

Despite the emergence of competing alternative classification systems, the Manager continues to approach investing

in Environmental Markets using its own distinct taxonomy. To stand the test of time, it has not stood still. Over the

past two decades, the classification system has evolved with the progression of new technologies and business

models, market demand and the policy environment.

Having used the previous classification for over a decade, the Impax Environmental Markets Classification System was

updated on 1 January 2022 to reflect the development of sectors and sub-sectors within Environmental Markets.

Importantly, this does not change the investment objective, process or universe of IEM.

In the previous classification system (Figure 1), there are four main groups. These become six under the new

classification (Figure 2). Within these six groups, there will be a total of eight sectors along with their respective

sub-sectors. The groups in which some sectors sit, as well as the description of some sectors and sub-sectors,

have changed.

FIGURE 1: OUR CLASSIFICATION OF ENVIRONMENTAL MARKETS

(AS AT 31 DECEMBER 2021)

18 | Impax Environmental Markets plc | Annual Report and Accounts 2021

STRATEGIC

REPORT

Environmental Markets Classification continued

FIGURE 2: OUR NEW CLASSIFICATION OF ENVIRONMENTAL MARKETS

(FROM 1 JANUARY 2022)

Two new groups, Clean and Efficient Transport and Smart Environment, have been introduced. Additionally, the

Waste/Resource Recovery group is now called Circular Economy. The Manager believes this more accurately

represents how the Impax investment team and investors are thinking and talking about Environmental Markets and

the developments within it.

Alternative Energy

• Developers & Independent

Power Producers

• Biofuels

• Hydrogen

• Solar

• Wind

Energy Management & Efficiency

• Smart Grids

• Industrial, Consumer & Buildings Efficiency

• Power Storage & Uninterruptible

Power Supply

• Lighting

Transport Solutions

• Aviation

• Shipping

• Railways

• E-bikes & Bicycles

• Buses & Coaches

• Road Vehicles & Devices

• Pollution Reduction

• Shared Mobility

New Energy Clean and Efficient Transport

Resource Efficiency &

Waste Management

• General & Hazardous

• Recycled, Recyclable

Products & Biomaterials

• Resource Circularity

& Efficiency

• Technologies

Environmental Services

& Resources

• R&D & Consultancies

• Finance & Investment

• Testing & Monitoring

• Pollution Control

• Environmental Resources

Digital Infrastructure

• Efficient IT

• Cloud Computing

• Digital Collaboration Solutions

Circular Economy Smart Environment

Sustainable Food

& Agriculture

• Organic & Alternative

• Technology & Logistics

• Safety & Packaging

• Agri- & Aquaculture

• Forestry

Sustainable Food

Water Infrastructure

& Technologies

• Distribution & Infrastructure

• Treatment

• Efficiency

• Utilities

Water

Impax Environmental Markets plc | Annual Report and Accounts 2021 | 19

Ten Largest Investments

As at 31 December 2021

CLEAN HARBORS INC - United States

www.cleanharbors.com

Clean Harbors is a market leader in the US hazardous waste sector with a strong market position and pricing

power in a business with high barriers to entry. It provides collection, transportation, recycling, treatment

and disposal services and holds dominant positions in waste to energy plants, where new permits are

becoming rare. It is also a leading responder to emergency clean–ups, for example post extreme weather

events such as hurricanes and during the COVID–19 pandemic.

2.8%

of net assets

(2020: 2.6%)

PTC INC - United States

www.ptc.com

PTC provides software solutions that are deployed in industrial design and manufacturing. The company’s

software is used to design products (computer–aided design), monitor how they are being manufactured

and manage them throughout their lifetime (product lifecycle management). Importantly, PTC’s industrial

connectivity platform allows customers to connect ‘smart’ devices and analyse associated data enabling

applications like remote monitoring and predictive maintenance. Operating in a market with high barriers

to entry and low customer turnover, using its established market position, PTC is emerging as a leader in

industrial ‘Internet of Things’ and benefitting from high recurring revenues.

2.7%

of net assets

(2020: 2.6%)

AMERICAN WATER WORKS CO INC - United States

www.awwa.org

American Water Works is the largest publicly-listed US water utility. It provides water and water–related

services in 47 states and also Ontario, Canada. The US water system is highly fragmented with over 50,000

individual community water systems. Close to 10% of the US population is served by water systems so

small that they lack economies of scale and financial, managerial, and technical ability – leading to water

quality violations that larger providers like American Water Works are better positioned to address.

2.6%

of net assets

(2020: 2.7%)

AIRTAC

- Taiwan www.airtac.com

Airtac International Group manufactures pneumatic components and different kinds of pneumatic

equipment used in industrial automation. Industry, particularly in Asia, is driving towards better

manufacturing efficiency in the transition to a more sustainable economy. As Airtac expands its product

range and geographical coverage, it is well positioned to assist in the migration towards high-end

manufacturing, better manufacturing efficiency and easing labour constraints.

2.4%

of net assets

(2020: nil)

DESCARTES SYSTEMS - Canada

www.descartes.com

Descartes provides inter-enterprise software for supply chain management, especially for delivery-

intensive companies. The strain on global supply chains and the focus on the environmental intensity of

the logistics sector, means Descartes' software and services are well positioned by increasing utilisation

and reducing inefficiencies, which results in lower emissions and pollution.

2.4%

of net assets

(2020: nil)

20 | Impax Environmental Markets plc | Annual Report and Accounts 2021

STRATEGIC

REPORT

KONINKLIJKE DSM NV - Netherlands www.dsm.com

DSM supplies nutritional ingredients like vitamins and nutraceuticals into the animal feed, food and

personal care industries. These products help improve livestock health and improve uptake of feed,

which serves to reduce waste and emissions. DSM’s transition from a diversified chemicals producer to

a business focused on a more stable, and fast growing, nutrition industry is driving higher returns on

capital, improved free cashflow generation and reduced earnings volatility. In addition, DSM is driving

its end–market stakeholders towards more sustainable production methods. The company has a strong

focus on sustainability, implemented by a solid management team and led by an internal Sustainability

Leadership Team.

2.3%

of net assets

(2020: 2.5%)

AALBERTS NV - Netherlands

www.aalberts.com

Aalberts develops and sells various water technologies through four business segments – Building

Installations, Climate Control, Industrial Controls and Industrial Services. Aalberts develops water regulation

systems, flow control systems and piping systems among its infrastructure products. Its products address

the need to preserve, re-use and reduce water usage and as such hold particular appeal. In addition, their

buildings climate control equipment helps organisations to lower their carbon footprint through hydronic

flow control systems for heating and cooling in eco-friendly buildings to improve the energy efficiency by

reducing electricity usage.

2.2%

of net assets

(2020: 2.3%)

ORMAT TECHNOLOGIES - United States

www.ormat.com

Ormat designs, builds and supplies power generating equipment using geothermal and recovered energy,

whereby thermal energy is recaptured and redeployed. Geothermal is an environmentally friendly means

of generating energy, which is immune from most weather effects and thus a strong compliment to wind

and solar. Renewable energy developers and independent power producers tend not to be affected by

short-term oil price volatility. Their value instead comes from long-term infrastructure projects planned

years in advance. In addition, in many regions, when there is a decline in power demand, renewable energy

providers are not affected as they have priority status in the delivery of power, when compared to fossil

fuel generation.

2.2%

of net assets

(2020: 2.9%)

SPIRAX-SARCO ENGINEERING - United Kingdom

www.spiraxsarco.com

Spirax-Sarco Engineering is a world leader in the control and efficient use of steam, electrical thermal

energy solutions and peristaltic pumping and associated fluid path technologies. Its Steam Specialties and

Electric Thermal Solutions businesses provide products and expertise that improve production efficiency

and help customers meet their environmental sustainability targets. Its diverse end markets and broad

customer base underpin its resilience. 50% of Group revenue is derived from defensive, less cyclical, end

markets such as food, pharmaceuticals, and water and wastewater, and 85% of Group revenue is derived

from annual maintenance and operating budgets, rather than large projects from capex budgets.

2.1%

of net assets

(2020: 2.1%)

GENERAC HOLDINGS INC - United States

www.generac.com

Generac is a leading supplier of standby and portable generators for the residential, commercial and

industrial markets. Extreme climate events such as hurricanes and wildfires in the US are leading to multi

day black outs. Generac's predominantly gas–powered generators (cleaner than diesel-powered) provide

reliable power in these situations: an adaptation to the effects of climate change. The company has a

circa 75% market share of the US residential standby generator market, with a strong brand and well–

established distribution network that is difficult for competitors to replicate. The company has recently

launched energy storage products that can store power from solar-powered systems. This opens up a

new avenue of growth for the company.

2.1%

of net assets

(2020: 2.6%)

Ten Largest Investments continued

Impax Environmental Markets plc | Annual Report and Accounts 2021 | 21

Details of Individual Holdings

AS AT 31 DECEMBER 2021

COMPANY SECTOR

COUNTRY OF MAIN

LISTING

MARKET

VALUE

£’000

% OF

NET

ASSETS

Clean Harbors Waste Management & Technologies United States 41,440 2.8

PTC Energy Efficiency United States 39,490 2.7

American Water Works Water Infrastructure & Technologies United States 38,269 2.6

Descartes Systems Energy Efficiency Canada 36,078 2.4

Airtac International Energy Efficiency Taiwan 34,801 2.4

Koninklijke DSM Food, Agriculture & Forestry Netherlands 33,730 2.3

Aalberts Water Infrastructure & Technologies Netherlands 32,012 2.2

Ormat Technologies Renewable & Alternative Energy United States 31,816 2.2

Spirax-Sarco Engineering Energy Efficiency United Kingdom 31,370 2.1

Generac Holdings Energy Efficiency United States 31,333 2.1

Top ten holdings

350,339 23.8

Brambles Waste Management & Technologies Australia 31,273 2.1

Croda International Pollution Control United Kingdom 30,849 2.1

Rayonier Food, Agriculture & Forestry United States 30,636 2.1

EDP Renovaveis Renewable & Alternative Energy Portugal 30,527 2.1

NIBE Industrier Energy Efficiency Sweden 30,524 2.1

Trimble Food, Agriculture & Forestry United States 30,355 2.1

Monolithic Power System Energy Efficiency United States 30,173 2.0

Pentair Water Infrastructure & Technologies United States 29,853 2.0

Repligen Water Infrastructure & Technologies United States 28,777 1.9

Advanced Drainage Systems Water Infrastructure & Technologies United States 28,499 1.9

Top twenty holdings

301,466 20.4

Darling Ingredients Waste Management & Technologies United States 28,497 1.9

Corbion Food, Agriculture & Forestry Netherlands 27,759 1.9

Advantech

Energy Efficiency Taiwan 27,450 1.8

Eurofins Scientific Food, Agriculture & Forestry France

27,236 1.8

Northland Power Renewable & Alternative Energy Canada

27,013 1.8

Herc Holdings Energy Efficiency United States

26,965 1.8

Bucher Industries Food, Agriculture & Forestry Switzerland

26,690 1.8

DS Smith Food, Agriculture & Forestry United Kingdom

26,549 1.8

Stericycle Waste Management & Technologies United States

26,518 1.8

Graphic Packaging Waste Management & Technologies United States

26,399 1.8

Top thirty holdings

271,076 18.2

Littlefuse Energy Efficiency United States

26,250 1.8

Vestas Wind Systems Renewable & Alternative Energy Denmark

25,948 1.8

Indraprastha Gas Pollution Control India

25,496 1.7

Borregaard Food, Agriculture & Forestry Norway

24,903 1.7

Altair Engineering Energy Efficiency United States

24,183 1.6

Switch Energy Efficiency United States

24,113 1.6

Lenzing Food, Agriculture & Forestry Austria

24,028 1.6

Ipg Photoonics Energy Efficiency United States

22,908 1.5

Xinyi Solar Holdings Renewable & Alternative Energy China

22,711 1.5

Giant Manufacturing Pollution Control Taiwan

22,497 1.5

Top forty holdings

243,037 16.3

22 | Impax Environmental Markets plc | Annual Report and Accounts 2021

STRATEGIC

REPORT

AS AT 31 DECEMBER 2021

COMPANY SECTOR

COUNTRY OF MAIN

LISTING

MARKET

VALUE

£’000

% OF

NET

ASSETS

Signify Energy Efficiency Netherlands

22,461 1.5

Donaldson Co. Pollution Control United States

22,218 1.5

Salmar Food, Agriculture & Forestry Norway

22,157 1.5

Solaredge Technologies Renewable & Alternative Energy United States

21,697 1.5

Xylem Water Infrastructure & Technologies United States

21,118 1.4

LEM Holdings Energy Efficiency Switzerland

20,821 1.4

Coway Co Water Infrastructure & Technologies South Korea

20,673 1.4

Badger Meter Water Infrastructure & Technologies United States

19,433 1.3

Lennox International Energy Efficiency United States

19,169 1.3

Companhia de Saneamento

Basico do Estado de Sao Paulo Water Infrastructure & Technologies Brazil

18,970 1.3

Top fifty holdings

208,717 14.1

Watts Water Technologies Water Infrastructure & Technologies United States

18,683 1.3

Norma Group Pollution Control Germany

18,090 1.2

Terna Energy Renewable & Alternative Energy Greece

15,570 1.1

Discoverie Group Energy Efficiency United Kingdom

15,217 1.0

Cryoport Energy Efficiency United States

14,086 1.0

Itron Energy Efficiency United States

13,406 0.9

Porvair Pollution Control United Kingdom

11,706 0.8

Beijing Enterprises Water

Group Water Infrastructure & Technologies China

7,456 0.5

Blackline Safety Pollution Control Canada

5,997 0.4

Amiad Water Systems Water Infrastructure & Technologies Israel

5,370 0.4

Top sixty holdings

125,581 8.6

Dialight Energy Efficiency United Kingdom

2,952 0.2

Total quoted holdings

1,503,168 101.6

Unquoted holdings - Ensyn Renewable & Alternative Energy United States

582* –

Portfolio total 1,503,750 101.6

Cash 28,319 1.9

Other net liabilities (52,431) (3.5)

Total net assets 1,479,638 100.00

* Directors’ valuation

All investment is in equity securities unless otherwise stated

Details of Individual Holdings continued

Impax Environmental Markets plc | Annual Report and Accounts 2021 | 23

Investment Policy, Results and Other Information

COMPANY PURPOSE AND VALUES

The Company’s core values are integrity, accountability

and transparency. These values are the cornerstone

of creating and preserving shareholder value through

investing in companies delivering solutions to

environmental challenges.

STRATEGY AND BUSINESS MODEL

Impax Environmental Markets plc is an investment

company and its investment objective and policy are set

out below. Any material change to the investment policy

requires shareholder approval.

The Company is governed by a Board of Directors (the

“Board”), all of whom are non-executive, and it has no

employees. The business model adopted by the Board

to achieve the Company’s objective has been to contract

the services of Impax Asset Management (AIFM) Limited

(the “Manager”, or “IAM”) as its alternative investment

fund manager to manage the portfolio in accordance

with the Board’s strategy and under its oversight. The

portfolio managers responsible for the day-to-day

management of the portfolio are Jon Forster, Bruce

Jenkyn-Jones and Fotis Chatzimichalakis. The Board

monitors adherence to the Company’s investment policy

and regularly reviews the Company’s performance in

meeting its investment objective.

All administrative support is provided by third parties

under the oversight of the Board. Company secretarial

and administration services have been delegated

to Sanne Fund Services (UK) Limited (formerly

PraxisIFM Fund Services (UK) Limited) (“Sanne” or

the "Administrator"); depositary and custody services

to BNP Paribas Securities Services (“BNP Paribas”);

registrar services to Link Group (“Link”); and the

Company’s broker is Investec Bank plc.

The Board reviews the performance of the Manager and

its other key service providers on an ongoing basis.

INVESTMENT POLICY

(i) Objective and policy

The Company’s objective 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).

(ii) Asset allocation

Investments are selected on an individual basis but

each investment is categorised according to three

primary environmental markets that are the focus of the

Company’s investment policy.

Alternative energy and energy efficiency

In the alternative energy and energy efficiency

sector, the Company may invest in businesses that

are principally, but not exclusively, exposed to the

following areas:

•

wind turbine manufacturing;

•

solar panel manufacturing and integration;

•

renewable energy developers and independent

power producers;

•

biofuels;

•

meters, utility software and demand side

management;

•

industrial energy efficiency;

•

buildings energy efficiency;

•

transport energy efficiency;

•

businesses relating to the trading of carbon and other

environmental assets; and

•

fuel cells, flywheels, superconductors,

supercapacitors and other new energy technologies.

Waste technologies and resource management

In the waste technologies and resource management

sector, the Company may invest in businesses that

are principally, but not exclusively, exposed to the

following areas:

•

recycling equipment and systems;

•

recycling of commodities including metals, plastics,

oils, paper and vehicles;

•

integrated waste management;

•

hazardous waste management;

•

sustainable food, agriculture and forestry; and

•

environmental consultancy.

Water treatment and pollution control

In the water treatment and pollution control sector, the

Company may invest in businesses that are principally,

but not exclusively, exposed to the following areas:

•

water treatment technologies involved in filtration,

purification and separation;

•

water infrastructure including pumps, valves and

actuators;

•

environmental sensing, testing and monitoring; and

•

air pollution control technologies.

24 | Impax Environmental Markets plc | Annual Report and Accounts 2021

STRATEGIC

REPORT

(iii) Risk diversification

The Company has the following maximum exposures

in place in order to ensure that there is a reasonable

diversification of risk in the Company’s portfolio:

(a) not more than 10% of the Company’s net assets

will be invested in any one company at the time of

investment; and

(b) the Company will not make an investment if as a

consequence of that investment individual holdings

of 5% or more would in aggregate represent more

than 40% of net assets.

The Company does not have prescriptive limits on

the maximum amounts that can be invested in the

sub-sectors listed above. The Directors believe that

the imposition of such limits could impact on efficient

portfolio management.

(iv) Gearing

The Board has authorised the Manager to utilise

short-term borrowings of up to 10% of net assets in order

to provide liquidity for efficient portfolio management

where the Manager sees fit. The Company has the

flexibility to enable it to take out long-term borrowings

in appropriate circumstances. Any long-term borrowings

and any borrowings in excess of 10% of net assets

require the separate authorisation of the Board.

The borrowings of the Company shall not at any time,

without the previous sanction of an ordinary resolution

of the Company, exceed an amount equal to one third of

the aggregate of:

(a) the amount paid up on the share capital of the

Company; and

(b) the total of the capital and revenue reserves of the

Company, including any share premium account,

capital redemption reserve and credit balance on

the profit loss account as shown in the latest audited

balance sheet and income statement of the Company

subject to certain adjustments detailed in the

Company’s Articles of Association.

ASSET ALLOCATION AT YEAR END

The breakdown of the structure of the portfolio at the

Company’s year end is shown on page 16.

DIVIDEND POLICY AND DIVIDENDS

Dividend Policy

The Directors typically expect the Company to generate

returns in the form of capital gains rather than revenue.

It is the Company’s policy to pay out substantially

all earnings by way of dividend for each year, with

dividends mainly financed from current year net income

and, since 2020, to declare two dividends each year. As

set out in more detail below, it is the Board’s longer term

intention to revert to the payment of a final dividend in

place of a second interim dividend, payment of which

will be subject to shareholder approval at each AGM.

In accordance with regulation 19 of the Investment

Trust (Approved Company) (Tax) Regulations 2011, the

Company will not (except to the extent permitted by

those regulations) retain more than 15% of its income

(as calculated for UK tax purposes) in respect of an

accounting period.

Dividends Declared for the Year Ended

31 December 2021

The Board recognises that, as the Company continues

to expand through regular issue of shares, it creates a

dilutive effect on earnings per share if a single dividend

is paid annually, irrespective of when those shares

were issued. This acts to the benefit of those shares

which come onto the register towards and after the

end of the year.

In order to be fair to all shareholders the Board paid an

interim dividend at the half-year stage, and declared

a second interim dividend, in lieu of final, paid shortly

after the year end. This also has the advantage that

shareholders receive their dividends earlier. It is the

Board’s intention to continue with the declaration of

two dividends each year, and to return to paying a final

dividend as and when the Company stops growing its

capital base. However, recognising the importance of

shareholder engagement, and though not required by

regulation, shareholders will be given an opportunity

to vote on the Company’s dividend policy at the

forthcoming AGM. The vote is advisory and is set out as

ordinary resolution 3 in the Notice of Meeting.

RESULTS AND DIVIDEND

The Company’s revenue return after tax for the year

amounted to £9,391,000 (2020: £5,326,000). During

the year, the Company paid a first interim dividend

of 1.30 pence per Ordinary Share (2020: 1.30 pence),

totalling £3,767,000. On 29 December 2021, the

Directors declared that the Company would pay on

28 January 2022 a second interim dividend of 1.5 pence

per Ordinary Share (2021: 1 penny), totalling £4,471,000

based on the Ordinary Shares in issue at the record date,

7 January 2022.

The Company made a capital profit after tax of

£231,047,000 (2020: £235,511,000). Therefore the

total return after tax for the Company was a profit of

£240,438,000 (2020: £240,837,000).

KEY PERFORMANCE INDICATORS (“KPIs”)

The Board measures the Company’s success in

attaining its investment objective by reference to the

following KPIs:

(i) Achievement of NAV and share price growth over

the long term

The Board monitors both the absolute and relative

NAV and share price performance and compares the

performance of the Company against the MSCI ACWI

and FTSE ET100 indices on a total return basis. A

review of performance is undertaken at each quarterly

Board meeting and the reasons for relative under

and over performance against various comparators

is discussed. The Chairman’s statement on pages 2

to5 incorporates a review of the highlights during the

Investment Policy, Results and Other Information continued

Impax Environmental Markets plc | Annual Report and Accounts 2021 | 25

year. The Manager’s Report on pages 6 to 9 highlights

investments made during the year and how performance

has been achieved.

(ii) Maintenance of a reasonable level of premium or

discount of share price to NAV

The Manager and the Company’s broker monitor the

premium or discount and keep the Board updated as

and when appropriate. At quarterly Board meetings, the

Board reviews the premium or discount in the period

since the previous meeting on both an absolute basis

and in comparison with other investment trusts with

a similar mandate. The Board has issued a statement

on premium/discount control on pages 3 and 4. The

Board sets parameters under which the Company’s

shares can be sold or bought back and each sale of

shares or buyback is approved by a Board member

before it is conducted. The Company’s shares traded

at an average premium to NAV of 6.0% during the year

ended 31 December 2021 and within a range of a share

price premium to NAV of 0.1% to 15.3%. The year end

premium to NAV was 10.2%. Since the year end, and to

the last practicable date prior to the publication of this

report, the Company's shares have traded in the range of

14.1% premium and 6.6% discount to the NAV. Details of

Ordinary Shares issued and bought back since the year

end are shown in note 12.

(iii) Maintenance of reasonable level of ongoing

charges

The Board receives monthly management accounts

which contain analysis of expenditure. The Board also

reviews expenditure formally at its quarterly Board

meetings. The Board reviews the fees payable to

the Company’s main service providers on an annual

basis. The Board considers the ongoing charge to be

reasonable in comparison to peers. The Company’s

ongoing charges figure was 0.85% (2020: 0.95%). This is

calculated in accordance with the AIC methodology and

disclosed as an APM on page 79.

INVESTMENT PERFORMANCE TO 31 DECEMBER 2021

1 YEAR 3 YEARS 5 YEARS 10 YEARS

NAV of the Company

1,2

21.3% 107.5% 115.5% 364.4%

Share price of the Company

1,2

30.1% 122.8% 163.3% 525.3%

MSCI ACWI

19.6% 64.0% 78.7% 251.7%

FTSE ET100/FTSE ET50

2,3

13.1% 178.2% 201.3% 476.3%

Note: MSCI index is total net return (dividends reinvested net of withholding tax), FTSE index is total return (dividends reinvested gross of

withholding tax), both in sterling terms.

1. These are considered to be APMs.

2. Total return.

3. FTSE ET50 data until 31 December 2013 and then FTSE ET100 thereafter.

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.

Risks are documented on a risk register, grouped into

four main categories: Strategic and Business Objective

Risks; Investment Management Risks; Operations –

Service Providers Risks; and Compliance, Regulatory and

Corporate Governance Risks. Risks are then rated before

and after mitigating controls by impact and likelihood

of occurrence, with the assessed ratings charted on risk

matrices. The risk register is reviewed on an ongoing

basis in an attempt to capture all risks and to ensure

appropriate mitigation is in place. Reviews take 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 secondary

effects of the COVID-19 pandemic, both market and

operational risks. 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.

Emerging risks are considered by the Board at its

quarterly meetings and by the Audit Committee as

part of its risk management and internal control review.

Failure to identify emerging risks may cause reactive

actions rather than being proactive and the Company

could be forced to change its structure, objective or

strategy and, in worst case, could cause the Company to

become unviable or otherwise fail.

26 | Impax Environmental Markets plc | Annual Report and Accounts 2021

STRATEGIC

REPORT

Investment Policy, Results and Other Information continued

The experience and knowledge of the Directors is

invaluable in consideration of emerging risks, as are

update papers and advice received from the Board’s

key service providers such as the Company’s Manager,

broker, Company Secretary and auditor. The AIC also

provides regular updates and draws members’ attention

to forthcoming industry and/or regulatory issues.

TREND: INCREASING NEUTRAL REDUCING

POTENTIAL RISK MITIGATION TREND

STRATEGIC AND BUSINESS OBJECTIVE RISKS

Economic and market risks

Price movements of the Company’s investments are

highly correlated to the performance of global equities

in general and small and mid-cap equities in particular.

Consequently volatility in stock markets, such as

those experienced from the secondary effects of the

COVID-19 pandemic, are likely to adversely affect the

performance of the Company’s investments.

Changes in general economic and market conditions,

such as currency exchange rates, interest rates, rates

of inflation, industry conditions, tax laws, political

events and trends can substantially and adversely

affect the value of investments. Market risk includes

the potential impact of events which are outside the

Company’s control, such as the COVID-19 pandemic.

The Company invests in companies with small market

capitalisations, which are likely to be subject to higher

valuation uncertainties and liquidity risks than larger

capitalisation securities. The Company may also

invest in unquoted securities which generally have

greater valuation uncertainties and liquidity risks than

securities listed or traded on a regulated market.

There are inherent risks involved in stock selection.

The Manager is experienced and employs its expertise

in selecting the stocks in which the Company invests.

The Manager spreads the investment risk over a wide

portfolio of investments in its three main sectors:

energy, water and waste, as well as geographically.

At the year end, the Company held investments in

61companies and the largest holding represented

2.8%of net assets.

The Manager will not normally hedge against foreign

currency movements, but the Manager takes account

of the risk when making investment decisions. Further

details on financial risks and risk mitigation are disclosed

in note 16 to the accounts.

The raised risk rating reflects the fact that the Board

considered that geopolitical risks had heightened.

Regrettably this view has proved to be justified

following the invasion of Ukraine.

Environmental markets

The Company invests in companies operating in

environmental markets. Such companies carry risks

that governments may alter the regulatory and financial

support for environmental improvement, costs of

technology may not fall, capital spending by their

customers is reduced or deferred and their products or

services are not adopted.

The Company invests in a broad portfolio of investments

which are spread amongst several environmental

market sectors. The Manager has a rigorous investment

process which takes into account relevant factors prior to

investment decisions taking place. As well as reviews of the

portfolio and relevant industry matters at quarterly Board

meetings, the Board has an annual strategy day at which

the overall strategy of the Company is discussed.

Share price trades at excessive premium to net asset

value

Market demand combined with limited capacity results

in excessive share price premium to NAV and returns

to shareholders may be affected. Excessive premium

may also result in being unable to grow the Company

through share issuance.

Share price trades at excessive discount to net asset

value

It is in the long term interests of shareholders that

shares do not trade at a significant discount to their net

asset value.

The Board has made a statement on premium/discount

control in normal market conditions as detailed on

pages 3 and 4 in the Chairman’s Statement.

The Company utilises its powers to issue and buy back

shares when circumstances are appropriate, following

consultation with the Manager and the Company’s

broker.

The Board monitors the level of premium/discount

and receives regular shareholder feedback from the

Company’s Manager and broker.

Impax Environmental Markets plc | Annual Report and Accounts 2021 | 27

POTENTIAL RISK MITIGATION TREND

OPERATIONS – SERVICE PROVIDERS RISKS

Failure or breach of information technology (IT) -

including cyber- security, and physical security risks

Failure of IT or physical security could potentially lead

to breaches of confidentiality, data records being

compromised and the inability to make investment

decisions. In addition, unauthorised physical access to

buildings could lead to damage or loss of equipment.

The underlying risks primarily exist in the third

party service providers to whom the Company has

outsourced its depositary, registration, administration

and investment management activities.

The Company’s key service providers report periodically

to the Board on their procedures to mitigate cyber

security risks including their alignment with industry

standards, their physical and data security procedures

and their business continuity planning.

The Board also meets with its service providers on a

periodic basis.

Whilst not being identified as principal risks after mitigation controls are applied, other relevant risks to the Company

include the following:

POTENTIAL RISK MITIGATION TREND

STRATEGIC AND BUSINESS OBJECTIVE RISKS

Global pandemic risk

The rapid spread of infectious disease may cause

governments to implement policies to restrict the

gathering, interaction or movement of people and take

other measures as deemed appropriate to prevent its

spread, causing disruption to markets generally, investee

companies, the operations of the Company and its key

service providers.

During the year, the Board continually monitored

the market and operational risks associated with

the COVID-19 pandemic and the ongoing economic

impact of measures introduced to combat its spread,

discussing these, as well as the impact to the portfolio

investee companies, in depth with the Manager. The

Board satisfied itself through regular updates from

the Manager and other key service providers that they

have the ability to adapt and continue their operations

efficiently whether in an office or remote or virtual

working environment or a hybrid of both.

The Manager spreads the investment risk over a

wide portfolio of investments. Risk analysis includes

scenario analysis of possible negative market events.

The Company’s key service providers report

periodically to the Board on their business continuity

plans and procedures. The Board monitors the

adequacy of controls in place at the key service

providers and their planned response to an extended

period of disruption, to ensure that the impact to the

Company is limited.

During times of elevated volatility and market

stress, such as those experienced with the COVID-19

pandemic, the Company’s closed-end fund structure

protects it from the liquidity requirements that

can arise for open-ended funds, enabling the fund

managers to adhere to their disciplined investment

process and be ready to respond to dislocations in the

market as opportunities present themselves.

Physical climate change risk

While efforts to mitigate climate change continue, the

physical impacts are already emerging in the form of

changing weather patterns. Extreme weather events

can result in flooding, drought, fires and storm damage,

potentially impairing the operations of a portfolio

company at a certain location, or impacting locations of

companies within their supply chain.

Physical climate change risk is still an emerging topic

for investors as well as for the management teams

of portfolio companies. It has been a focus area of

research and engagement by the Manager to identify

companies particularly exposed to this risk and to

open a dialogue with them on management options.

Details of engagement with investee companies are

given on pages 33 to 35.

The Company invests in a broad portfolio of

companies which are spread geographically, limiting

the impact of location specific weather events.

28 | Impax Environmental Markets plc | Annual Report and Accounts 2021

STRATEGIC

REPORT

Investment Policy, Results and Other Information continued

POTENTIAL RISK MITIGATION TREND

Gearing risk

The Company may borrow money for investment

purposes. If investment markets fall in value, any

borrowing will enhance the level of loss.

Capacity constraints on the availability of desirable

companies for investment may mean the Company is

unable to achieve the level of gearing wanted.

The Board has authorised the Manager to use their

discretion to utilise gearing up to 10% of net assets.

Any borrowing above this level requires Board

approval. Borrowing facilities are renewed on a cost

effective and timely basis.

The Manager keeps under regular review the

opportunities for enhancing returns by the prudent

use of gearing.

INVESTMENT MANAGEMENT RISKS

Financial risks

The Company’s investment activities expose it to a

variety of financial risks which include foreign currency

risk, portfolio liquidity risk and interest rate risk.

The Company invests in securities which are not

denominated or quoted in sterling. Movements of

exchange rates between sterling and other currencies

in which the Company’s investments are denominated

may have an unfavourable effect on the return on the

investments made by the Company.

The Company will not normally hedge against foreign

currency movements affecting the value of its

investments, although, the Manager takes account of

this risk when making investment decisions.

The Company invests in range of global listed equities

and the Manager monitors the foreign currency

exposure and liquidity of holdings within the portfolio

and reports on these to the Board at each meeting.

Interest rate risk is limited due to the low level of

gearing.

Further details on financial risks and risk mitigation

are disclosed in note 16 to the accounts.

OPERATIONS – SERVICE PROVIDERS RISKS

Operational risk

The Board has contractually delegated to third party

service providers the management of the investment

portfolio, and services covering: depositary and custody;

registrar; company secretarial and fund accounting. The

security of the Company’s assets, dealing procedures,

accounting records and adherence to regulatory and legal

requirements depend on the effective operation of the

systems of these third party service providers.

Failure by any service provider to carry out its obligations

to the Company could have a material adverse effect on

the Company’s performance. Disruption to the accounting,

payment systems or custody records (including cyber

security risk) could prevent the accurate reporting and

monitoring of the Company’s financial position.

Due diligence is undertaken before contracts are

entered into with third party service providers,

taking into account the quality and cost of services

offered, including policies and procedures, and risk

management and controls systems in operation in so

far as they are relevant to the Company. Thereafter,

the performance of the provider is subject to regular

review and report to the Board. The Board monitors

key persons as part of this oversight.

The control of risks related to the Company’s

business areas is described in detail in the corporate

governance report on pages 47 and 48.

COMPLIANCE, REGULATORY AND CORPORATE GOVERNANCE RISKS

Regulatory risks

Loss of investment trust status would lead to the

Company being subject to tax on any gains on the

disposal of its investments.

Breaches of the FCA’s rules applicable to listed entities

could result in financial penalties or suspension of

trading of the Company’s shares. Breaches of the

Companies Act 2006 could result in financial penalties

or legal proceedings against the Company or its

Directors.

Failure of the Manager to meet its regulatory obligations

could have adverse consequences on the Company.

The Company has contracted out relevant services

to appropriately qualified professionals, who monitor,

and report to the Board on regulatory compliance.

In addition, the Company’s broker, auditor, Company

Secretary and Manager provide the Board with

regulatory updates on a regular basis.

The Manager reports on regulatory matters to

the Board on a quarterly basis. The assessment

of regulatory risks forms part of the Board’s risk

assessment programme.

Impax Environmental Markets plc | Annual Report and Accounts 2021 | 29

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 forthcoming AGM on 18 May 2022.

Given the performance of the Company and feedback

from stakeholders, including the Company’s broker and

major shareholders, the Board have no reason to believe

that the continuation vote will not be approved.

The Directors have assessed the viability of the Company

for the period to 31 December 2026 (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.

The Board reviewed the Company's income and

expenditure projections and other funding requirements.

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 from the

sale of investments (which are readily realisable) provide

substantial cover to the Company's operating expenses,

and any other expenditure likely to be faced by the

Company over the Viability Period. Such expenditure

to include buybacks of shares in order to operate the

Company's discount control policy and repayment of the

Company's borrowings, which at the date of this report

represented less than 3.5% of the Company's investments.

In its assessment of the prospects of the Company,

the Board considered each of the principal risks and

uncertainties which included consideration of severe but

plausible downside scenarios (such as a market downturn,

and adverse impacts arising from COVID-19 or climate

change) and the liquidity and solvency of the Company.

The Board also considered the impact on the Company of

the post-year end Russian invasion of Ukraine, the potential

consequences of which are unknown and noting that it is

difficult to predict how global markets and economies will

be impacted long-term. However, the Company holds no

Russia and Ukraine stocks, has very limited (less than 1%)

exposure to these markets through its investee companies'

revenue streams, and the Company's business model

remains sound.

The Directors' assessment included a detailed review

of the market and operational risks associated with the

COVID-19 pandemic. The ongoing economic impact of the

pandemic has been monitored by the Manager and the

Board throughout the year. The Manager and other key

service providers have proved to be operationally resilient

and the Board is satisfied that key service providers

have the ability to adapt and continue their operations

efficiently and securely in an office or virtual working

environment or, as seems likely, a hybrid of both.

30 | Impax Environmental Markets plc | Annual Report and Accounts 2021

STRATEGIC

REPORT

Section 172 of the Companies Act 2006 requires the

Board to act in the way that it considers would most

likely promote the success of the Company for the

benefit of all stakeholders, taking into consideration

the interests of stakeholders in its decision-making and

to share how this duty has been discharged.

The Company’s mission is to help its shareholders

benefit from growth in companies operating in

the fast growing Environmental and Resource

Efficiency Markets.

The Board’s values – integrity, accountability and

transparency – mean that the Board has always worked

hard to communicate effectively with the Company’s

stakeholders. This is a two-way process and the

feedback received from the Company’s stakeholders

is highly valued and factored into the Board’s

decision making.

The Company has a range of stakeholders and this

section maps out who they are, what the Board

believes their key interests to be, how the Company

enables engagement with stakeholders and highlights

results that have consequently arisen during the year.

SHAREHOLDERS & FINANCIAL ADVISERS

Investment performance (NAV) – Investment

performance is monitored in relation to the Company’s

objective and to the investment policy and strategy

(further information can be found on pages 24 and 25

describing the Key Performance Indicators). The Board

receives regular reports from the Manager on the

composition, investment activities and performance of

the portfolio and the wider marketplace in which the

Company operates. The Board discusses the portfolio

at each Board meeting and maintains a constructive

dialogue between meetings as well. A representative

of the Manager additionally attends quarterly

Board meetings.

Share Price, Liquidity & Premium/Discount – The

Board also reviews and discusses detailed reports from

the Manager and other key service providers, including

the broker and the Company’s media advisers, in

relation to the Company’s share performance, trading

and liquidity as well as the composition of, and

changes to, the register of shareholders. The Board

takes a proactive approach to managing the premium

and discount of the share price, as clearly stated in

both the half year and annual reports, with the aim, in

normal market conditions, of trading close to NAV on a

consistent and long-term basis.

2021 Highlights: Strong investor demand for the

Company’s shares meant that over the year the

Company’s shares traded at a premium. The Board

has, therefore, continued to employ a premium

management programme to seek to ensure that the

level of premium is not excessive in normal markets.

In order to have sufficient shares available to issue, in

January 2021 the Board requested a fresh authority

for 26.3 million Ordinary Shares. Shareholders were

advised of the benefits of this and voted overwhelming

in support.

Subsequent to the year end, stock markets have been

extremely volatile and the Board bought back a small

percentage of shares consistent with the Board’s

aim and at a price which was advantageous for the

Company. These shares were held in treasury and

-issued as the Company's share price moved back to a

premium in March 2022.

Treating All Shareholders Equally – It is a priority,

and well as regulatory requirement, of the Board

to act fairly as between shareholders. As set out in

the Chairman’s Statement, the Board recognises

that the expansion of the Company has a dilutive

effect on earnings if dividends are paid irrespective

of when shares are issued. To address this, the

Board regularly considers the amount and timing of

dividend payments.

2021 Highlights: The Board accelerated the payment

of the Company’s second dividend so that it was paid

as an interim dividend shortly after the year end rather

than as a final dividend in May 2022.

ESG & Sustainability – The Manager conducts

fundamental analysis which incorporates long-term

risks, including Environmental, Social & Governance

(“ESG”) factors. Its reporting to the Board goes

beyond financial returns to include environmental

impact, corporate engagement and stewardship.

2021 Highlights: The environmental impact reporting

to the Board and shareholders continues to evolve,

and has been a topic of discussion between the

Manager and the Board. This annual report includes,

for example, additional data on carbon emissions and

a new Climate Disclosure section (pages 13 to 15). The

Board also published its ESG Policy, which is available

on both the Company’s and the AIC websites.

Strategy – The strategy of the Company is reviewed by

the Board on an ongoing basis. Once a year the Board

undertakes a strategy day, inviting representatives

from key service providers, as well as its media

advisers, to look ahead and present new ideas and

improvements for the Board to consider. The Board

also considers thematic emerging trends that are

relevant to the Company's strategy. Whilst feedback

from shareholders is sought on a continual basis,

shareholders’ feedback and detailed analysis provided

by the Company’s broker and Manager is a major

consideration at this meeting. The Board’s strategy

and performance is validated by shareholders through

a triennial vote on the continuation of the Company

and the Board encourages shareholders to take part

in this vote.

2021 Highlights: At its strategy day, the Board

discussed with the Manager ways to enhance reporting

in respect to ESG-themed regulation introduced across

Europe and its objective that IEM remain a leader in

ESG matters. As can be seen from the reports starting

on pages 10, 13 and 33, the Company continues to be

at the forefront of reporting on environmental issues

including climate-related risks.

Given that 2021 again highlighted the Company's

strong performance together with its investment

Engaging with our Stakeholders

Impax Environmental Markets plc | Annual Report and Accounts 2021 | 31

objective encompassing an area of heightened

investor interest, and following consultation with the

Company’s brokers and major shareholders, the Board

considers that it is in shareholders’ best interests to

vote in favour of the Company’s continuation at the

upcoming AGM.

Regular Communication – Meetings with our

shareholders help us to understand their needs

and concerns. As described under Shareholder

Relations and AGM on page 40, the Board welcomes

direct feedback from shareholders throughout

the year. Additionally, the Board maintains regular

contact with shareholders through the Manager and

broker’s programme of shareholder and financial

adviser meetings. Both report back to the Board on

shareholder sentiment, questions, or concerns for the

Board's consideration.

The Board believes that shareholders and financial

advisers can make informed decisions only if they have

access to relevant information on a timely basis. To

provide the transparency that the Board seeks with

shareholders, a variety of communication channels and

methods of communication are used.

The Company’s website –

www.impaxenvironmentalmarkets.co.uk – is considered

an essential communication channel and information

hub for shareholders. As such, it includes full details

of the investment objective, supporting philosophy

and investment process and performance along with

news, opinions, disclosures, results and key information

documents, as well as information about the Board, its

Committees and other governance matters.

The annual and interim reports are published on the

Company’s website and are available in hard copy on

request. The date of the AGM is published in advance

(online and within the annual report). Shareholders are

encouraged to raise questions either at or in advance

of this meeting.

Factsheets, providing performance information,

inclusive of geographic and sector exposure and the

top ten holdings, are published monthly and the full

portfolio holdings are made available quarterly in

arrears; both are available on the Company’s website.

The Company continues to expand and enhance

the content of our engagement and advocacy

results, and on the environmental impact of our

investment strategy.

2021 Highlights: Due to COVID-19 restrictions at

the time, the Board hosted its first virtual AGM

in May 2021 for shareholders to attend and has

published a recording of the Investment Manager’s

presentation on the website. The Board continues to

engage with Kepler and Montfort Communications to

ensure the Company is marketed and promoted to its

target audience.

Board Succession Planning – The composition of

the Board and succession planning is led by the

Nomination Committee with changes managed in

order to provide regular refreshment, good diversity

and a high level of relevant skills as set out in its report

on page 46.

2021 Highlights: The Board appointed two directors

in the year in accordance with its initial succession

plan and welcomed Mr Nick Hurd. Following the

untimely death of Mr Fraser, the Board has decided to

undertake another recruitment exercise for the role of

chair designate as detailed on page 46. The Board has

also asked Mrs Hastings to extend her tenure to allow

for board continuity until the chair designate role has

been filled, following which the recruitment for her

replacement will commence.

INVESTMENT MANAGER

Partnership – We have developed a strong relationship

with the Manager, aligned to its mission to seek to

deliver consistent outcomes for its clients and superior

financial returns over the longer term.

2021 Highlights: The Board worked with the Manager

to increase the number of shares that the Company

could issue (i.e. the capacity of the Company).

This helped with liquidity (and therefore premium

management) but also crucially spread the costs and

saw our ongoing charges ratio fall to 0.85% from

0.95% the previous year. The service provided by

the Manager, which encompasses all areas of service

provision including performance, ongoing relationship

and costs, was reviewed formally by the Management

Engagement Committee, following which the Board

resolved to continue its appointment of the Manager.

The Board liaised with the Manager to publish its

own ESG Policy.

Consideration of the wider community and

environment – The Board and the Manager support

the transition to a low-carbon economy, primarily

through investment decisions, company engagement,

and our collaboration with stakeholders.

2021 Highlights: The Company’s 2021 annual report

includes an enhanced Environmental Impact Report

and also includes for the first time a Climate Disclosure

section showing the Company’s and the Manager’s

2 emissions.

INVESTEE COMPANIES

Long-term Investment, Collaboration and

Engagement – The Manager is a long-term investor

and develops strong relationships with many of

our investee companies, including access to key

individuals. This engagement is collaborative, with

investee companies having access to the sustainability

expertise of the Manager’s Head of Sustainability &

ESG. The Manager maintains regular dialogue with

both investee and potential investee companies and

reports back on these conversations to the Board.

The Board and the Manager believe engagement

with the investee companies is positive, beneficial

and welcomed, and that consistent exercise of

voting rights is a key activity in the dialogue with

companies invested.

32 | Impax Environmental Markets plc | Annual Report and Accounts 2021

STRATEGIC

REPORT

AWARDS

IEM is pleased to have won in the Environmental Category at the Investment Week Investment Company of the

Year Awards 2021, and announced as the 2021 Refinitiv Lipper Fund Award Winner, Germany, for the 10-year

period for Equity Global Small & Mid Cap classification.

ESG Considerations – The Board has oversight of the

Manager’s ESG management at its quarterly Board

meetings, along with an annual meeting with the Head

of Sustainability & ESG. The Manager engages with

companies to minimise risks, protect shareholder

value, promote greater transparency and encourage

companies to become more resilient over time. The

Manager takes a supportive rather than activist

approach and, as a leader in the field of environmental

impact, often works in collaboration with other asset

managers or organisations.

2021 Highlights: During 2021, the Manager continued

to have regular dialogue with management of investee

and potential investee companies in person, virtually

or a hybrid of both. The engagement, proxy voting

and stewardship activities undertaken, including

examples of outcomes of the Manager's engagement

with investee companies, are published in the

Sustainability and Stewardship section on pages 33

to 36. The Manager was a successful applicant to be

a signatory to the new UK Stewardship Code as set

out on page 35.

SERVICE PROVIDERS

Collaborative Relationship Based on Shared

Values and Impact on the wider community and

environment– The Board engages third party service

providers to provide administrative support. The

Board, either directly or through the Manager, seeks to

develop deep relationships and regularly engages with

our providers, including ensuring that they reflect our

values around social inclusion, sustainability and the

environment.

Productive Working Relationship and Reputation

Management – The Board has high standards and

looks to maintain its reputation for delivering to those

standards for its shareholders. The Board considers

risks which might result from the operations of the

Company's key service providers at its quarterly

Board meetings. The Board ensures, and assesses on

a regular basis, that appointments remain in the best

interests of shareholders. Monitoring and reviews have

an integral role in providing oversight and informing

the Board’s decision making. Reviews include

updates in relation to key service providers and their

operations, their policies and control environment,

new regulation updates from the auditor and company

secretary, changes to market sentiment and practice

from the broker and changes to the portfolio and

broader market performance from the Manager. In

addition, the performance of our key service providers

is regularly monitored and set against KPIs.

Communications - Service providers are responsible

for monitoring the markets in which they operate and

communicating updates to the Board; for instance,

the company secretary will monitor regulatory

changes and make the Board aware of these. Regular

meetings with our service providers, in particular the

Manager, are essential if we are to monitor and seek

feedback from them.

2021 Highlights: In addition to the Board’s normal

monitoring and oversight of service providers, the

audit committee on behalf of the Board undertook a

review of key service providers’ information security,

encompassing cyber security, to ensure overall

resilience and protection of the Company’s assets, data

and operations, and shareholders’ data. No significant

issues were identified by this review. The Board also

conducted a review of the fees for the depositary and

custodian as well as the secretary and administrator.

These are in the process of being finalised and we will

report on this in the next annual report.

In line with the Board’s intention to report under the

TCFD framework, the Board encouraged its key service

providers to consider and evaluate their environmental

impact, and has reported the Manager’s CO

2 emissions

for the first time this year.

Engaging with our Stakeholders continued

Impax Environmental Markets plc | Annual Report and Accounts 2021 | 33

ENVIRONMENTAL, SOCIAL AND GOVERNANCE (“ESG”) OF INVESTEE COMPANIES

The Company invests in companies which contribute to the cleaner or more efficient delivery of basic services of

energy, water and waste. Both the Manager and the Board believes that a thorough understanding of environmental,

social and governance performance can enhance perspectives of the opportunities and risks offered by individual

investments. The Manager’s core expertise is within the environmental sector and the Manager has long embedded

ESG into its investment process and takes an active approach to engagement with investee companies.

The IEM investment process is focused on a comprehensive understanding of the character and quality of our

investee companies, including material ESG issues, as well as areas of potential improvement.

All companies must meet financial and ESG criteria before entering the Manager's universe of investable companies.

The portfolio management team and sustainability analysts are responsible for integrating ESG analysis into the

investment process. The Company’s detailed ESG policy at https://impaxenvironmentalmarkets.co.uk/ is set out in the

Investment Approach section.

ENGAGEMENT AND EXERCISE OF VOTING POWERS

The Manager is a fundamentally driven, active shareholder with a long-term investment horizon. The Manager believes

that IEM portfolio companies have resilient business models which will benefit from the transition to a less carbon

intensive and lower polluting economy. There is no need to fundamentally change their business models or strategies.

In this context, the Manager engages to support and encourage investee companies to manage risks and improve

disclosure, rather than to radically change their core activities.

Engagement

The Board believes it is in the interests of our investors that the Manager engages with our investee companies to

minimise risks, protect and enhance shareholder value, promote greater transparency on ESG issues, and encourage

companies and issuers to develop and become more resilient over time. Most companies welcome dialogue on

these areas.

In 2021, the Manager conducted 45 ESG engagements with 34 companies in the portfolio. With nine companies, there

were two or more engagements, on different topics and at separate times.

Engagement

focus

Engagement

region

Engagement

type

Engagement activity

Environment

27%

Social

22%

Governance

51%

ESG advisory

15%

Bottom-up

company

specific

38%

Proxy Voting

20%

Top-down

strategic theme

27%

North America

49%

Asia Pacific

20%

Europe

31%

The stewardship and engagement work can be divided into the following types:

ESG/Sustainability Advisory – Promoting improved practices and transparency on ESG issues. The focus of

engagement with companies is to strengthen governance structures and introduce sustainability policies, processes

and disclosures, as applicable, to effectively manage their most material ESG risks.

Bottom-Up Company Specific ESG Analysis - The Manager identifies company-specific matters and risks and actively

engages with companies regarding these matters, as part of monitoring and managing risks.

Proxy Voting - This is predominantly related to governance issues such as the election of directors, board structures

and management remuneration. When practicable, the Manager seeks to engage with the investee company before

voting against management’s recommendation on an AGM resolution.

Top-Down Strategic Issues - Every year, the Manager assesses and outlines the engagement priorities for the next

12 months, based on market developments, and emerging ESG and sustainability issues that are relevant and material

for our companies. The Manager then identifies the companies most exposed to the topics in question and focuses

engagement on those companies.

In 2021, the Manager's strategic areas of focus included climate change, environmental issues such as pollution and

resource depletion, and human capital issues such as diversity, inclusion, environmental justice and health and safety.

Sustainability and Stewardship

34 | Impax Environmental Markets plc | Annual Report and Accounts 2021

STRATEGIC

REPORT

Strategic ESG Engagement Examples In 2021

Eurofins, France - Sustainability Advisory

Impax started engaging with this company in 2019 to

share the importance of investor-useful sustainability

disclosures and developing sustainability processes.

This progressed and in 2020 Eurofins established an

ESG committee to oversee and ensure a standardised

approach to sustainability risk management, strategy

and reporting. The company also integrated ESG into

executive compensation for the first time. Since then,

the company has started reporting sustainability data

and Eurofins formally adopted ESG targets on gender

diversity, health and safety, emissions reductions and

compliance in 2021

Strategic ESG Engagement examples in 2021

Outcomes

Milestones achieved in

2021 and progress ongoing.

Next steps: continue

progress in reporting

including more quantitative

sustainability data and

reporting on progress

against targets; further links

to executive compensation.

Amiad Water Systems, Israel – Diversity

Early engagement with this company focused on raising

awareness of the benefits of improved board diversity

and communicating our proxy voting guidelines relating

to low board diversity.

Source: Impax Asset Management.

Outcomes

Milestone achieved in 2021:

Recent board refreshment

following engagement with

the company. Two new

female members have been

appointed to the Board. 3

out of 8 (38%) directors are

now female, up from

14% previously.

Graphic Packaging, US – Climate Risk

The Impax physical climate risk model is a proprietary

tool the Manager uses to analyse a company’s exposure

to the physical risks posed by a changing climate, such

as sea level rise and resource scarcity. The object of

engagement with Graphic Packaging was to share

the precise location data of their facilities so we may

analyse their physical climate risks. In sharing the results,

engagement enabled Impax to raise awareness of the

physical climate risks facing the company, including

water stress, sourcing of wood fibre and biodiversity

impacts. This led to improved senior-level oversight of

sustainability, with ongoing engagement to expand this

along the supply chain.

Strategic ESG Engagement examples in 2021 (continued)

Source: Impax Asset Management.

Outcomes

Milestones achieved and ongoing:

Several conversations with the company

in 2021 to better understand their

assessment of material sustainability

risks, including biodiversity and physical

climate risks. Took part in their

materiality assessment to share their

views. Monitor future reporting and

follow-up on progress.

Sustainability and Stewardship in the Portfolio continued

Impax Environmental Markets plc | Annual Report and Accounts 2021 | 35

Focus topic for 2022 and beyond: Human Capital

Management

With growing evidence of the link between good

human capital management and corporate financial

performance, and the post-COVID-19 shifts in the labour

market, there is a spotlight on the importance of how

companies are managing human capital.

Initially, the Manager will prioritise labour-intensive

sectors with larger numbers of employees or higher

labour costs; sectors with a history of poor labour

relations; and sectors requiring highly skilled employees

with specialised knowledge.

As the Manager strengthens its methodology for

identifying best human capital management practices,

it will also seek greater disclosure from companies.

Pay equity is one of the engagement focus areas, and

Impax has submitted petitions to the US Securities and

Exchange Commission to require companies to disclose

pay ratios by gender and race. This will help develop

key human capital metrics to be included in financial

valuation of companies.

Proxy Voting

The Board and the Manager view proxy voting as a

key activity in the ongoing dialogue with companies in

which we invest. The Manager is committed to ensuring

the consistent exercise of voting rights associated with

shares held in the IEM portfolio.

The Manager, on behalf of the Company, voted at

all meetings where they were able to exercise the

Company's vote, voting on 710 management resolutions

and two shareholder resolutions. The Board regularly

reviews the voting decisions made by the Manager on

the Company’s behalf.

SUMMARY STATISTICS 2021

Total number of meetings where it was

possible to vote 66

Number of meetings in which IAM voted 66

Number of meetings in which IAM voted

(asa percentage) 100%

Number of management resolutions in

which IAM voted 710

Number of management resolutions in

which IAM voted against and/or abstained 59

Number of management resolutions in

which IAM voted against and/or abstained

(as a percentage of management

resolutions voted) 8.3%

Number of shareholder resolutions in which

IAM voted 2

Number of shareholder resolutions in which

IAM voted against and/or abstained 1

Number of shareholder resolutions in which

IAM voted against and/or abstained (as a

percentage of shareholder resolutions voted) 50%

Engagement and Proxy Voting Policies of

Impax Asset Management are set out at

https://impaxenvironmentalmarkets.co.uk/ in the

Investment Approach section.

Stewardship Code

Impax supports the UK Stewardship Code and

complies with its guidelines regarding proxy voting and

engagement. The new UK Stewardship Code comprises

12 principles versus the previous seven. Focus has moved

away from just stewardship policies towards outcomes

i.e. what has been achieved through engagement

and proxy voting, real change and improvements to

governance structures and material risk management

processes in investee companies.

The Manager was a successful applicant to be a

signatory to the new UKStewardship Code and its

UK Stewardship Code Statement can be found at

https://impaxenvironmentalmarkets.co.uk/ in the

Investment Approach section.

CONTRIBUTING TO THE DEVELOPMENT OF

A SUSTAINABLE FINANCIAL SYSTEM

The Manager works on ESG engagement collaborations

with clients, partners, and industry organisations to

promote sustainable investing and ESG considerations

across the globe and is a member of, or signatory to:

•

Natural Capital Investment Alliance (NCIA): Aims

to help accelerate the development of natural capital

and biodiversity as a mainstream investment theme.

•

Net Zero Asset Managers Initiative (NZAM): The

Net Zero Asset Managers initiative is an international

group of asset managers committed to supporting

the goal of net-zero greenhouse gas emissions by

2050 or sooner, in line with global efforts to limit

warming to 1.5

°C; and to supporting investing aligned

with net-zero emissions by 2050 or sooner.

•

Taskforce for Nature-related Financial Disclosure

(TNFD): Delivering a risk management and disclosure

framework for organisations to report and act in

nature-related risk.

•

Principles for Responsible Investment (PRI): Aims

to help investors integrate ESG considerations into

investment decision making and supports sharing

best practice in active ownership.

•

PRI Financial Institutions Commitment to Tackle

Deforestation: Working with fellow investors to bring

a halt to agricultural commodity-driven deforestation.

•

Institutional Investors Group on Climate Change

(IIGCC): A forum for collaboration on climate change

for European investors.

•

Investor Network on Climate Risk (INCR): Partners

with investors worldwide to advance investment

opportunities and reduce material risks posed by

sustainability challenges such as global climate

change and water scarcity.

•

The Carbon Disclosure Project (CDP): An

independent organisation holding the largest

database of corporate climate change information in

the world.

36 | Impax Environmental Markets plc | Annual Report and Accounts 2021

STRATEGIC

REPORT

•

Council of Institutional Investors (CII): Promoting

strong governance and shareholder rights standards

at public companies.

•

UK Sustainable Investment and Finance Association

(UKSIF): Provides services and opportunities to align

investment profitability with social and environmental

responsibility.

•

USSIF: A US-based membership association

promoting sustainable, responsible and impact

investment.

•

Global Impact Investing Network (GIIN): The largest

global community of impact investors (asset owners

and asset managers) and service providers engaged

in impact investing.

•

Task Force on Climate-related Financial Disclosures

(TCFD): Develops voluntary, consistent climate-

related financial risk disclosures for companies

providing information to investors, lenders, insurers

and other stakeholders.

•

The UK Stewardship Code: Aims to enhance

the quality of engagement between institutional

investors and companies to help improve long-term

returns to shareholders and the efficient exercise of

governance responsibilities.

•

PRI Sustainable Stock Exchanges Working

Group: A Group that actively engages with stock

exchanges and their regulators, looking at enhancing

corporate transparency, on ESG risks and encourage

sustainable investment.

•

Asian Corporate Governance Association (ACGA):

An independent organisation dedicated to working

with investors, companies and regulators in the

implementation of effective corporate governance

practices throughout Asia.

•

Ceres: An organisation working with investors and

companies to build sustainability leadership and drive

solutions throughout the economy. Ceres addresses

topics climate change, water scarcity and pollution,

and human rights abuses.

NET ZERO AND THE ROLE OF THE ASSET MANAGEMENT SECTOR

The Board and the Manager support the growing consensus that the asset management sector as a whole can

best contribute to meeting the goals of the Paris Agreement in three ways:

1. Pricing climate risk accurately: adjusting portfolios, screening-out fossil-fuel investments and using tools to

minimise exposure to transition risks;

2. Engaging with carbon-intensive companies: identifying priority sectors/companies and engaging on detail of

transition plans; and

3. Investing in climate solutions: generally calculated as a share of AUM, linked to definitions of green/

taxonomies, with avoided emissions as a key metric of impact.

Of these, as a specialist investor, IEM focuses particularly on investing in climate solutions. The Manager is a

signatory to climate-focused initiatives including the Net Zero Asset Managers Initiative. But global net zero

cannot be achieved unless society protects and restores forests and other natural ecosystems, and improve the

management of agricultural land, around the world. In this context, the Manager has also become a signatory to

the Natural Capital Investment Alliance and PRI’s Deforestation Commitment. These initiatives are well aligned

with the Company’s existing investment objectives and philosophy, and our impact and influence can be greatest

when the Company and the Manager work in concert with peers.

Sustainability and Stewardship in the Portfolio continued

Impax Environmental Markets plc | Annual Report and Accounts 2021 | 37

MODERN SLAVERY DISCLOSURE

The Company aims to act to the highest standards

and is committed to integrating responsible business

practices throughout its operations. The prevention

of modern slavery is an important part of corporate

good governance.

As an investment trust the Company does not offer

goods or services to consumers and deals predominantly

with professional advisers and service providers in

the financial services industry. As such the Board

considers that the Company is out of scope of the

Modern Slavery Act 2015. A statement by the Manager

under the Act has been published on the website at

www.impaxenvironmentalmarkets.co.uk

ENVIRONMENTAL MATTERS

The Company has no employees, physical assets,

property or operations of its own, does not provide

goods or services and does not have its own customers.

It follows that the Company has little to no direct

environmental impact. Consequently, the Company

consumed less than 40,000 kWh of energy during

the year in respect of which the Directors’ Report is

prepared and therefore is exempt from the disclosures

required under the Streamlined Energy and Carbon

Reporting criteria.

As an investment trust the fundamental environmental

impact the Company makes is indirectly through the

investments in its portfolio. Further details can be found

above under the heading Environmental, Social and

Governance (“ESG”) of investee companies.

SOCIAL, COMMUNITY AND HUMAN RIGHTS

ISSUES

The Manager screens the Company’s investable universe

as part of the Environmental Social and Governance

analysis for any breaches of the principles of the

UN Global Compact, including human rights, labour

rights, environmental breaches and corruption. Any

non-compliant companies are excluded from investment.

ANTI-BRIBERY AND CORRUPTION

It is the Company’s policy to conduct all of its business

in an honest and ethical manner. The Company takes a

zero-tolerance approach to bribery and corruption and

is committed to acting professionally, fairly and with

integrity in all its business dealings and relationships

wherever it operates. The Company’s policy and the

procedures that implement it are designed to support

that commitment.

PREVENTION OF THE FACILITATION OF TAX

EVASION

The Board has a zero-tolerance approach to the criminal

facilitation of tax evasion.

EMPLOYEES

The Company has no employees. As at

31 December 2021, the Company had five Directors,

of whom two are male and three female. As part of

the recruitment process, the Board was mindful of the

Company’s policy on diversity which is contained in the

Corporate Governance statement on page 47.

OUTLOOK

The outlook for the Company is discussed in the

Chairman’s Statement on page 5.

STRATEGIC REPORT

The Strategic Report set out on pages 1 to 37 of this

Annual Report was approved by the Board of Directors

on 4 April 2022.

For and on behalf of the Board

John Scott

Chairman

4 April 2022

38 | Impax Environmental Markets plc | Annual Report and Accounts 2021

GOVERNANCE

Board of Directors

John Scott

1, 2

(Chairman of the Board, Management

Engagement and Nomination Committees)

Appointed 7 February 2013

Mr Scott is a former investment banker

who spent 20 years with Lazard Brothers.

He was Chairman of Scottish Mortgage

Investment Trust between 2010 and 2017.

Mr Scott is currently Chairman of Jupiter

Emerging & Frontier Income Trust and JP Morgan

Global Core Real Assets, as well as the Lloyd’s members’

agency Alpha Insurance Analysts and is the Senior

Independent Director of the Guernsey-based Bluefield

Solar Income Fund.

Mr Scott's contribution is invaluable to the Company

in formulating its short-term and long-term strategic

direction as well as overseeing its development

through the years.

Aine Kelly

1, 2

(Senior Independent Director)

Appointed 15 November 2016

Miss Kelly is an Independent Impact

Investing Consultant. Miss Kelly worked as

Head of Financial Sector and Investor

Engagement at Big Society Capital from

2013-2016, followed by 3 years as a

consultant on The Impact Management Project. She

spent the previous 4 years at Barclays Wealth and prior

to that she worked 16 years in investment banking at

Kleinwort Benson, JP Morgan and Citigroup. Miss Kelly

has a wide experience of introducing new investment

opportunities to investors and has covered UK, European

and Asian equity markets. Miss Kelly has worked in

London, New York and Zurich and is currently

based in Ireland.

Miss Kelly is currently a member of QBE’s Classification

of Social Investment committee, a senior impact advisor

to Yield Lab Europe and a member of the External Board

of Advisors of Cork University Business School.

Miss Kelly's background brings a new approach to the

boardroom with a focus on both the financial integrity of

investment decisions and their long-term impact.

Stephanie Eastment

1, 2

(Chairman of the Audit

Committee)

Appointed 1 July 2019

Mrs Eastment is a chartered accountant

and chartered company secretary with

over 30 years' experience of the financial

services industry. She qualified with

KPMG and worked at Wardley and UBS

in finance and corporate governance before moving to

Invesco, where she worked for 22 years ending as Head

of Accounts and Company Secretariat for Specialist

Funds, which included investment trusts. She retired

from Invesco in 2018 to pursue a non-executive

director career using her wide knowledge and

experience. She is also a member of the AIC's

Technical Committee.

Mrs Eastment is a non-executive director and audit

committee Chairman of Murray Income Trust plc,

Herald Investment Trust plc and Alternative Income

REIT plc and a non-executive director of RBS Collective

Investment Funds Limited.

Mrs Eastment's financial, technical and oversight

experience and knowledge strengthens the Board's

financial and risk oversight not only as a director, but as

the audit committee Chairman.

Victoria (Vicky) Hastings

1, 2

(Non-executive director)

Appointed 21 May 2013

Mrs Hastings has worked for over 30 years

in the investment management industry.

She has held investment roles at asset

managers including JO Hambro Capital

Management, Merrill Lynch Private

Investors and Kleinwort Benson Investment Management

but latterly has pursued a portfolio career.

Mrs Hastings is currently Chairman of Henderson

European Focus Trust plc, the Senior Independent

Director of The Edinburgh Investment Trust plc and

trustee of Moorfields Eye Charity.

Mrs Hastings's contribution in overseeing and

challenging, where appropriate, investment management

decisions is highly valued by the Board and her active

involvement in the investment trust industry enables

her to positively contribute to the Company’s long-term

sustainable success.

1 Member of the Audit, Nomination, Remuneration and Management Engagement Committees

2 Considered independent by the Board

Impax Environmental Markets plc | Annual Report and Accounts 2021 | 39

Nicholas Hurd

1, 2

(Non-executive director)

Appointed 1 August 2021

Mr Hurd was a Member of Parliament,

representing Ruislip Northwood and Pinner

for 14 years, prior to standing down in 2019.

During that time, he served as a Government

Minister including spells as the UK Minister of

State for Climate Change and Industry, and UK Minister for

International Development. He is a member of the Privy

Council. Before politics, Mr Hurd spent 18 years in the

private sector, including nine years in investment

management and banking.

Mr Hurd is currently Chair of Access - The Foundation for

Social Investment and Chair of impact investing platform

i(x) investments. He is also a senior adviser to a number of

companies contributing to the Sustainable Development

Goals. He serves on the Advisory Board of the UK Green

Finance Institute and the UK Impact Investment Institute

and is a Global Ambassador for the Global Steering Group

for Impact Investment.

Mr Hurd's expertise in the environmental sector enables

him to challenge and bring new ideas in relation to the

Company's investment strategy short-term and long-term.

Bruce Jenkyn-Jones (Chief Investment Officer (CIO),

Listed Equities, Executive Director)

Bruce serves as Impax’s Chief Investment

Officer, Listed Equities. He is responsible for

supervising and overseeing investment

process, policy and performance, regulatory

oversight, and leads product design and

development as well as the application of Impax’s

investment thesis across the Listed Equities product range.

Bruce is Chairman of the Listed Equities Investment

Committee and serves as Co-Portfolio Manager of Impax’s

Specialists (IEM plc) and Climate strategies.

Bruce joined Impax in 1999 where he worked initially

on venture capital investments before developing the

listed equities business. Before joining Impax, Bruce

worked as a utilities analyst at Bankers Trust and as an

environmental consultant for Environmental Resources

Management (ERM).

Bruce has an MBA from IESE (Barcelona), an MSc in

Environmental Technology from Imperial College and a

degree in Chemistry from Oxford.

INVESTMENT MANAGERS

Jon Forster (Senior Portfolio Manager, ManagingDirector)

Jon has worked at IAM since August 2000. He

co-manages the Specialists strategy, which

includes IAM’s flagship fund, Impax

Environmental Markets plc, alongside Bruce

Jenkyn-Jones. He specialises in New Energy,

Water and Waste Support Services. Mr Forster researches

stocks globally with a focus on Industrials and Utilities.

Following graduation from Leeds University in Management

Studies, Jon began his career in 1994, spending four

years working on acquisitions at HSBC Investment Bank.

Subsequently, he spent two years as a consultant to venture

capital investor Alchemy Partners, focusing on manufacturing

and resource management companies.

Fotis Chatzimichalakis (Co-portfolio Manager)

Fotis is a Co-Portfolio Manager of Impax’s

Specialists and Climate strategies. He

researches stocks globally and specialises in

Information Technology and Industrials.

Fotis joined Impax in 2015. He has a

background in engineering and joined Impax after

graduating from the University of Edinburgh with an MSc

focused on Sustainable Energy and Finance. He interned

with Impax’s Listed Equity team from the beginning of 2015

and prior to that completed work experience at Barchester

Green Investment.

Fotis is a CFA Charterholder.

40 | Impax Environmental Markets plc | Annual Report and Accounts 2021

GOVERNANCE

The Directors present their report and accounts for the

year ended 31 December 2021.

STRATEGIC REPORT

The Directors’ Report should be read in conjunction with

the Strategic Report on pages 1 to 37.

CORPORATE GOVERNANCE

The Corporate Governance Statement on pages 45 to 48

forms part of this report.

LEGAL AND TAXATION STATUS

The Company is an investment company within the

meaning of Section 833 of the Companies Act 2006.

The Company conducts its affairs in order to meet

the requirements for approval as an investment trust

under section 1158 of the Corporation Tax Act 2010. The

Company has received initial approval as an investment

trust and the Company must meet eligibility conditions

and ongoing requirements in order for investment trust

status to be maintained. In the opinion of the Directors,

the Company has met the conditions and requirements

for approval as an investment trust for the year ended

31 December 2021.

ALTERNATIVE INVESTMENT FUND

MANAGERS DIRECTIVE (“AIFMD”)

The Company is classified as an Alternative Investment

Fund under AIFMD and is therefore required to have an

Alternative Investment Fund Manager ("AIFM"). Impax

Asset Management (AIFM) Limited is the AIFM of the

Company. The AIFM has received its authorisation to

act as an AIFM from the FCA. The AIFM must ensure

that an annual report containing certain information

on the Company is made available to investors each

financial year. The investment funds sourcebook of the

FCA details the requirements of the annual report. All

the information required by those rules is included in this

Annual Report or will be made available on the AIFM’s

website (www.impaxam.com).

The AIFM is required to make certain disclosures on its

remuneration in respect of the AIFM’s relevant reporting

period which is the year ended 30 September 2021.

These disclosures are available on the AIFM’s website or

are available on request from the AIFM.

LEVERAGE (UNDER AIFMD)

The AIFM is required to set leverage limits as a

percentage of net assets for the Company utilising

methods prescribed under AIFMD (see APMs on

page79). These methods are known as the gross method

and the commitment method. A leverage percentage

of 100% equates to nil leverage. The Company’s

leverage under each of these methods at its year end

is shown below:

GROSS

METHOD

COMMITMENT

METHOD

Maximum leverage limit

(setby the AIFM) 130% 130%

Actual leverage at

31December 2021 102% 103%

SHAREHOLDER RELATIONS AND ANNUAL

GENERAL MEETING

The Board encourages all shareholders to attend the

AGM and generally seeks to provide twenty one clear

days’ notice of that meeting.

The Notice of AGM sets out the business of the

AGM and any item not of an entirely routine nature

is explained in the Directors’ Report. Separate

resolutions are proposed for each substantive issue.

The Manager has a programme of meetings with

shareholders and reports back to the Board on its

findings. The Board also welcomes direct feedback

from shareholders. The Chairman is available to meet

shareholders and may be contacted by email at

chairman@impaxenvironmentalmarkets.co.uk.

Due to the restrictions on public gatherings at the time of

the Company’s AGM in May 2021, shareholders were not

able to attend. Instead, the Board wrote to shareholders,

inviting questions from shareholders and a presentation

by the Manager was made available through the

Company’s website.

This year's AGM will be held at 2pm on 18 May 2022

and the Chairman's Statement on page 4 sets out

the arrangements for the meeting. As Government

restrictions and social distancing measures have been

lifted, shareholders are once again encouraged to attend

the AGM. Shareholders will have the opportunity to hear

a presentation from the Manager, and ask questions of

the Board and the Manager. The Board is mindful that

some shareholders and potential investors may not

wish to travel to the AGM. These participants will be

able to view the Manager's presentation after the AGM,

which will be posted on the Company's website and all

shareholders are advised to submit their proxy forms in

advance of the AGM. Details of how shareholders can

cast their votes can be found in the Notes to the Notice

of Meeting on pages 84 to 86. Shareholders will also have

the opportunity to hear a presentation from the Manager,

and ask questions of the Board and the Manager.

Directors’ Report

Impax Environmental Markets plc | Annual Report and Accounts 2021 | 41

SPECIAL BUSINESS OF THE AGM

Continuation Vote

The Articles of Association require that an ordinary

resolution be proposed at every third AGM of the

Company that the Company should continue as an

investment trust for a further three-year period.

Accordingly, resolution 11 proposes the continuation

of the Company at the forthcoming AGM. In the event

that such a resolution is not passed, the Directors

are required to draw up proposals for shareholders’

approval for the voluntary liquidation or unitisation

or other reorganisation of the Company, which would

require a special resolution of shareholders. For the

reasons set out in the Chairman's Statement, your Board

strongly recommends that shareholders vote in favour

of the resolution. The Directors intend to vote their own

shareholdings in favour.

Change to Directors' Maximum Aggregate Fee

Ordinary resolution 12 proposes the amendment of the

Articles of Association to increase the aggregate fees of

the Directors from £200,000 to £250,000. As set out

in the Chairman's Statement, the increase is required to

allow flexibility to increase the number of directors in

fulfilling the Board's succession plan.

Authority to Issue and Purchase Own Shares

On 22 January 2019, the Board announced that it

remains fully committed to using its powers, including

those to issue and buy back shares, in a proactive

manner with the aim of seeing the shares, in normal

market conditions, trading close to NAV on a consistent

and long-term basis.

The authorities to allot shares granted at the last AGM

held on 20 May 2021 and the General Meeting held

on 12 January 2021 will expire at the conclusion of the

forthcoming AGM.

The Board recommends that the Company be granted

a new authority to allot up to a maximum of 30,429,853

Ordinary Shares (representing approximately 10% of the

shares in issue at 31 March 2022, the latest practicable

date before publication of this report) and to dis-apply

pre-emption rights when allotting those Ordinary Shares

and/or selling shares from treasury. Ordinary resolution

13 and special resolution 14 will be put to shareholders

at the AGM. Shares will be issued under this authority

only at the Board’s discretion and when it is deemed to

be in the best interests of shareholders as a whole to do

so. The advantages are to lower the Company’s ongoing

charges as expenses are diluted and, in the short term,

to address volatility in the share price. Unless otherwise

authorised by shareholders, new Ordinary Shares will not

be issued at less than NAV and Ordinary Shares held in

treasury will not be sold at less than NAV.

The maximum number of Ordinary Shares which can

be admitted to trading on the London Stock Exchange

without the publication of a prospectus is 20% of the

Ordinary Shares on a rolling previous 12-month basis at

the time of admission of the shares.

The authority for the Company to purchase its own

shares as granted at the AGM held on 20 May 2021 will

expire at the conclusion of the forthcoming AGM. During

the year ended 31 December 2021, the Company did not

utilise its authority to purchase its own shares. However,

since the year end, 112,900 Ordinary Shares were

repurchased into treasury, and have been subsequently

re-issued as the Company's share price moved back to a

premium. Directors recommend that a new authority to

purchase up to 45,614,351 Ordinary Shares (subject to

the condition that not more than 14.99% of the Ordinary

Shares in issue at the date of the AGM are purchased)

be granted and special resolution 15 to that effect will

be put to the AGM. Any Ordinary Shares purchased will

either be cancelled or, if the Directors so determine,

held in treasury. Shares are purchased at the discretion

of the Board and when it is deemed to be in the best

interests of shareholders. Shares will be purchased for

cancellation or for treasury only when the shares are

trading at a discount to the Net Asset Value.

The Companies Act 2006 allows companies to hold

shares acquired by way of market purchases as treasury

shares, rather than having to cancel them. This gives

the Company the ability to sell Ordinary Shares quickly

and cost effectively, thereby improving liquidity and

providing the Company with additional flexibility in the

management of its capital base. At the year end and at

the date of this report, no shares were held in treasury.

Notice of General Meetings

Special resolution 16 in the notice to the AGM is required

to reflect the requirements of the Shareholder Rights

Directive. The Company is currently able to call General

Meetings, other than an AGM, on 14 clear days’ notice

and would like to preserve this ability. In order to be

able to do so, shareholders must have given their

prior approval.

Special resolution 16 seeks such approval, which would

be effective until the Company’s next AGM, when it

is intended that a similar resolution will be proposed.

The Company will ensure that it offers the facility for

shareholders to vote by electronic means, and that this

facility is accessible to all shareholders, if it is to call

general meetings on 14 days’ notice. Short notice of this

kind will be used by the Board only under appropriate

circumstances.

MARKET INFORMATION

The Company’s Ordinary Shares are premium listed

on the London Stock Exchange (“LSE”). The NAV per

Ordinary Share is calculated in sterling for each business

day that the LSE is open for business. The daily NAV

per Ordinary Share is published through a regulatory

information service.

BANK LOANS AND CREDIT FACILITY

The Company has in place a mixture of fixed and floating

rate debt totalling £49.1 million (2020: £48.9 million).

The Company entered into two agreements for five

year fixed rate loans of £15 million and US$20 million

with Scotiabank Europe PLC. The interest rates on the

loans are 2.910% and 4.504% per annum, respectively.

The Company also has a £20 million multi–currency

42 | Impax Environmental Markets plc | Annual Report and Accounts 2021

GOVERNANCE

Directors’ Report continued

revolving credit facility (“RCF”) with Scotiabank which

is fully drawn down in two currencies: US$12.6 million

and £10 million. Interest is payable on amounts drawn

down under the facility computed at six-month SOFR

and SONIA reference rates respectively plus a margin of

1.70% per annum.

RETAIL DISTRIBUTION OF INVESTMENT

COMPANY SHARES VIA FINANCIAL

ADVISERS AND OTHER THIRD PARTY

PROMOTERS

As a result of the Financial Conduct Authority (“FCA”)

rules determining which investment products can

be promoted to retail investors, certain investment

products are classified as “non-mainstream pooled

investment products” and face restrictions on their

promotion to retail investors.

The Company has concluded that the distribution of

its shares, being shares in an investment trust, is not

restricted as a result of the FCA rules described above.

The Company currently conducts its affairs so that the

shares issued by the Company can be recommended

by financial advisers to retail investors and intends to

continue to do so for the foreseeable future.

MANAGER

Impax Asset Management (AIFM) Limited (“IAM”) has

been appointed as the Company’s Investment Manager

(the “Manager”).

The Manager is appointed under a contract subject to

twelve months’ notice.

The Manager is entitled to remuneration each month at a

rate equivalent to one-twelfth of 0.9% on the Company’s

net assets up to and including the first £475 million and

0.65% on net assets in excess of £475 million.

The Board confirms that it has reviewed whether to

retain IAM as the Manager of the Company. It has

been concluded that, given the Manager’s depth of

knowledge in the sector and the growth and strong

performance record of the Company, it is in the best

interests of shareholders as a whole to continue with

IAM’s engagement.

CAPITAL STRUCTURE AND VOTING RIGHTS

At the year end, the Company’s issued share capital

comprised 298,061,439 Ordinary Shares, with no shares

held in treasury. Each Ordinary Share held entitles the

holder to one vote. All shares carry equal voting rights

and there are no restrictions on those voting rights.

Voting deadlines are stated in the Notice of Meeting

and Form of Proxy and are in accordance with the

Companies Act 2006.

Since the year end, 6,237,100 new Ordinary Shares were

issued at an average price per share of 466.43 pence. In

addition, as a result of a significant fall in stock markets

since the year end and the movement of share price

relative to net assets, the Company bought back into

treasury 112,900 Ordinary Shares, which were re-issued

as the Company's share price moved back to a premium

in March 2022. This was in accordance with the Board's

previously stated commitment to using its available

issuance and buyback authorities. At 31 March 2022, the

latest practical date before publication of this report,

there were 304,298,539 Ordinary Shares in issue and no

Ordinary Shares held in treasury.

There are no restrictions on the transfer of shares, nor

are there any limitations or special rights associated with

the Ordinary Shares.

NOTIFIABLE INTEREST

As at 31 December 2021 and 31 March 2022, the

Directors have been formally notified of the following

shareholdings comprising 3% or more of the issued share

capital of the Company.

COMPANY

HOLDING OF

ORDINARY

SHARES- AS AT

31 DECEMBER

2021

% HOLDING -

AS AT

31 DECEMBER

2021

HOLDING OF

ORDINARY

SHARES- AS AT

31 MARCH

2022

% HOLDING -

AS AT

31 MARCH

2022

Rathbones Group plc 22,227,053 7.46 22,227,053 7.30

Brewin Dolphin 13,112,066 4.40

13,112,066 4.31

Aegon Asset Management UK PLC 10,626,797 3.57

10,626,797 3.49

Joseph Rowntree Charitable Trust 10,267,260 3.44 10,267,260 3.37

Impax Environmental Markets plc | Annual Report and Accounts 2021 | 43

POLITICAL DONATIONS

There were no political donations made during the

financial year to 31 December 2021 (2020: nil).

DISCLOSURE REQUIRED BY LISTING RULE

9.8.4

The above rule requires listed companies to report

certain information in a single identifiable section of their

annual financial reports. The Company confirms that,

other than the allotment of equity securities for cash

(LR 9.8.4(7)) which is detailed in note 12 to the financial

statements, all such reporting applied only to non-

applicable events for the year ended 31 December 2021.

FUTURE TRENDS

Details of the main trends and factors likely to affect

the future development, performance and position of

the Company’s business can be found in the Manager’s

Report section of this Strategic Report on pages 6 to9.

Further details as to the risks affecting the Company

are set out in the ‘Principal Risks and Uncertainties’ on

pages 25 to 28.

DIRECTORS’ INDEMNITIES

Subject to the provisions of the Companies Act 2006

and certain provisions contained in the deeds of

indemnity issued by the Company, the Company has

indemnified each of the Directors against all liabilities

which each director may suffer or incur arising out of or

in connection with any claim made or proceedings taken

against them, or any application made under sections

661(3), 661(4) or 1157 of the Companies Act 2006 by

them, on the grounds of their negligence, default, breach

of duty or breach of trust, in relation to the Company

or any Associated Company. The indemnities would

provide financial support from the Company after the

level of cover provided by the Company’s Directors’ and

Officers’ insurance policy has been fully utilised.

GOING CONCERN

The Directors have adopted the going concern basis in

preparing the accounts. The following is a summary of

the Directors’ assessment of the going concern status

of the Company.

The Directors have a reasonable expectation that

the Company has adequate resources to continue in

operational existence for at least twelve months from the

date of this document. In reaching this conclusion, the

Directors have considered the liquidity of the Company’s

portfolio of investments as well as its cash position,

income and expense flows. As at 31 December 2021,

the Company held £28.3 million (2020: £30.0million)

in cash and £1,503.2 million (2020: £1,112.3 million) in

quoted investments. The Company’s audited net assets

at 31 December 2021 were £1,479.6 million (2020:

£1,093.3 million).

The Board has considered the Company’s debt and

related covenants. The main liability of the Company

is its borrowings of £49.1 million (2020:£48.9 million)

which is covered 30 times (2020:22 times) by the net

assets, which is well in excess of the level of cover

required by the borrowing covenants of 4 times (see

note 11 to the financial statements). The total ongoing

expenses (excluding taxation and finance costs) for the

year ended 31 December 2021 were £11.2 million (2020:

£7.5 million), which represented approximately 0.85%

(2020: 0.95%) of average net assets during the year. The

Board also considered the liquidity of the Company's

investments and it is estimated that approximately 92%

(2020: 95%) by value of the quoted investments held

at the year end could be realised in one month under

normal market conditions.

At the date of approval of this document, based on the

aggregate of investments and cash held, the Company

has substantial operating expenses cover.

The Directors have considered the impact of the

COVID-19 and the Russian invasion of Ukraine on the

Company’s portfolio of investments and that any future

prolonged and deep market decline would likely lead

to falling values in the Company’s investments and/or

reduced dividend receipts. However, as explained above,

the Company has more than sufficient liquidity available

to meet its expected future obligations. In addition, the

Board believes that the Company and its key third party

service providers have in place appropriate business

continuity plans and will continue to maintain service

levels throughout future pandemics.

The Directors also recognise that the continuation of

the Company is subject to the approval of shareholders

every three years. The next continuation vote will be

held at the forthcoming AGM in May 2022 and the Board

has considered the long-term prospects of the Company

and has no reason to believe that the continuation

vote will fail.

44 | Impax Environmental Markets plc | Annual Report and Accounts 2021

GOVERNANCE

AUDITOR INFORMATION

Each of the Directors at the date of the approval of this

report confirms that:

(i) so far as the Director is aware, there is no relevant

audit information of which the Company’s auditor is

unaware; and

(ii) the Director has taken all steps that he or she

ought to have taken as director to make himself or

herself aware of any relevant information and to

establish that the Company’s auditor is aware of that

information.

This confirmation is given and should be interpreted in

accordance with the provisions of Section 418 of the

Companies Act 2006.

APPOINTMENT OF AUDITOR

In accordance with Section 489 of the Companies

Act 2006, a resolution to re-appoint BDO LLP as

the Company’s auditor will be put forward at the

forthcoming AGM on 18 May 2022.

By order of the Board

Brian Smith

For and on behalf of

Sanne Fund Services (UK) Limited

Company Secretary

4 April 2022

Directors’ Report continued

Impax Environmental Markets plc | Annual Report and Accounts 2021 | 45

Corporate Governance

INTRODUCTION

This Corporate Governance statement forms part of

the Directors’ Report.

The Listing Rules and the Disclosure Guidance and

Transparency Rules of the UK Listing Authority require

listed companies to disclose how they have applied the

principles and complied with the provisions of The UK

Corporate Governance Code 2018 (the “UK Code”), as

issued by the Financial Reporting Council (“FRC”). The

UK Code can be viewed on the FRC’s website.

The Board has considered the principles and provisions

of the AIC Code of Corporate Governance 2019 (the

“AIC Code”) which addresses those set out in the UK

Code, as well as setting out additional provisions on

issues that are of specific relevance to the Company, as

an investment trust.

The Board considers that reporting against the AIC

Code, which has been endorsed by the Financial

Reporting Council, provides more relevant information

to shareholders.

The AIC Code is available on the AIC website

(www. theaic.co.uk). It includes an explanation of how

the AIC Code adapts the Principles and Provisions

set out in the UK Code to make them relevant for

investment companies.

The Company has complied with the AIC Code and

the relevant provisions of the UK Code, except as

set out below.

The UK Code includes provisions relating to:

•

the role of the chief executive (provision 14);

•

the need for an internal audit function (provision 25);

and

•

executive Directors’ remuneration (provision 33).

The Board considers these provisions are not relevant to

the Company, being an externally managed investment

company with no employees. The Company has therefore

not reported further in respect of these provisions, other

than the need for an internal audit function specific to the

Company, which has been addressed on page 54.

THE BOARD

Composition

At the date of this report the Board consists of five

non-executive directors. The Chairman is John Scott,

and the Directors are Aine Kelly, Stephanie Eastment,

Vicky Hastings and Nicholas Hurd. Miss Kelly is the

Senior Independent Director, Mrs Eastment is the

Audit Committee Chairman and Mrs Hastings is the

Remuneration Committee Chairman.

All the above directors served throughout the year

except for MrHurd who was appointed on 1 August 2021.

Simon Fraser served from his appointment on

1 March 2021 until 9 August 2021.

The Board believes that during the year ended

31 December 2021 its composition was appropriate

for an investment company of the Company’s nature

and size. All of the Directors are independent of the

Manager and are able to allocate sufficient time to the

Company to discharge their responsibilities effectively.

The Directors have a broad range of relevant

experience to meet the Company’s requirements and

their biographies are given on pages 38 and 39.

In line with the AIC Code, the Board has decided that

each Director should be subject to annual re-election

by shareholders.

The Board recommends all the Directors for either

re- election or election for the reasons highlighted above

and in the performance appraisal section of this report.

The Directors have appointment letters which do not

provide for any specific term. Copies of the Directors’

appointment letters are available on request from the

Company Secretary. Upon joining the Board, any new

Director will receive an induction and relevant training is

available to Directors on an ongoing basis.

A policy of insurance against Directors’ and Officers’

liabilities is maintained by the Company.

A procedure has been adopted for Directors, in the

furtherance of their duties, to take independent

professional advice at the expense of the Company.

BOARD COMMITTEES

The Board decides upon the membership and

chairmanship of its committees. Each Committee has

adopted formal terms of reference, which are reviewed

at least annually, and copies of these are available

on the Company’s website or on request from the

Company Secretary.

Audit Committee

A report on pages 53 and 54 provides details of the

role and composition of the Audit Committee together

with a description of the work of the Audit Committee in

discharging its responsibilities.

Remuneration Committee

All of the Directors are members and Mrs Hastings is

the Chairman. The Remuneration Committee has been

established to meet formally on at least an annual basis

to review the remuneration policy of the Company and

consider the fees of the non-executive directors. No

changes were proposed to the Company's remuneration

policy. Following its review of fees, the Committee

recommended an increase in the Directors’ Fees and

an increase in the maximum aggregate fee limit, from

£200,000 to £250,000, in order to ensure suitable

headroom for director recruitment and market rate

remuneration. The increase in aggregate fee limit is

subject to shareholder approval at the forthcoming

AGM. The full text of the resolution is set out in the

Notice of Meeting on page 83. Details of the review

conducted of the fees of non-executive directors is

given on page 50.

The Directors’ Remuneration Implementation Report is

included on pages 50 to 52.

Management Engagement Committee ("MEC")

All of the Directors are members and Mr Scott is the

Chairman of the MEC. The MEC has been established

46 | Impax Environmental Markets plc | Annual Report and Accounts 2021

GOVERNANCE

Corporate Governance continued

to conduct a formal annual review of the Manager,

assessing investment and other performance, the

level and method of the Manager’s remuneration

and the continued appointment of the Manager

as investment manager to the Company. The MEC

met and reviewed the Manager's performance and

remuneration structure. In conclusion the Committee’s

recommendation to the Board was that it was in the

best interests of shareholders as a whole to continue

with the Manager’s engagement and that the current

management fee structure remained appropriate.

(Seepage 42 for further details).

The Board also conducted a review of the fees for the

depositary and custodian as well as the secretary and

administrator. These are in the process of being finalised

and the Board will report on this in the next annual report.

Nomination Committee

All of the Directors are members and Mr Scott is the

Chairman. The Nomination Committee reviews the

structure, size and composition of the Board and it

identifies and puts forward candidates for the office of

director of the Company. The Nomination Committee

considers job specifications and assesses whether

candidates have the necessary skills and time available

to devote to the job.

The Board has formulated a succession plan which

is reviewed and maintained through the Nomination

Committee to promote regular refreshment and

diversity, whilst maintaining stability and continuity of

skills and knowledge on the Board.

In accordance with its original succession plan, the

Board began a recruitment process led by Miss Kelly

in 2020, which continued into 2021, to recruit a new

director to replace Mr Rickett who retired after the

2021 AGM, and to recruit a new director to replace

the Chairman who was intending to retire at the 2022

AGM. The Board engaged the services of recruitment

specialists, Nurole Limited. Nurole are independent of

both the Company and individual directors. After an

extensive search and thorough recruitment process,

the Committee recommended MrSimon Fraser

and Mr Nick Hurd to the Board, with the intention

that MrFraser become the Chairman on Mr Scott’s

retirement. The Board subsequently appointed

MrFraser with effect from 1 March 2021 and he was

elected by shareholders at the 2021 AGM. As explained

in the half-yearly report, the Board also appointed

MrHurd with effect from 1 August 2021.

Subsequent to the sudden death of MrFraser, Mr Scott

agreed to continue as Chairman for an additional

year, to enable the appointment and an induction

period for a new chairman. The Board has also

asked Mrs Hastings to extend her tenure to allow for

board continuity until the chair designate role has

been filled, following which the recruitment for her

replacement will commence. The Board has reviewed

its composition and in accordance with its updated

succession plan will initiate the recruitment process in

2022 for new non-executive directors and ensure that

Board refreshment is undertaken in a phased manner.

Meeting attendance

The following table sets out the meetings Directors attended in the year to 31 December 2021. In addition to the

meetings shown below, a Board strategy meeting was held and there were also Board and committee ad-hoc

meetings to deal with administrative matters and the formal approval of documents.

BOARD

AUDIT

COMMITTEE

REMUNERATION

COMMITTEE

MANAGEMENT

ENGAGEMENT

COMMITTEE

NOMINATION

COMMITTEE

Number of meetings held 5 3 1 1 1

John Scott 5 3 1 1 1

Stephanie Eastment 5 3 1 1 1

Vicky Hastings 5 3 1 1 1

Aine Kelly 5 3 1 1 1

Simon Fraser* 1 1 – – –

William Rickett** 3 2 – 1 1

Nick Hurd*** 1 1 1 – –

* Simon Fraser died on 9 August 2021.

** William Rickett attended all meetings before his retirement from the Board on 20 May 2021.

*** Nick Hurd attended all meetings since his appointment on 1 August 2021.

Impax Environmental Markets plc | Annual Report and Accounts 2021 | 47

BOARD DIVERSITY

The Board’s policy on diversity is based on its belief in

the benefits of having a diverse range of experience,

skills, length of service and backgrounds, including

but not limited to gender diversity and ethnicity. The

policy is always to appoint the best person for the job

and there will be no discrimination on the grounds of

gender, race, ethnicity, religion, sexual orientation,

age or physical ability. The overriding aim of the

policy is to ensure that the Board is composed of the

best combination of people for ensuring effective

oversight of the Company and constructive support

and challenge to the Manager. Directors have a range

of business, financial and asset management skills as

well as experience relevant to the direction and control

of the Company. Brief biographical details of the

Directors are shown on pages 38 and 39.

The Board appraises its collective set of cognitive

and personal strengths, independence and diversity

on an annual basis, and especially during the

recruitment process, so as to ensure it is aligned with

the Company’s strategic priorities. The performance

appraisal process is described below. The Board

believes its composition is appropriate for the

Company's circumstances. However, in line with the

Board's succession planning and tenure policy, or

should strategic priorities change, the Board will review

and, if required, adjust its composition.

TENURE POLICY

It is the Board’s policy that all Directors, including the

Chairman, shall normally have tenure limited to nine

years from their appointment to the Board, except that

the Board may determine otherwise if it is considered

that the continued participation on the Board of

an individual Director is in the best interests of the

Company and its shareholders. This is also subject to

the Director’s re-election annually by shareholders. The

Board considers that this policy encourages regular

refreshment and is conducive to fostering diversity.

Mr Scott was appointed as a director on 7 February 2013

and Mrs Hastings was appointed on 21 May 2013. Mr

Scott had previously announced his intention to retire

at the 2022 AGM, however, (and as explained in the

Nomination Committee report), in view of the death of

Mr Fraser, he will be continuing in his role for a further

year. The Board has also asked Mrs Hastings to extend

her tenure to allow for board continuity until the chair

designate role has been filled, following which the

recruitment for her replacement will commence. The

Board has considered the tenures of Mr Scott and

MrsHastings and are of the view that their participation

on the Board provides continuity and is in the best

interests of the Company and its shareholders. Both

Directors will be offering themselves for re-election at

the AGM to be held in May 2022. As mentioned earlier,

the Board will commence a recruitment process to

refresh the Board in the year ahead.

PERFORMANCE APPRAISAL

A formal annual performance appraisal process is

performed on the Board, the Committees and individual

Directors. The performance appraisal was managed

by an external provider, Lintstock Limited, which has

no other connection with the Company. A programme

consisting of open and closed ended questions was

used as the basis for the appraisal. The results were

reviewed by the Chairman and discussed with the

Board. A separate appraisal of the Chairman was carried

out and the Senior Independent Director reported

back the results to the Chairman. The results of the

most recent performance evaluation were positive and

demonstrated that the Directors showed the necessary

commitment for the effective fulfilment of their duties.

INTERNAL CONTROL

The Board is responsible for establishing the Company’s

system of internal controls and for monitoring their

effectiveness. The system of internal controls is

designed to manage rather than eliminate the risk

of failure to achieve business objectives. It can

provide only reasonable assurance against material

misstatement or loss. The Board, through the Audit

Committee, regularly reviews the effectiveness of

the internal control systems to identify, evaluate

and manage the Company’s significant risks. If any

significant failings or weaknesses are identified the

Board, and where required the Manager, ensure that

necessary action is taken to remedy the failings. During

the year the Board – through the Audit Committee –

undertook a comprehensive review of the Company's

risk management framework and controls. Risks are

documented into four main risk categories and the

top risks schedule together with emerging risks, are

considered at every Board meeting. Following its

review, the Board is not aware of any significant failings

or weaknesses arising in the year under review.

The Board believes that the existing arrangements,

including those set out below, represent an appropriate

framework to meet the internal control requirements.

By these procedures the Directors have kept under

review the effectiveness of the internal control system

throughout the year and up to the date of this report.

48 | Impax Environmental Markets plc | Annual Report and Accounts 2021

GOVERNANCE

FINANCIAL ASPECTS OF INTERNAL CONTROL

These are detailed in the Report of the Audit Committee.

Other aspects of internal control

The Board holds at least four regular meetings each

year, plus additional meetings as required. Between

these meetings there is regular contact with the

Manager and the Company’s Administrator and the

Company Secretary.

The Board has agreed policies with the Manager on key

operational issues. The Manager reports in writing to

the Board on operational and compliance issues, and

otherwise as necessary. The Manager reports direct to

the Audit Committee concerning the internal controls

applicable to the Manager’s dealing, investment and

general office procedures.

The Directors receive and consider monthly reports

from the Administrator, giving details of all holdings

in the portfolio, investment transactions and the

financial position of the Company. The Administrator

reports separately in writing to the Board concerning

risks and internal control matters within its purview,

including internal financial control procedures and

company secretarial matters. Additional ad hoc reports

are received as required and Directors have access at

all times to the advice and services of the Company

Secretary, which is responsible to the Board for ensuring

that Board procedures are followed, and that applicable

rules and regulations are complied with.

The contacts with the Manager and the Administrator

enable the Board to monitor the Company’s progress

towards its objectives and encompasses an analysis of

the risks involved. The effectiveness of the Company’s

risk management and internal controls systems is

monitored regularly and a formal review, utilising a

detailed risk assessment programme, takes place at

least annually. This includes consideration of relevant

service provider internal controls reports. There are no

significant findings to report from the review.

PRINCIPAL RISKS

The Directors confirm that they have carried out a robust

assessment of the Company's emerging and principal

risks, including those that would threaten its business

model, future performance, solvency or liquidity. The

principal risks and how they are being managed are set

out in the Strategic Report.

Corporate Governance continued

Impax Environmental Markets plc | Annual Report and Accounts 2021 | 49

Directors’ Remuneration Policy

The remuneration policy (the “Policy”) must be put

forward for shareholder approval at a maximum

interval of three years. The Policy was last approved

by shareholders at the AGM held on 20 May 2021.

Accordingly, the Policy will continue in force until

the AGM to be held in 2024. The provisions set out

in the Policy apply until they are next submitted for

shareholder approval. In the event of any proposed

material variation to the Policy, shareholder approval

will be sought for the proposed new policy prior to its

implementation. The Policy sets out the principles the

Company follows in remunerating Directors and the

result of the shareholder vote on the Policy is binding

on the Company. The Remuneration Committee will

take account of any views expressed by shareholders in

formulating this policy.

All the Directors are non-executive directors and the

Company has no other employees.

Service contracts

The Directors do not have service contracts with the

Company. The Directors have appointment letters and,

following initial election by shareholders, are subject to

annual re-election.

Fees

Directors’ fees are determined by the Board according

to their duties and responsibilities and by reference

to the time commitment required by each Director

to carry out their roles effectively. In setting fees, the

Board also has regard to the need to recruit and retain

directors with appropriate knowledge and experience,

the fees paid to directors of the Company’s peers and

industry practice. Directors’ fees are also subject to

the aggregate annual limit set out in the Company’s

Articles of Association (the “Articles”), which is currently

£200,000. The aggregate limit of Directors’ fees in the

Articles can be amended only by an ordinary resolution

put to shareholders at a general meeting.

Directors are not eligible for bonuses, pension benefits,

share benefits, share options, long-term incentive

schemes or other benefits.

Directors’ fees are paid at fixed annual rates and do not

have any variable elements. Directors are also entitled to

be reimbursed for all reasonable out-of-pocket expenses

incurred in performance of their duties. These expenses

are unlikely to be of a significant amount.

Fees are payable from the date of appointment as a

Director of the Company and cease on the date of

termination of appointment. Any new Directors will be

paid at the same rate as existing Directors. Directors

are not entitled to compensation for loss of office,

and there is no notice period upon early termination

of appointment.

No incentive fees will be paid to any person to

encourage them to become a director of the Company.

The Company may, however, pay fees to external

agencies to assist the Board in the search and selection

of directors or in reviewing remuneration. Where a

consultant is appointed, the consultant shall be identified

in the annual report alongside a statement about any

other connection it has with the Company or individual

Directors. Independent judgement will be exercised

when evaluating the advice of external third parties.

Statement of consideration of conditions elsewhere

in the Company

As stated above, the Company has no employees.

Therefore, the process of consulting with employees on

the setting of the Remuneration Policy is not applicable.

Review of the Policy

This Policy will be reviewed on an annual basis by the

Remuneration Committee and any changes approved

by the Board. As part of the review, the Remuneration

Committee will consider whether the Policy supports

the long-term success of the Company and takes into

consideration all relevant regulatory requirements. Any

material change to the Policy must be approved by

shareholders.

Effective date

The Policy is effective from the date of approval by

shareholders.

Current and future policy

COMPONENT DIRECTOR PURPOSE OF REWARD OPERATION

Annual fee Chairman of the Board For services as Chairman of a plc Determined by the Board

Annual fee Other Directors For services as non-executive

directors of a plc

Determined by the Board

Additional fee Chairman of the Audit

Committee

For additional responsibility and time

commitment

Determined by the Board

Additional fee Senior Independent Director For additional responsibility and time

commitment

Determined by the Board

Expenses All Directors Reimbursement of expenses incurred

in the performance of duties

Submission of appropriate

supporting documentation

50 | Impax Environmental Markets plc | Annual Report and Accounts 2021

GOVERNANCE

Directors’ Remuneration Implementation Report

This Directors’ Remuneration Implementation Report

(the “Report”) has been prepared in accordance with

Schedule 8 of the Large and Medium-sized Companies

and Groups (Accounts and Reports) (Amendment)

Regulation 2013. An ordinary resolution for the

approval of this Report will be put forward at the

forthcoming AGM.

The Report is put forward for approval by

shareholders on an annual basis. The result of the

shareholder resolution on the Report is non-binding

on the Company, although it gives shareholders

an opportunity to express their views, which

will be taken into account by the Board and the

Remuneration Committee.

The law requires the Company’s auditor to audit

certain of the disclosures provided. Where disclosures

are audited they are indicated as such. The auditor’s

opinion is shown on page 56.

Remuneration Committee

The Company currently has five non-executive

Directors. The Remuneration Committee comprises

the whole Board. Further detail on the duties of

the Remuneration Committee can be found in the

Corporate Governance statement on page 45.

The Board carried out a review of Directors' annual fees

during the year with regard to the latest inflation rates,

measured by the increase in the Consumer Prices Index,

and taking into account peer group comparisons by

sector and market capitalisation. Following this review, it

was agreed that with effect from 1 January 2022, annual

fees would be increased to £42,000 for the Chairman,

and £28,000 for the Directors of the Company, with

additional amounts of £7,000 and £2,800 payable

to the Audit Committee Chairman and the Senior

Independent Director, respectively, to reflect the extra

responsibility and work required by those roles.

The Remuneration Committee believes that the level

of increase and resulting fees appropriately reflects

prevailing market rates for an investment trust of

the Company’s complexity and size, the increasing

complexity of regulation and resultant time spent by

the Directors on Company matters, and will also enable

the Company to attract appropriately experienced

additional Directors in the future. Due to the size

and nature of the Company, it was not deemed

necessary to use a remuneration consultant although

the Remuneration Committee did review peer group

information on Directors fees and took this into account

in its deliberations.

The maximum level of fees payable, in aggregate, to the

Directors of the Company is currently £200,000 per

annum. This maximum was approved by shareholders

at the Company's AGM held in 2018 and the Board,

following a recommendation from the Remuneration

Committee, will be seeking an increase to £250,000 at

the forthcoming AGM. The Company’s Remuneration

Policy, which was approved by shareholders at the

AGM held on 20 May 2021, states that the remuneration

of Directors should be fair and reasonable in relation

to the duties, responsibilities and time commitment

of Directors; be sufficient to retain and motivate

appointees, as well as ensure that candidates of a

high calibre are recruited to the Board. The proposed

increase will allow flexibility to increase the number of

directors in fulfilling the Board's succession plan. An

ordinary resolution will be put to shareholders at the

forthcoming AGM. The full text of the resolution is set

out in the Notice of Meeting on page 83.

Directors’ appointment letters and shareholding

rights

The Directors have appointment letters which do not

provide for any specific term. The Directors are not

entitled to compensation on loss of office. There are

no restrictions on transfers of the Company’s shares

held by the Directors or any special rights attached

to such shares.

Performance

The following chart shows the performance of the

Company’s share price by comparison to two relevant

indices on a total return basis. The Company does not

have a specific benchmark but has deemed the MSCI

ACWI Index and the FTSE ET100 Index to be the most

appropriate comparators for this report.

Total return performance

* FTSE ET50 Index until 31 December 2013 and then FTSE ET100 Index thereafter.

IEM Share Price

MSCI ACWI

FTSE ET50/ET100 composite*

100

200

300

400

500

600

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Impax Environmental Markets plc | Annual Report and Accounts 2021 | 51

Directors’ emoluments for the year (audited)

The Directors who served during the year received the following remuneration for qualifying services.

2021 2020

FEES

TAXABLE

BENEFITS

TOTAL

FEES

TAXABLE

BENEFITS

TOTAL

John Scott 39,975 – 39,975 39,000 – 39,000

Stephanie Eastment

33,315 – 33,315 30,023 – 30,023

Vicky Hastings 26,650 – 26,650 26,000 – 26,000

Aine Kelly 29,315 – 29,315 26,000 – 26,000

Simon Fraser – served 1 March to 9 August 2021 11,707 – 11,707 – – –

Nicholas Hurd – appointed on 1 August 2021 11,104 – 11,104 – – –

Julia Le Blan – retired on 21 May 2020 – – – 12,718 – 12,718

William Rickett – retired on 20 May 2021 10,344 – 10,344 26,000 – 26,000

Total 162,410 – 162,410 159,741 – 159,741

1. Appointed as a non-executive director on 1 July 2019 and as Chairman of the Audit Committee on 21 May 2020.

Annual Percentage Change in Directors’ Remuneration (unaudited)

The table below sets out the annual percentage change in Directors’ fees for the past two years.

YEAR ENDED

31 DECEMBER

2021

YEAR ENDED

31DECEMBER

2020

John Scott 2.5 10.6

Stephanie Eastment

11.0 155.5

Vicky Hastings 2.5 10.6

Aine Kelly

12.75 10.6

Simon Fraser – served 1 March to 9 August 2021 – –

Nick Hurd – appointed on 1 August 2021 – –

William Rickett – retired on 21 May 2021 – 10.6

1. The increases for both years reflect the fact that Mrs Eastment joined the Board part way through 2019 and became Chairman of the Audit

Committee part way through 2020. Mrs Eastment’s fee increase in 2021 and 2020 would have been 2.5% and 13.5%, respectively, had she

been Chairman of the Audit Committee for the whole of the period from 2019 to 2021.

2. The increase for 2021 reflects the fact that an additional fee for the Senior Independent Director of £2,665 was introduced from 1 January

2021. Without the additional fee, Miss Kelly's fee increase would have been 2.5%.

There are no other taxable benefits payable by the Company other than certain expenses which may be deemed to

be taxable such as travel expenses. None of the above fees was paid to third parties.

The resolution to approve the Remuneration Report contained in the Annual Report for the year ended

31 December 2020 was put forward at the AGM held on 20 May 2021. The resolution was passed with 99.94%

of the shares voted (representing 143,975,963 Ordinary Shares) being in favour of the resolution, 0.06% against

(representing 84,161 Ordinary Shares) and 45,698 votes withheld.

The Directors’ Remuneration Policy was last put forward at the AGM held on 20 May 2021. The resolution was

passed with 99.93% of the shares voted (representing 143,969,060 Ordinary Shares) being in favour, against 0.07%

(representing 94,069 Ordinary Shares) and votes withheld 42,693.

52 | Impax Environmental Markets plc | Annual Report and Accounts 2021

GOVERNANCE

Relative importance of spend on pay

The following table sets out the total level of Directors’ remuneration compared to the distributions to shareholders

by way of dividends and share buybacks, and the management fees and other expenses incurred by the Company.

2021

£’000

2020

£’000

DIFFERENCE

Spend on Directors’ fees 162 160 +1.3%

Management fees and other expenses 11,243 7,492 +50.1%

Dividends paid to shareholders – note 9 to the financial statements 6,501 10,065 -35.4%

The disclosure of the information in the table above is required under The Large and Medium-sized Companies and

Groups (Accounts and Reports) (Amendment) Regulations 2013 with the exception of management fees and other

expenses which have been included to show the total operating expenses of the Company.

Directors’ holdings (Audited)

At 31 December 2021 and at the date of this report the Directors had the following holdings in the Company. All holdings

were beneficially owned.

ORDINARY

SHARES AT

31 DECEMBER

2021

ORDINARY

SHARES AT

1 JANUARY

2021

John Scott 105,512 84,012

Stephanie Eastment* 12,000 10,000

Aine Kelly 16,000 10,000

Vicky Hastings 19,500 19,500

Nicholas Hurd – –

* Includes shares held by a connected person of 8,500

Mr William Rickett retired as a Director of the Company on 20 May 2021, at which date Mr Rickett held 5,000 Ordinary

Shares in the Company. Mr Simon Fraser died on 9 August 2021 and held 20,000 Ordinary Shares in the Company.

On 12 January 2022, Mr John Scott purchased 10,000 shares, following which his beneficial interest increased to

115,512ordinary shares in the Company. On 24 January 2022, Mr Nick Hurd purchased 1,626 shares in the Company.

There have been no purchases of shares by any of the other Directors since the year end.

Statement

On behalf of the Board and in accordance with Part 2 of Schedule 8 of the Large and Medium-sized Companies and

Groups (Accounts and Reports) (Amendment) Regulations 2013, I confirm that the above Remuneration Report and

Remuneration Policy summarises, as applicable, for the year to 31 December 2021:

(a) the major decisions on Directors’ remuneration;

(b) any substantial changes relating to Directors’ remuneration made during the year; and

Vicky Hastings

Chairman of the Remuneration Committee

4 April 2022

Directors' Remuneration Implementation Report continued

Impax Environmental Markets plc | Annual Report and Accounts 2021 | 53

Report of the Audit Committee

THE AUDIT COMMITTEE

As Chairman of the Audit Committee (the “Committee”),

I am pleased to present the Committee’s report to

shareholders for the year ended 31 December 2021.

Composition

All of the Directors are members of the Committee.

In accordance with the UK Code, the Chairman of the

Board should not be a member. However, the AIC

Code permits the Chairman to be a member of, but

not chair, the Committee if they were independent

on appointment - which the Chairman was and in the

Board’s view continues to be. In view of the size of

the Board the Directors feel it is appropriate for him

to continue as a member, so that the Committee can

continue to benefit from his experience and knowledge.

The members of the Committee consider that they

have the requisite skills and experience to fulfil the

responsibilities of the Committee. As a Chartered

Accountant, the Chairman of the Committee has recent

and relevant financial experience, and the Committee as

a whole has competence relevant to the sector.

Role and Responsibilities

The main role and responsibilities of the Committee are

set out in the Committee's terms of reference. The terms

are updated annually and are available on the Company’s

website or on request from the Company Secretary.

The Committee meets formally at least twice a year

for the purpose, amongst other things, of advising the

Board on the appointment, effectiveness, independence,

objectivity and remuneration of the external auditor.

The Committee monitors the integrity of the

financial statements of the Company and any formal

announcements relating to the Company’s financial

performance, reviewing significant financial reporting

judgements contained in them. The Committee also

reviews the Company’s risk management, internal

financial controls and internal control systems and

reviews the Manager’s whistleblowing arrangements.

The provision of non-audit services by the auditor

are reviewed against the Committee’s policy

described below.

Meetings

There were three Committee meetings during the year

ended 31 December 2021. In addition, the Committee

met the auditor, without any other party present, for a

private discussion and the Chairman of the Committee

met with the auditor prior to the half-yearly and annual

Committee meetings.

Committee evaluation

The Committee’s activities fell within the scope of the

review of Board effectiveness performed in the year.

Details of this process can be found under 'Performance

Appraisal’ on page 47.

FINANCIAL STATEMENTS AND SIGNIFICANT

ACCOUNTING MATTERS

The Committee reviewed the financial statements and

considered the following significant accounting matters

in relation to the Company’s financial statements for the

year ended 31 December 2021.

Valuation and existence of investments

The accuracy of the valuation of the investment portfolio

and verification of ownership of the investments is the

most material matter in the production of the financial

statements. The Company holds virtually all of its assets

in listed investments. Listed investments are valued

using stock exchange prices provided by independent

pricing sources. The Depositary confirmed that at the

year end the accounting records recorded all investment

holdings and that these had been agreed to custodian

records. The Depositary is responsible for financial

restitution for the loss of financial investments held in

custody, and the Committee received assurance from

the Depositary that all investments are held in custody.

The Company holds one active unquoted company

in the portfolio. The Manager provided a valuation

recommendation for the unquoted investment held at

the year end which was discussed and approved by

the Directors.

COVID-19

The Committee considered the risk from the ongoing

COVID-19 pandemic on the Company’s ability to

continue in operation due to the impact on the

Company’s portfolio and borrowing covenants, and

on the operational resilience of the Company’s key

service providers, and concluded that the pandemic

had not resulted in any significant issue to the

financial statements.

Recognition of income

Income may not be accrued in the correct period and/

or incorrectly allocated to revenue or capital. The

Committee reviewed the Administrator’s procedures for

recognition of income and reviewed the treatment of any

special dividends receivable in the year.

As part of the annual report review, the Committee:

– obtained assurances from the Manager and the

Administrator that the financial statements had been

prepared appropriately;

– reviewed the procedures in place for the calculation

of management fees;

– reviewed the basis of allocating management fees

and finance costs to capital and agreed that allocating

75% of such costs to capital remained an appropriate

basis. The assessment involved an analysis of the

expected split of the Company’s future long-term

returns as well as a review of past returns;

– reviewed the consistency of, and any changes to,

accounting policies;

54 | Impax Environmental Markets plc | Annual Report and Accounts 2021

GOVERNANCE

– reviewed the tax compliance of the Company during

the year with the eligibility conditions and ongoing

requirements in order for investment trust status to

be maintained;

– reviewed the Company’s financial resources, and

considered the forthcoming continuation vote, and

concluded that it is appropriate for the Company’s

financial statements to be prepared on a going

concern basis as described in the Directors’ Report on

page 43; and

– concluded that the annual report for the year ended

31 December 2021, 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. The Committee reached this conclusion

through a process of review of the document and

enquiries to the various parties involved in the

production of the annual report, and the external

auditor’s report thereon.

In addition to the above, during the year the Committee:

•

undertook a comprehensive review of the Company's

risk management framework and controls; and

•

reviewed the half-yearly financial report.

The Committee reported the results of this work,

including its assessment that the annual report is fair,

balanced and understandable, to the Board.

FINANCIAL REPORTING COUNCIL (FRC)

REVIEW OF ANNUAL REPORT 2020

In 2021 the FRC reviewed the Company’s 2020

Annual Report. The review did not benefit from

detailed knowledge of the Company’s business or an

understanding of the underlying transactions entered

into. However, it was conducted by staff of the FRC

who have an understanding of the relevant legal and

accounting framework. It was pleasing to note that the

FRC has written to the Chairman of the Board to confirm

that it had no matters to raise in respect of Company’s

compliance with corporate reporting requirements.

EXTERNAL AUDITOR

This year’s audit was the third performed by BDO LLP

("BDO"), and by Peter Smith as engagement partner,

since BDO was appointed on 21 May 2019, following an

audit tender process earlier in 2019.

Effectiveness of audit

The Committee reviewed the audit planning and the

standing, skills and experience of the firm and the audit

team. The Committee also considered the independence

of BDO and the objectivity of the audit process. BDO

has confirmed that it is independent of the Company

and has complied with relevant auditing standards.

No modifications were required to the external audit

approach. The Committee received a presentation of

the audit plan from the external auditor prior to the

commencement of the 2021 audit and a presentation

of the results of the audit following completion of the

main audit testing. Additionally, the Committee received

feedback from the Manager and Administrator regarding

the effectiveness of the external audit process.

The Committee is satisfied that BDO has provided

effective independent challenge in carrying out its

responsibilities. After due consideration, the Committee

recommended the re-appointment of BDO and their

re-appointment will be put forward to the Company's

shareholders at the 2022 AGM.

Provision of non-audit services

The Committee has put in place a policy on the supply of

any non-audit services provided by the external auditor.

During the year, the Company’s policy was reviewed

and aligned with the FRC’s Revised Ethical Standard

2019. Non-audit services are considered on a case-by-

case basis and may only be provided to the Company

if such services meet the requirements of the standard,

including: at a reasonable and competitive cost; do not

constitute a conflict of interest for the auditor; and all

non-audit services must be approved in advance. No

non-audit services were provided by the auditor during

the year (2020: none).

INTERNAL AUDIT

The Committee has considered the need for an

internal audit function and considered that this is not

appropriate given the nature and circumstances of the

Company. The Audit Committee keeps the need for an

internal function under periodic review. The Manager

reports the key conclusions of its internal audit report

to the Company’s Committee. The external auditor

obtains an understanding of the internal controls in place

at both the Manager and Administrator by reviewing

the relevant internal control reports issued by their

independent auditors.

Stephanie Eastment

Audit Committee Chairman

4 April 2022

Report of the Audit Committee continued

Impax Environmental Markets plc | Annual Report and Accounts 2021 | 55

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

4 April 2022

56 | Impax Environmental Markets plc | Annual Report and Accounts 2021

GOVERNANCE

Independent Auditor’s Report to the members of

Impax Environmental Markets plc

Opinion on the financial statements

In our opinion the financial statements:

•

give a true and fair view of the state of the Company’s

affairs as at 31 December 2021 and of the Company’s

return on ordinary activities after taxation for the year

then ended;

•

have been properly prepared in accordance with

United Kingdom Generally Accepted Accounting

Practice; and

•

have been prepared in accordance with the

requirements of the Companies Act 2006.

We have audited the financial statements of Impax

Environmental Markets plc (the ‘Company’) for the year

ended 31 December 2021 which comprise the Income

Statement, Balance Sheet, Statement of Changes in

Equity, Statement of Cash Flows and notes to the

financial statements, including a summary of significant

accounting policies. The financial reporting framework

that has been applied in their preparation is applicable

law and United Kingdom Accounting Standards,

including Financial Reporting Standard 102

The Financial

Reporting Standard applicable in the UK and Republic

of Ireland

(United Kingdom Generally Accepted

Accounting Practice).

Basis for opinion

We conducted our audit in accordance with International

Standards on Auditing (UK) (ISAs (UK)) and applicable

law. Our responsibilities under those standards are

further described in the Auditor’s responsibilities for the

audit of the financial statements section of our report.

We believe that the audit evidence we have obtained

is sufficient and appropriate to provide a basis for

our opinion. Our audit opinion is consistent with the

additional report to the audit committee.

Independence

Following the recommendation of the audit committee,

we were appointed by the Board of Directors on

21 May 2019 to audit the financial statements for

the year ended 31 December 2019 and subsequent

financial periods. The period of total uninterrupted

engagement including retenders and reappointments

is 3 years, covering the years ended 31 December 2019

to 31 December 2021. We remain independent of the

Company in accordance with the ethical requirements

that are relevant to our audit of the financial statements

in the UK, including the FRC’s Ethical Standard as applied

to listed public interest entities, and we have fulfilled our

other ethical responsibilities in accordance with these

requirements. The non-audit services prohibited by that

standard were not provided to the Company.

Conclusions relating to going concern

In auditing the financial statements, we have concluded

that the Directors’ use of the going concern basis of

accounting in the preparation of the financial statements

is appropriate. Our evaluation of the Directors’

assessment of the Company’s ability to continue to adopt

the going concern basis of accounting included:

•

Evaluating the appropriateness of the Director’s

method of assessing going concern in light of market

volatility and the present uncertainties due to the

Covid-19 pandemic and geo-political situation;

•

Assessing the liquidity position available to meet the

future obligations and operating expenses for the

next twelve months;

•

Challenging the reasonableness of the Director’s

assumptions and judgements made in their forecasts

by performing the multiple scenarios testing to

analyse the headroom in loan covenants.

Based on the work we have performed, we have not

identified any material uncertainties relating to events

or conditions that, individually or collectively, may

cast significant doubt on the Company’s ability to

continue as a going concern for a period of at least

twelve months from when the financial statements are

authorised for issue.

In relation to the Company’s reporting on how it has

applied the UK Corporate Governance Code, we have

nothing material to add or draw attention to in relation to

the Directors’ statement in the financial statements about

whether the Directors considered it appropriate to adopt

the going concern basis of accounting.

Our responsibilities and the responsibilities of the

Directors with respect to going concern are described in

the relevant sections of this report.

Overview

KEY AUDIT MATTERS 2021 2020

Valuation and ownership

of quoted investments

3 3

Financial statements as a whole

Materiality £ 14,800,000 (2020:

£10,900,000) based

on 1% (2020: 1%)

of Net Assets

An overview of the scope of our audit

Our audit was scoped by obtaining an understanding

of the Company and its environment, including the

Company’s system of internal control, and assessing the

risks of material misstatement in the financial statements.

We also addressed the risk of management override

of internal controls, including assessing whether there

was evidence of bias by the Directors that may have

represented a risk of material misstatement.

Impax Environmental Markets plc | Annual Report and Accounts 2021 | 57

Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the

financial statements of the current period and include the most significant assessed risks of material misstatement

(whether or not due to fraud) that we identified, including those which had the greatest effect on: the overall audit

strategy, the allocation of resources in the audit, and directing the efforts of the engagement team. These matters

were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon,

and we do not provide a separate opinion on these matters.

KEY AUDIT MATTER HOW THE SCOPE OF OUR AUDIT ADDRESSED THE KEY AUDIT MATTER

Valuation and ownership of quoted

investments note 1(b) and note 2

The investment portfolio predominantly

comprises quoted investments.

The investment portfolio is the most

significant balance in the financial

statements and is the key driver of

performance therefore there is a

potential risk of overstatement of

investment valuations. Further, there is a

risk that Company does not legally own

the investments at the year end.

We responded to this matter by testing the valuation and ownership of

100% of the investment portfolio. In respect of quoted investment valuations

(over 99% of the total portfolio by value) we have:

•

Confirmed that the year end valuations were appropriate by agreeing

to externally quoted prices and for all of the investments, assessed

if there were contra indicators, such as liquidity considerations, to

suggest bid price is not the most appropriate indication of fair value by

analysing the trading volumes; and

•

Obtained direct confirmation from the custodian regarding the

ownership of all investments held at the balance sheet date.

Key observations:

Based on our procedures performed we did not identify any matters to

suggest that the valuation and ownership of the quoted investments was

not appropriate.

Our application of materiality

We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of

misstatements. We consider materiality to be the magnitude by which misstatements, including omissions, could

influence the economic decisions of reasonable users that are taken on the basis of the financial statements.

In order to reduce to an appropriately low level the probability that any misstatements exceed materiality, we

use a lower materiality level, performance materiality, to determine the extent of testing needed. Importantly,

misstatements below these levels will not necessarily be evaluated as immaterial as we also take account of the nature

of identified misstatements, and the particular circumstances of their occurrence, when evaluating their effect on the

financial statements as a whole.

Based on our professional judgement, we determined materiality for the financial statements as a whole and

performance materiality as follows:

COMPANY FINANCIAL STATEMENTS

MATERIALITY

2021

£m

2020

£m

Materiality 14,800,000 10,900,000

Basis for determining materiality 1% of Net Assets 1% of Net Assets

Rationale for the benchmark applied As an investment trust, the net asset value is a key measure for users of

the financial statements.

Performance materiality 11,100,000 8,200,000

Basis for determining performance materiality Performance materiality was set at 75% of total materiality taking

into consideration that this is a recurring audit and there is a low

expectation of known and likely misstatements, based on prior year

experience.

Lower Testing Threshold

We also determined that for net revenue returns on ordinary activities before taxation, a misstatement of less than

materiality for the financial statements as a whole, could influence the economic decisions of users as it is a measure

of the Company’s performance of income generated from its investments after expenses. Thus, we have set a lower

testing threshold for those items impacting revenue return of £1,100,000 (2020: £628,000) which is based on 10%

(2020: 10%) of net revenue returns on ordinary activities before taxation.

Reporting threshold

We agreed with the Audit Committee that we would report to them all individual audit differences in excess of

£296,000 (2020: £218,000). We also agreed to report differences below this threshold that, in our view, warranted

reporting on qualitative grounds.

58 | Impax Environmental Markets plc | Annual Report and Accounts 2021

GOVERNANCE

Other information

The directors are responsible for the other information. The other information comprises the information included in

the annual report and accounts, other than the financial statements and our auditor’s report thereon. Our opinion on

the financial statements does not cover the other information and, except to the extent otherwise explicitly stated

in our report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the other

information and, in doing so, consider whether the other information is materially inconsistent with the financial

statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated.

If we identify such material inconsistencies or apparent material misstatements, we are required to determine

whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we

have performed, we conclude that there is a material misstatement of this other information, we are required to

report that fact.

We have nothing to report in this regard.

Corporate governance statement

The Listing Rules require us to review the Directors’ statement in relation to going concern, longer-term viability and

that part of the Corporate Governance Statement relating to the Company’s compliance with the provisions of the UK

Corporate Governance Code specified for our review.

Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the

Corporate Governance Statement is materially consistent with the financial statements or our knowledge obtained

during the audit.

Going concern and longer-term

viability

•

The Directors' statement with regards to the appropriateness of adopting the

going concern basis of accounting and any material uncertainties identified; and

•

The Directors’ explanation as to their assessment of the Company’s prospects,

the period this assessment covers and why the period is appropriate.

Other Code provisions

•

The Directors' statement on fair, balanced and understandable;

•

The Board’s confirmation that it has carried out a robust assessment of the

emerging and principal risks;

•

The section of the annual report that describes the review of effectiveness of

risk management and internal control systems; and

•

The section describing the work of the audit committee.

Other Companies Act 2006 reporting

Based on the responsibilities described below and our work performed during the course of the audit, we are required

by the Companies Act 2006 and ISAs (UK) to report on certain opinions and matters as described below.

Strategic Report and Directors’

Report

In our opinion, based on the work undertaken in the course of the audit:

•

the information given in the Strategic report and the Directors’ report for the

financial year for which the financial statements are prepared is consistent with

the financial statements; and

•

the Strategic report and the Directors’ report have been prepared in

accordance with applicable legal requirements.

In the light of the knowledge and understanding of the Company and its

environment obtained in the course of the audit, we have not identified material

misstatements in the Strategic report or the Directors’ report.

Directors’ remuneration In our opinion, the part of the Directors’ remuneration report to be audited has

been properly prepared in accordance with the Companies Act 2006.

Matters on which we are

required to report by exception

We have nothing to report in respect of the following matters in relation to which

the Companies Act 2006 requires us to report to you if, in our opinion:

•

adequate accounting records have not been kept, or returns adequate for our

audit have not been received from branches not visited by us; or

•

the financial statements and the part of the Directors’ remuneration report to

be audited are not in agreement with the accounting records and returns; or

•

certain disclosures of Directors’ remuneration specified by law are not made; or

•

we have not received all the information and explanations we require for our

audit.

Independent auditor’s report to the members of Impax Environmental Markets plc (the "Company") continued

Impax Environmental Markets plc | Annual Report and Accounts 2021 | 59

Responsibilities of Directors

As explained more fully in the Statement of Directors’

responsibilities, the Directors are responsible for the

preparation of the financial statements and for being

satisfied that they give a true and fair view, and for such

internal control as the Directors determine is necessary

to enable the preparation of financial statements that

are free from material misstatement, whether due to

fraud or error.

In preparing the financial statements, the Directors

are responsible for assessing the Company’s ability to

continue as a going concern, disclosing, as applicable,

matters related to going concern and using the going

concern basis of accounting unless the Directors either

intend to liquidate the Company or to cease operations,

or have no realistic alternative but to do so.

Auditor’s responsibilities for the audit of the financial

statements

Our objectives are to obtain reasonable assurance

about whether the financial statements as a whole

are free from material misstatement, whether due to

fraud or error, and to issue an auditor’s report that

includes our opinion. Reasonable assurance is a high

level of assurance, but is not a guarantee that an

audit conducted in accordance with ISAs (UK) will

always detect a material misstatement when it exists.

Misstatements can arise from fraud or error and are

considered material if, individually or in the aggregate,

they could reasonably be expected to influence the

economic decisions of users taken on the basis of these

financial statements.

Extent to which the audit was capable of detecting

irregularities, including fraud

Irregularities, including fraud, are instances of non-

compliance with laws and regulations. We design

procedures in line with our responsibilities, outlined

above, to detect material misstatements in respect

of irregularities, including fraud. The extent to which

our procedures are capable of detecting irregularities,

including fraud, is detailed below:

We gained an understanding of the legal and regulatory

framework applicable to the Company and the industry

in which it operates, and considered the risk of acts

by the Company which were contrary to applicable

laws and regulations, including fraud. We considered

the significant laws and regulations to be Chapter 3

Part 6 of the Income Tax Act 2007, the Companies Act

2006, the FCA listing and DTR rules, the principles of

the UK Corporate Governance Code, industry practice

represented by the AIC SORP, the applicable accounting

framework and qualification as an Investment Trust

under UK tax legislation as any non-compliance of this

would lead to the Company losing various deductions

and exemptions from corporation tax.

We focused on laws and regulations that could give rise

to a material misstatement in the Company financial

statements Our tests included, but were not limited to:

•

agreement of the financial statement disclosures to

underlying supporting documentation;

•

enquiries of management and those charged

with governance relating to the existence of non-

compliance with laws and regulations;

•

testing of journal postings on a sample basis based

on a defined risk criteria, made during the year to

identify potential management override of controls;

•

review of minutes of board meetings throughout the

period;

•

obtaining an understanding of the control

environment in monitoring compliance with laws and

regulations; and

•

reviewing the calculation in relation to Investment

Trust compliance to check that the Company was

meeting its requirements to retain Investment Trust

Status.

We assessed the susceptibility of the financial

statements to material misstatement, including fraud

and the risk of management override of controls.

We also communicated relevant identified laws and

regulations and potential fraud risks to all engagement

team members and remained alert to any indications

of fraud or non-compliance with laws and regulations

throughout the audit.

Our audit procedures were designed to respond to risks

of material misstatement in the financial statements,

recognising that the risk of not detecting a material

misstatement due to fraud is higher than the risk of

not detecting one resulting from error, as fraud may

involve deliberate concealment by, for example, forgery,

misrepresentations or through collusion. There are

inherent limitations in the audit procedures performed

and the further removed non-compliance with laws and

regulations is from the events and transactions reflected

in the financial statements, the less likely we are to

become aware of it.

A further description of our responsibilities is available

on the Financial Reporting Council’s website at: www.

frc.org.uk/auditorsresponsibilities. This description

forms part of our auditor’s report.

Use of our report

This report is made solely to the Company’s members,

as a body, in accordance with Chapter 3 of Part 16 of

the Companies Act 2006. Our audit work has been

undertaken so that we might state to the Company’s

members those matters we are required to state to them

in an auditor’s report and for no other purpose. To the

fullest extent permitted by law, we do not accept or

assume responsibility to anyone other than the Company

and the Company’s members as a body, for our audit

work, for this report, or for the opinions we have formed.

Peter Smith (Senior Statutory Auditor)

For and on behalf of BDO LLP, Statutory Auditor

London, UK

4 April 2021

BDO LLP is a limited liability partnership registered in

England and Wales (with registered number OC305127)

60 | Impax Environmental Markets plc | Annual Report and Accounts 2021

FINANCIALS

YEAR ENDED 31 DECEMBER 2021 YEAR ENDED 31 DECEMBER 2020

NOTES

REVENUE

£’000

CAPITAL

£’000

TOTAL

£’000

REVENUE

£’000

CAPITAL

£’000

TOTAL

£’000

Gains on investments 2 – 239,534 239,534 – 241,488 241,488

Net foreign exchange (losses)/gains – (314) (314) – 371 371

Income 3 15,195 – 15,195 9,322 – 9,322

Investment management fees 4 (2,471) (7,412) (9,883) (1,599) (4,796) (6,395)

Other expenses 5 (1,360) – (1,360) (1,097) – (1,097)

Return on ordinary activities before finance

costs and taxation 11,364 231,808 243,172 6,626 237,063 243,689

Finance costs 6 (368) (1,103) (1,471) (337) (1,011) (1,348)

Return on ordinary activities before taxation 10,996 230,705 241,701 6,289 236,052 242,341

Taxation 7 (1,605) 342 (1,263) (963) (541) (1,504)

Return on ordinary activities after taxation 9,391 231,047 240,438 5,326 235,511 240,837

Return per Ordinary Share 8 3.29p 81.06p 84.35p 2.22p 98.24p 100.46p

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”.

The notes on pages 60 to 77 form part of these financial statements.

Income Statement

Impax Environmental Markets plc | Annual Report and Accounts 2021 | 61

NOTES

AS AT

31 DECEMBER

2021

£’000

AS AT

31 DECEMBER

2020

£’000

Fixed assets

Investments at fair value through profit or loss 2 1,503,750 1,112,889

Current assets

Dividend receivable 274 55

Sales awaiting settlement – 3,888

Taxation recoverable 23 58

Other debtors – 85

Cash and cash equivalents 28,319 30,037

28,616 34,123

Creditors: amounts falling due within one year

Trade and other payables 10 (3,036) (3,732)

(3,036) (3,732)

Net current assets 25,580 30,391

Total assets less current liabilities 1,529,330 1,143,280

Creditors: amounts falling due after more than one year

Capital gains tax provision 7 (579) (1,092)

Bank loans and credit facility 11 (49,113) (48,908)

Net assets 1,479,638 1,093,280

Capital and reserves: equity

Share capital 12 29,806 26,588

Share premium account 388,262 239,059

Capital redemption reserve 9,877 9,877

Share purchase reserve 147,855 147,855

Capital reserve 13 894,915 663,868

Revenue reserve 8,923 6,033

Shareholders' funds 1,479,638 1,093,280

Net assets per Ordinary Share 14 496.42p 411.20p

Approved by the Board of Directors and authorised for issue on 4 April 2022 and signed on their behalf by:

John Scott

Chairman

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

The notes on pages 60 to 77 form part of these financial statements.

Balance Sheet

62 | Impax Environmental Markets plc | Annual Report and Accounts 2021

FINANCIALS

YEAR ENDED

31 DECEMBER 2021 NOTE

CAPITAL

£’000

PREMIUM

ACCOUNT

£’000

CAPITAL

REDEMP-

TION

RESERVE

£’000

PUR-

CHASE

RESERVE

£’000

CAPITAL

RESERVE

£’000

REVENUE

RESERVE

£’000

TOTAL

£’000

Opening equity as at 1 January 2021 26,588 239,059 9,877 147,855 663,868 6,033 1,093,280

Dividends paid 9 – – – – – (6,501) (6,501)

Net proceeds from issue of new

shares 12 3,218 149,203 – – – – 152,421

Return for the year – – – – 231,047 9,391 240,438

Closing equity as at 31 December

2021 29,806 388,262 9,877 147,855 894,915 8,923 1,479,638

YEAR ENDED

31 DECEMBER 2020 NOTE

CAPITAL

£’000

PREMIUM

ACCOUNT

£’000

CAPITAL

REDEMP-

TION

RESERVE

£’000

PUR-

CHASE

RESERVE

£’000

CAPITAL

RESERVE

£’000

REVENUE

RESERVE

£’000

TOTAL

£’000

Opening equity as at 1 January 2020 22,574 62,162 9,877 123,239 428,357 10,772 656,981

Dividend paid 9 – – – – – (10,065) (10,065)

Net proceeds of shares sold from

treasury 12 – 45,868 – 24,616 – – 70,484

Net proceeds from issue of new

shares 12 4,014 131,029 – – – – 135,043

Return for the year – – – – 235,511 5,326 240,837

Closing equity as at 31 December

2020 26,588 239,059 9,877 147,855 663,868 6,033 1,093,280

The Company's distributable reserves consists of the Share purchase reserve, Capital reserve attributable to realised

profits and Revenue reserve.

The notes on pages 60 to 77 form part of these financial statements.

Statement of Changes in Equity

Impax Environmental Markets plc | Annual Report and Accounts 2021 | 63

NOTES

YEAR ENDED

31 DECEMBER

2021

£’000

YEAR ENDED

31 DECEMBER

2020

£’000

Operating activities

Return on ordinary activities before finance costs and taxation* 243,172 243,689

Less: Tax deducted at source on income from investments (1,776) (1,102)

Foreign exchange non cash flow losses/(gains) 205 (1,172)

Adjustment for gains on investments (239,534) (241,488)

(Increase)/decrease in other debtors (99) 28

Increase in other creditors 821 1,009

Net cash flow from operating activities 2,789 964

Investing activities

Sale of investments 336,772 199,126

Purchase of investments (485,732) (398,002)

Net cash flow used in investing (148,960) (198,876)

Financing activities

Equity dividends paid 9 (6,501) (10,065)

Proceeds from bank loans – 20,000

Finance costs paid (1,467) (1,331)

Net proceeds from issue of new shares 12 152,421 135,043

Net proceeds of shares sold from treasury 12 – 70,484

Net cash flow from financing 144,453 214,131

(Decrease)/increase in cash (1,718) 16,219

Cash and cash equivalents at start of year 30,037 13,818

Cash and Cash equivalents at end of year 28,319 30,037

* Cash inflow includes dividend income received during the year ended 31 December 2021 of £15,117,000 (2020: £9,391,000) and bank

interest of £nil (2020: £7,000).

CHANGES IN NET DEBT NOTE

YEAR ENDED

31 DECEMBER

2021

£’000

YEAR ENDED

31 DECEMBER

2020

£’000

Net debt at start of year (18,871) (16,262)

(Decrease)/increase in cash and cash equivalents (1,718) 16,219

Foreign exchange movements (205) 1,172

Proceeds from bank loan

– (20,000)

Net debt at end of year (20,794) (18,871)

The notes on pages 60 to 77 form part of these financial statements.

Statement of Cash Flows

64 | Impax Environmental Markets plc | Annual Report and Accounts 2021

FINANCIALS

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 April 2021.

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 on page 43.

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.

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 consists of the share purchase reserve, the capital reserve attributable to

realised profits and the revenue reserve.

Impax Environmental Markets plc | Annual Report and Accounts 2021 | 65

1 ACCOUNTING POLICIES CONTINUED

(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 reserve attributable to realised profits and revenue reserve 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.

66 | Impax Environmental Markets plc | Annual Report and Accounts 2021

FINANCIALS

Notes to the Financial Statements continued

2 INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS

2021

£'000

2020

£'000

(a) Summary of valuation

Analysis of closing balance:

UK quoted securities 118,644 74,082

Overseas quoted securities 1,384,524 1,038,230

Overseas unquoted securities 582 577

Total investments 1,503,750 1,112,889

(b) Movements during the year:

Opening balance of investments, at cost 748,272 503,765

Additions, at cost 484,211 399,523

Disposals, at cost (200,580) (155,016)

Cost of investments at 31 December 1,031,903 748,272

Revaluation of investments to fair value:

Opening balance of capital reserve – investments held 364,617 171,127

Unrealised gains on investments held 107,230 193,490

Balance of capital reserve – investments held at 31 December 471,847 364,617

Fair value of investments at 31 December 1,503,750 1,112,889

Gains on disposal of investments 132,716 48,275

Net transaction costs (412) (277)

Unrealised gains on investments held 107,230 193,490

Gains on investments 239,534 241,488

During the year, the Company incurred transaction costs on purchases totalling in aggregate £508,000

(2020:£346,000) and on disposals totalling in aggregate £246,000 (2020: £109,000). Following MiFID II,

theManager has rebated £299,000 (2020: £145,000) in respect of transaction research costs for the year ended

31 December 2021, and £43,000 (2020: £33,000) in relation to prior periods. Transaction costs are recorded in the

capital column of the Income Statement.

The Company received £333,296,000 (2020: £203,182,000) from investments sold in the year. The book cost of

these investments when they were purchased was £200,580,000 (2020: £155,016,000). 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.

Impax Environmental Markets plc | Annual Report and Accounts 2021 | 67

2 INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS CONTINUED

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

31 DECEMBER 2021 31 DECEMBER 2020

LEVEL 1

£'000

LEVEL 2

£'000

LEVEL 3

£'000

TOTAL

£'000

LEVEL 1

£'000

LEVEL 2

£'000

LEVEL 3

£'000

TOTAL

£'000

Investments at fair value through

profit or loss

- Quoted 1,503,168 – – 1,503,168 1,112,312 – – 1,112,312

- Unquoted – – 582 582 – – 577 577

1,503,168 – 582 1,503,750 1,112,312 – 577 1,112,889

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

2021

£'000

2020

£'000

Opening balance 577 1,189

Valuation adjustments – (647)

Foreign exchange movements 5 35

Closing balance 582 577

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 2021 (2020: US$7.50 per share).

3 INCOME

2021

£'000

2020

£'000

Dividends from UK listed investments 1,484 516

Dividends from overseas listed investments 13,711 8,799

Bank interest received – 7

Total Income 15,195 9,322

4 INVESTMENT MANAGEMENT FEES

2021 2020

REVENUE

£'000

CAPITAL

£'000

TOTAL

£'000

REVENUE

£'000

CAPITAL

£'000

TOTAL

£'000

Investment management fees 2,471 7,412 9,883 1,599 4,796 6,395

Details of the investment management fee is given on page 42. At 31 December 2021, investment management fees

accrued were £2,730,000 (2020: £ 1,953,000).

68 | Impax Environmental Markets plc | Annual Report and Accounts 2021

FINANCIALS

Notes to the Financial Statements continued

5 OTHER EXPENSES

2021 2020

REVENUE

£'000

CAPITAL

£'000

TOTAL

£'000

REVENUE

£'000

CAPITAL

£'000

TOTAL

£'000

Secretary and administrator fees 276 – 276 225 – 225

Depositary fees 162 – 162 104 – 104

Custody fees 219 – 219 148 – 148

Directors' fees- see below 162 – 162 160 – 160

Directors' other costs- see below 17 – 17 22 – 22

Directors' D&O insurance 13 – 13 10 – 10

Director recruitment fees 20 – 20 10 – 10

Broker fee 50 – 50 45 – 45

Auditor's fee 37 – 37 28 – 28

Tax advisor fees 8 – 8 15 – 15

Association of Investment Companies 21 – 21 21 – 21

Registrar's fees 146 – 146 119 – 119

Marketing fees 75 – 75 85 – 85

FCA and listing fees 64 – 64 47 – 47

Printing fees 30 – 30 42 – 42

Other expenses

60 – 60 16 – 16

1,3

60 – 1,360 1,097 – 1,097

Full detail on Directors' fees in the year is provided in the Directors' Remuneration Implementation Report on page 51.

Employer's National Insurance upon the fees is included as appropriate in Directors' other costs. At 31 December 2021,

Directors and national insurance fees outstanding were £1,000 (2020: £12,800).

The Auditor's fee for the statutory audit excludes VAT. The VAT is included in other expenses.

6 FINANCE COSTS

2021 2020

REVENUE

£'000

CAPITAL

£'000

TOTAL

£'000

REVENUE

£'000

CAPITAL

£'000

TOTAL

£'000

Interest charges 364 1,091 1,455 329 987 1,316

Direct finance costs 4 12 16 8 24 32

Total 368 1,103 1,471 337 1,011 1,348

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

Impax Environmental Markets plc | Annual Report and Accounts 2021 | 69

7 TA XATION

(a) Analysis of charge in the year

2021 2020

REVENUE

£'000

CAPITAL

£'000

TOTAL

£'000

REVENUE

£'000

CAPITAL

£'000

TOTAL

£'000

Overseas taxation 1,605 – 1,605 963 – 963

(Decrease)/increase on CGT provision – (342) (342) – 541 541

Taxation 1,605 (342) 1,263 963 541 1,504

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

The standard UK corporation tax rate at 31 December 2021 was 19.00% (2020: 19.00%). 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:

2021

£'000

2020

£'000

Return on ordinary activities before taxation 241,701 242,341

Corporation tax at 19.00% (2020: 19.00%) 45,923 46,045

Effects of:

Non-taxable UK dividend income (282) (98)

Non-taxable overseas dividend income (2,605) (1,672)

Movement in unutilised management expenses 2,136 1,423

Movement on non-trade relationship deficits 280 256

Gains on investments not taxable (45,512) (45,883)

Loss/(gain) in foreign currency movement 60 (71)

Capital gains tax provision movement (342) 541

Overseas taxation 1,605 963

Total tax charge for the year 1,263 1,504

Corporation Tax Act 2010 are exempt from 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 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

2021

£'000

2020

£'000

Provision brought forward 1,092 690

Capital gains tax paid (171) (139)

(Decrease)/increase in provision in year (342) 541

Provision carried forward 579 1,092

(e) The Company has unrelieved excess management expenses and non-trade relationship deficits of £78,015,000

(2020: £65,308,000). 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 rate of 25% (2020: 19%) amounts to £19,500,000 (2020: £12,400,000). The March 2021 Budget

announced an increase to the main rate of corporation tax to 25% from 1st April 2023. This increase in the standard

rate of corporation tax was substantively enacted on 24th May 2021 and became effective from 2nd June 2021.

70 | Impax Environmental Markets plc | Annual Report and Accounts 2021

FINANCIALS

Notes to the Financial Statements continued

8 RETURN PER SHARE

YEAR ENDED

31 DECEMBER

2021

£'000

YEAR ENDED

31 DECEMBER

2020

£'000

Revenue return after taxation (£'000s) 9,391 5,326

Capital return after taxation (£'000s) 231,047 235,511

Total net return after tax (£'000s) 240,438 240,837

Weighted average number of Ordinary Shares 285,059,568 239,733,181

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

RATE

2021

£'000 RATE

2020

£'000

Interim in lieu of final for the previous year 1.00p 2,734 3.00p 6,862

First interim for the current year 1.30p 3,767 1.30p 3,203

2.30p 6,501 4.30p 10,065

(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

RATE

2021

£'000 RATE

2020

£'000

First interim for the current year 1.30p 3,767 1.30p 3,203

Second interim in lieu of final for the current year 1.50p 4,471 1.00p 2,734

2.80p 8,238 2.30p 5,937

The Board declared two interim dividends in respect of the year and expects to continue paying two dividends

annually. 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

2021

£'000

2020

£'000

Finance costs payable 98 94

Accrued management fees 2,730 1,953

Other accrued expenses 208 164

Purchases awaiting settlement – 1,521

Total 3,036 3,732

Impax Environmental Markets plc | Annual Report and Accounts 2021 | 71

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 which

was fully drawn in two currencies, US$12.6 million and £10 million, throughout the year. The facility expires on

6 September 2023.

A summary of the Company's loans follows:

2021 2020

BANK LOANS-FIXED RATE INTEREST RATE

LOAN

CURRENCY

AMOUNT £'000

LOAN

CURRENCY

AMOUNT £'000

Sterling 2.910% 15,000,000 15,000 15,000,000 15,000

Non-sterling 4.504% 20,000,000 14,777 20,000,000 14,651

29,777 29,651

RCF-FLOATING RATE

Sterling Six month SOFR +1.7% 10,000,000 10,000 10,000,000 10,000

Non-sterling Six month SONIA +1.7% 12,637,000 9,336 12,637,000 9,257

49,113 48,908

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

PAYABLE AFTER MORE THAN ONE YEAR AT 31 DECEMBER

2021

£'000

2020

£'000

Bank loans payable after more than one year 29,777 29,651

Revolving credit facility payable after more than one year 19,336 19,257

49,113 48,908

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 on page 24.

72 | Impax Environmental Markets plc | Annual Report and Accounts 2021

FINANCIALS

Notes to the Financial Statements continued

12 SHARE CAPITAL

2021 2020

NUMBER £'000 NUMBER £'000

Issued and fully paid shares of 10p each

Brought forward 265,877,138 26,588 204,139,246 20,414

New shares issued in year 32,184,301 3,218 40,139,783 4,014

Treasury shares issued in year – – 21,598,109 2,160

Carried forward 298,061,439 29,806 265,877,138 26,588

Treasury shares of 10p each

Brought forward – – 21,598,109 2,160

Issued in year – – (21,598,109) (2,160)

Carried forward – – – –

Share capital 298,061,439 29,806 265,877,138 26,588

The Company received aggregate gross proceeds of £153,493,000 (2020: £207,403,000) from the issue of shares

and net proceeds of £152,421,000 (2020: £205,527,000) after issue costs of £1,072,000 (2020: £1,876,000). As

at 31 March 2022, the latest practicable date before publication of this report, a further 6,237,100 new Ordinary

Shares have been issued for aggregate gross proceeds of £29,618,000, and net proceeds of £29,470,000after issue

costs of £148,000. In addition, 112,900 Ordinary Shares have been bought back at a cost of £452,000. These have

subsequently been re-issued.

13 CAPITAL RESERVE

Realised capital reserve

2021

£'000

2020

£'000

Opening balance 299,251 257,230

Gains on disposal of investments 132,716 48,275

Net transaction costs (412) (277)

Net foreign exchange (losses)/gains (314) 371

Investment management fees charged to capital (7,412) (4,796)

Finance costs charged to capital (1,103) (1,011)

Taxation credit (charges) to capital 342 (541)

Balance at 31 December 423,068 299,251

Unrealised gains on investments

2021

£'000

2020

£'000

Unrealised gains brought forward 364,617 171,127

Unrealised gains on investments held 107,230 193,490

Unrealised gains carried forward 471,847 364,617

Capital reserve balance at 31 December 894,915 663,868

14 NET ASSET VALUE PER SHARE

2021 2020

Net asset value (£'000) 1,479,638 1,093,280

Shares in issue (excluding shares held in treasury) 298,061,439 265,877,138

Net asset value per share at 31 December 496.42p 411.20p

Impax Environmental Markets plc | Annual Report and Accounts 2021 | 73

15 TRANSACTIONS WITH THE MANAGER AND RELATED PARTY TRANSACTIONS

Details of the management contract can be found in the Directors' Report on page 42. Fees payable to the Manager

are detailed in note 4 on page 67. Since 1 January 2018, the Manager has agreed to rebate commission which relates

to research fees to the Company with such amount disclosed in note 2.

The Directors' fees are disclosed in note 5 and the Directors' shareholdings are disclosed in the Directors'

Remuneration Implementation Report on page 52.

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 which can be found on page 23. 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. 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 2021 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 2021.

2021

%CHANGE

2020

%CHANGE

Australian Dollar 4.6% (6.0%)

Canadian Dollar (1.8%) 1.3%

Danish Krone 6.0% (5.8%)

Euro 6.1% (5.5%)

Hong Kong Dollar (0.3%) 2.5%

Indian Rupee 0.9% 5.6%

Israeli Shekel (4.6%) –

Korean Won 7.7% (3.0%)

Norwegian Krone 1.7% 0.6%

Swedish Krona 8.3% (9.5%)

Swiss Franc 2.1% (5.7%)

Taiwanese Dollar (2.3%) (3.3%)

US Dollar (0.9%) 2.9%

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

74 | Impax Environmental Markets plc | Annual Report and Accounts 2021

FINANCIALS

Notes to the Financial Statements continued

16 FINANCIAL RISK MANAGEMENT CONTINUED

Based on the financial assets and liabilities at 31 December 2021 and all other things being equal, if sterling had

strengthened by 10%, the profit after taxation for the year ended 31 December 2021 and the Company's net assets at

31 December 2021 would have decreased by the amounts shown in the table below. If sterling had weakened by 10%

this would have had the opposite effect.

2021

POTENTIAL

EFFECT

£'000

2020

POTENTIAL

EFFECT

£'000

Australian Dollar 3,127 2,207

Canadian Dollar 6,925 621

Danish Krone 2,595 2,213

Euro 23,141 22,912

Hong Kong Dollar 3,017 6,108

Indian Rupee 2,492 2,671

Israeli Shekel 537 –

Korean Won 2,067 2,207

Norwegian Krone 4,706 3,387

Swedish Krona 3,052 1,848

Swiss Franc 4,751 3,644

Taiwanese Dollar 8,475 3,686

US Dollar 71,532 52,042

Total 136,417 103,546

(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 as such no sensitivity analysis is required.

The Company's £20 million multi-currency revolving credit facility is based on a floating reference interest rate

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:

2021 AND 2020

PROFIT OR LOSS £'000

25 BPS

INCREASE

25 BPS

DECREASE

31 December

Non-sterling Revolving Credit Facility (23) 23

Sterling Revolving Credit Facility (25) 25

(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 6.4% (2020:

6.6%) over the ten year period to 31 December 2021. The historic 3-year (annualised) volatility of the Company to

31 December 2021 is 7.1% (2020: 7.2%).

At the year end the Company held investments with an aggregate market value of £1,503,750,000 (2020:

£1,112,889,000). 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 £150,375,000 (2020: £111,288,900) in

the profit after taxation for the year ended 31 December 2021 and the Company's net assets at 31 December 2021.

Impax Environmental Markets plc | Annual Report and Accounts 2021 | 75

16 FINANCIAL RISK MANAGEMENT CONTINUED

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 2021 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.

2021

EXPECTED AS PERCENTAGE

AT LIMIT

2020

EXPECTED AS PERCENTAGE

AT LIMIT

1 IN 20

(95%)

1 IN 100

(99%)

1 IN 20

(95%)

1 IN 100

(99%)

1 day return 1.46 2.07 2.00 2.83

5 day return 3.27 4.63 4.47 6.32

10 day return 4.63 6.54 6.32 8.94

21 day return 6.86 9.70 9.38 13.26

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 2021.

The above results suggest, for example, that there is a 5% or less chance of the NAV falling by 3.27% or more over a

5day period. Similarly, there is a 1% or less chance of the NAV falling by 2.07% 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 2021 included £27,887,000 (2020: £29,773,000) held in its bank accounts at the

Depositary. The Company also held £432,000 (2020: £264,000) in its accounts with NatWest 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 £1,503,168,000 (2020: £1,112,312,000) in respect of quoted investments.

The credit rating of the Depositary, which is a Fitch rating of A+, 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.

76 | Impax Environmental Markets plc | Annual Report and Accounts 2021

FINANCIALS

Notes to the Financial Statements continued

16 FINANCIAL RISK MANAGEMENT CONTINUED

Quantitative disclosures

The results of the Managers maturity analysis at 31 December 2021 are reported in the following table as a percentage

of the portfolio that could be liquidated over different time periods. On 31 December 2021, 2.37% (2020: 1.45%) of the

portfolio by value (excluding unquoted investments) might have taken more than three months to be realised.

Percentage of portfolio by value that could be liquidated in one week 64.47

Percentage of portfolio by value that could be liquidated in one month 92.12

Percentage of portfolio by value that could be liquidated in three months 97.63

Percentage of portfolio by value that could be liquidated in one year 98.64

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:

2021

£'000

2020

£'000

Less than one year 3,036 3,732

Between one and five years* 49,692 50,000

52,728 53,732

* 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 2021 comprised:

2021 2020

INTEREST

BEARING

£'000

NON-

INTEREST

BEARING

£'000

TOTAL

£'000

INTEREST

BEARING

£'000

NON-

INTEREST

BEARING

£'000

TOTAL

£'000

Investments

Australian Dollar – 31,273 31,273 – 22,074 22,074

Canadian Dollar – 69,087 69,087 – 6,211 6,211

Danish Krone – 25,948 25,948 – 22,129 22,129

Euro – 231,414 231,414 – 229,117 229,117

Hong Kong Dollar – 30,167 30,167 – 61,079 61,079

Indian Rupee – 25,496 25,496 – 26,711 26,711

Israeli Shekel – 5,370 5,370 – – –

Korean Won – 20,673 20,673 – 22,065 22,065

Norwegian Krone – 47,060 47,060 – 33,865 33,865

Sterling – 118,644 118,644 – 77,436 77,436

Swedish Krona – 30,524 30,524 – 18,484 18,484

Swiss Franc – 47,512 47,512 – 36,435 36,435

Taiwanese Dollar – 84,747 84,747 – 36,861 36,861

US Dollar – 735,835 735,835 – 520,422 520,422

– 1,503,750 1,503,750 – 1,112,889 1,112,889

Other assets and liabilities

Cash and cash equivalents 28,319 – 28,319 30,037 – 30,037

Short term debtors – 297 297 – 4,086 4,086

Short term creditors – (3,036) (3,036) – (3,732) (3,732)

Long term creditors (49,113) (579) (49,692) (48,908) (1,092) (50,000)

(20,794) 1,500,432 1,479,638 (18,871) 1,112,151 1,093,280

Impax Environmental Markets plc | Annual Report and Accounts 2021 | 77

16 FINANCIAL RISK MANAGEMENT CONTINUED

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 2021 there were 298,061,439 Ordinary Shares in issue (2020: 265,877,138). No Ordinary Shares were

held in Treasury (2020: nil).

The Company has a stated premium/discount control 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 control policy) can be found in the Directors' Report.

The Company bought back no Ordinary Shares during the year (2020: nil).

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

17 POST BALANCE SHEET EVENTS

Subsequent to the year end, the net asset value per share of the Company has decreased by 8.7% from 496.4p to

453.0p and the Company’s share price has decreased by 14.6% from 5 47.0p to 467.0p as at 31 March 2022.

Since 31 December 2021, equity markets have fallen significantly with a number of investor concerns impacting on

stock market valuations. These include: the Russian invasion of Ukraine, the impact that rising inflation and interest

rates may have on the outlook for the global economy and the continuing disruption caused by COVID-19.

78 | Impax Environmental Markets plc | Annual Report and Accounts 2021

OTHER

INFORMATION

AS AT

31DECEMBER 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Net assets

(£millions) 341 386 374 372 465 507 450 657 1,093 1,480

NAV per

Ordinary Share

126.0p 167.9p 169.8p 178.6p 243.4p 281.6p 249.6p 321.8p 411.2p 496.4p

Share price 102.9p 150.0p 152.8p 160.0p 218.0p 256.5p 253.0p 333.0p 422.5p 547.0p

Premium /

(discount)

1,2

(18.3%) (10.7%) (10.2%) (10.4%) (10.4%) (8.9%) 1.4% 3.5% 2.7% 10.2%

YEAR ENDED

31DECEMBER 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

NAV return

1,3

8.5% 34.1% 1.7% 6.0% 37.3% 16.4% (10.8%) 30.6% 31.0% 21.3%

Share price

return

1,3

8.1% 47.4% 2.5% 5.8% 37.4% 18.7% (0.4%) 32.9% 28.9% 30.1%

MSCI ACWI

Index

11.0% 20.5% 10.6% 3.3% 28.7% 13.2% (3.8%) 21.7% 12.7% 19.6%

FTSE ET100

4,5

1.2% 44.9% 4.1% 5.0% 21.9% 20.2% (9.9%) 29.2% 90.3% 13.1%

Revenue return

per Ordinary

0.9p 1.3p 1.5p 1.5p 2.0p 2.8p 3.2p 3.6p 2.2p 3.3p

Dividends

0.9p 1.2p 1.4p 1.45p 1.95p 2.50p 3.0p 3.0p 2.3p 2.8p

Ongoing

charges

1.16% 1.13% 1.12% 1.11% 1.13% 1.05% 1.04% 1.02% 0.95% 0.85%

Notes

1. These are considered to be APMs.

2. Share price premium/(discount) to NAV.

3. Total return (discrete annual returns) – source: Morningstar up to 2016, Bloomberg 2017 thereafter (except year 2018).

4. Net total return (dividends reinvested net of withholding tax) for MSCI indices and total return for FTSE indices (discrete annual returns).

5. FTSE ET50 data up until 31 December 2013 and then FTSE ET100 thereafter.

6. Revenue return / Ordinary Share is based upon the revenue return for the year to 31 December and the weighted average number of

Ordinary Shares in issue (excluding treasury shares) during the year.

7. Total dividends payable in respect of the year.

TOTAL RETURNS TO 31 DECEMBER 2021

NAV

PRICE

MSCI ACWI

INDEX

FTSE ET100

INDEX

1 year 21.3% 30.1% 19.6% 13.1%

2 years 58.9% 67.6% 34.8% 115.3%

3 years 107.5% 122.8% 64.0% 178.2%

4 years 85.2% 121.9% 57.8% 150.7%

5 years 115.5% 163.3% 78.7% 201.3%

6 years 196.0% 261.8% 130.0% 267.2%

7 years 213.6% 282.9% 137.5% 285.5%

8 years 219.0% 292.4% 162.8% 301.5%

9 years 327.7% 478.51% 216.7% 469.7%

10 years 364.4% 525.3% 251.7% 476.3%

Notes

1. These are considered to be APMs.

2. FTSE ET50 data up until 31 December 2013 and then FTSE ET100 thereafter.

10 Year Financial Record

Impax Environmental Markets plc | Annual Report and Accounts 2021 | 79

APMs are often used to describe the performance of investment companies although they are not specifically defined

under FRS 102. The Directors assess the Company's performance against a range of criteria which are viewed as

relevant to both the Company and its market sector. APM calculations for the Company are shown below.

GEARING

A way to magnify income and capital returns, but which can also magnify losses. A bank loan is a common

method of gearing.

AT 31 DECEMBER PAGE 2021 2020

Total assets less cash/cash equivalents (£'000) a n/a 1,504,047 1,116,975

Net assets (£'000) b 61 1,479,638 1,093,280

Gearing (net) (a÷b)-1 1.6% 2.2%

LEVERAGE

Under the Alternative Investment Fund Managers Directive ("AIFMD"), leverage is any method by which the exposure

of an Alternative Investment Fund ("AIF") is increased through borrowing of cash or securities or leverage embedded

in derivative positions.

Under AIFMD, leverage is broadly similar to gearing, but is expressed as a ratio between the assets (excluding

borrowings) and the net assets (after taking account of borrowing). Under the gross method, exposure represents the

sum of the Company's positions after deduction of cash balances, without taking account of any hedging or netting

arrangements. Under the commitment method, exposure is calculated without the deduction of cash balances and

after certain hedging and netting positions are offset against each other.

ONGOING CHARGES

A measure, expressed as a percentage of average net assets, of the regular, recurring annual costs of running an

investment company.

YEAR END 31 DECEMBER PAGE 2021 2020

Average NAV (£'000) a n/a 1,324,967 786,680

Investment Management fees (£'000) b 67 9,883 6,395

Other expenses (£'000) c 68 1,360 1,097

(b+c)÷a 0.85% 0.95%

PREMIUM

The amount, expressed as a percentage, by which the share price is more than the Net Asset Value per

Ordinary Share.

AT 31 DECEMBER PAGE 2021 2020

NAV per Ordinary Share (p) a 1 496.4 411.2

Share price (p) b 1 547.0 422.5

Premium (b÷a) -1 10.2% 2.7%

Alternative Performance

Measures (APMs)

80 | Impax Environmental Markets plc | Annual Report and Accounts 2021

OTHER

INFORMATION

TOTAL RETURN

A measure of performance that includes both income and capital returns. This takes into account capital gains and

reinvestment of dividends paid out by the Company into its Ordinary Shares on the ex-dividend date.

YEAR ENDED 31 DECEMBER 2021 PAGE

PRICE NAV

Opening at 1 January 2021 (p) a n/a 422.50 411.20

Closing at 31 December 2021 (p) b 1 547.00 496.42

Dividend/income adjustment factor

c n/a 1.0049 1.0048

Adjusted closing (d = b x c) d n/a 549.67 498.79

Total return (d÷a) -1 30.1% 21.3%

YEAR ENDED 31 DECEMBER 2020 PAGE

PRICE NAV

Opening at 1 January 2020 (p) a n/a 333.00 321.83

Closing at 31 December 2020 (p) b 1 422.50 411.20

Dividend/income adjustment factor

c n/a 1.0159 1.0253

Adjusted closing (d = b x c) d n/a 429.24 421.60

Total return (d÷a) -1 28.9% 31.0%

1 The dividend adjustment factor is calculated on the assumption that dividends paid out by the Company are reinvested into the shares of the

Company at NAV at the ex-dividend date.

Alternative Performance Measures (APMs) continued

Impax Environmental Markets plc | Annual Report and Accounts 2021 | 81

AIC Association of Investment Companies.

Alternative Investment Fund or

"AIF"

An investment vehicle under AIFMD. Under AIFMD (see below) Impax Environmental

Markets plc is classified as an AIF.

Alternative Investment Fund

Managers Directive or "AIFMD"

A European Union directive which came into force on 22 July 2013 and has been

implemented in the UK.

Annual General Meeting or "AGM" A meeting held once a year which shareholders can attend and where they can vote

on resolutions to be put forward at the meeting and ask directors questions about the

company in which they are invested.

the Company Impax Environmental Markets plc ("IEM").

Custodian An entity that is appointed to safeguard a company's assets.

Discount/premium The amount, expressed as a percentage, by which the share price is less/more than

the net asset value per share.

Depositary Certain AIFs must appoint depositaries under the requirements of AIFMD.

Adepositary's duties include, inter alia, safekeeping of a company's assets and cash

monitoring. Under AIFMD the depositary is appointed under a strict liability regime.

Dividend Income receivable from an investment in shares.

Ex-dividend date The date from which you are not entitled to receive a dividend which has been

declared and is due to be paid to shareholders.

Financial Conduct Authority or

"FCA"

The independent body that regulates the financial services industry in the UK.

FTSE ET100/FTSE ET50 FTSE ET100/FTSE ET50 is a combination of the FTSE ET100 and FTSE ET50 indices.

FTSE ET50 data is used for the period to 31 December 2013 and FTSE ET100 data is

used for the period from 1 January 2014. The FTSE ET (Environmental Technology)

50 and 100 indices comprise, respectively, the 50 and 100 largest pure play (i.e.

deriving at least 50% of their business from environmental markets and technologies)

environmental technology companies globally, by full market capital.

Gearing effect The effect of borrowing on a company's returns.

Index A basket of stocks which is considered to replicate a particular stock market or sector.

Investment company A company formed to invest in a diversified portfolio of assets.

Investment Trust An investment company which is based in the UK and which meets certain tax

conditions which enables it to be exempt from UK corporation tax on its capital gains.

The Company is an investment trust.

Liquidity The extent to which investments can be sold at short notice.

Net assets or net asset value

("NAV")

An investment company's assets less its liabilities.

NAV per Ordinary Share Net assets divided by the number of Ordinary Shares in issue (excluding any shares

held in treasury).

Ordinary Shares The Company's ordinary shares in issue.

Portfolio A collection of different investments held in order to deliver returns to shareholders

and to spread risk.

Relative performance Measurement of returns relative to an index.

Share buyback A purchase of a company's own shares. Shares can either be bought back for

cancellation or held in treasury.

Share price The price of a share as determined by a relevant stock market.

Tracking error A measure, expressed as a percentage, of how closely a portfolio follows an index

over a period of time.

Treasury shares A company's own shares which are available to be sold by a company to raise funds.

Volatility A measure of how much a share moves up and down in price over a period of time.

Glossary

82 | Impax Environmental Markets plc | Annual Report and Accounts 2021

DIRECTORS INVESTMENT MANAGER

John Scott, (Chairman) Impax Asset Management (AIFM) Limited

Stephanie Eastment (Audit Committee Chair) 7th Floor

Aine Kelly (Senior Independent Director) 30 Panton Street

Vicky Hastings London

Nicholas Hurd SW1Y 4AJ

www.impaxam.com

BROKER REGISTERED OFFICE

Investec Bank plc 6th Floor

30 Gresham Street 125 London Wall

London London

EC2V 7QP EC2Y 5AS

Registered in England no. 4348393

www.impaxenvironmentalmarkets.co.uk

DEPOSITARY AND CUSTODIAN SECRETARY & ADMINISTRATOR

BNP Paribas Securities Services Sanne Fund Services (UK) Limited

10 Harewood Avenue (formerly known as PraxisIFM Fund Services (UK) Limited)

London 6th Floor,

NW1 6AA 125 London Wall

London

EC2Y 5AS

REGISTRAR AUDITOR

Link Group BDO LLP

10th Floor 55 Baker Street

Central Square London W1U 7EU

29 Wellington Street

Leeds LS1 4DL

Link Group (a trading name of Link Market Services Limited and Link Market Services Trustees Limited) may be able

to provide you with a range of services relating to your shareholding. To learn more about the services available to

you please visit the shareholder portal at www.signalshares.com or call +44 (0) 371 664 0300.

Calls are charged at the standard geographic rate and will vary by provider. Calls outside the United Kingdom will be

charged at the applicable international rate.

Link Group are open between 08:00 - 17:30, Monday to Friday excluding public holidays in England and Wales.

You can also write to Link Group at the address above.

Details of how to contact the Registrar in regards to the Annual General Meeting are given the Notes to the Notice of

AGM on pages 84 to 86.

Directors, Manager and Advisers

Impax Environmental Markets plc | Annual Report and Accounts 2021 | 83

Annual General Meeting

Notice is hereby given that the Annual General Meeting of Impax Environmental Markets plc will be held at

7thfloor, 30 Panton Street, London, SW1Y 4AJ on 18 May 2022 at 2:00 pm for the following purposes:

To consider and if thought fit pass the following resolutions of which resolutions 1 to 13 will be proposed as ordinary

resolutions and resolutions 14 to 16 will be proposed as special resolutions.

1. To receive the Company's annual accounts for the year ended 31 December 2021.

2. To approve the Directors' Remuneration Report included in the Annual Report for the year ended

31 December 2021.

3. To approve the Company's Distribution Policy.

4. To re-elect John Scott as a director of the Company.

5. To re-elect Aine Kelly as a director of the Company.

6. To re-elect Stephanie Eastment as a director of the Company.

7. To re-elect Vicky Hastings as a director of the Company.

8. To elect Nicholas Hurd as a director of the Company.

9. To re-appoint BDO LLP as auditor to the Company.

10. To authorise the Directors to fix the remuneration of the auditor until the conclusion of the next Annual General

Meeting of the Company.

11. That the Company continue as an investment trust for a further three year period.

12. In accordance with Article 87 of the Articles of Association of the Company, to increase the maximum aggregate

for the Directors' remuneration from £200,000 to £250,000.

13. That:

(a) the Directors be generally and unconditionally authorised pursuant to section 551 of the Companies Act 2006

(the "Act") to allot shares in the Company, or to grant rights to subscribe for or convert any security into shares

in the Company, up to a maximum nominal amount of £3,402,985 or, if less, the amount that represents 10 per

cent. of the nominal value of the Company's issued share capital (excluding treasury shares) on the date on

which this resolution is passed; and

(b) the authority given by this resolution:

(i) shall be in addition to all pre-existing authorities under section 551 of the Act; and

(ii) unless renewed, revoked or varied in accordance with the Act, shall expire at the conclusion of the Annual

General Meeting of the Company to be held in 2023 or, if earlier, on the expiry of 15 months from the date

of passing of this resolution save that the Company may, before such expiry, make any offer or enter into

an agreement which would or might require the allotment of shares in the Company, or the grant of rights

to subscribe for or to convert any security into shares in the Company, after such expiry and the Directors

may allot shares in the Company or grant rights to subscribe for or to convert any security into shares in the

Company in pursuance of such an offer or agreement as if such authority had not expired.

14. That, subject to the passing of resolution 13 set out in the Notice of Annual General Meeting dated 4 April 2022

(the "Allotment Authority"), the Directors be given power pursuant to sections 570 and 573 of the Companies Act

2006 (the "Act") to allot equity securities (within the meaning of section 560(1) of the Act) for cash pursuant to

the Allotment Authority, and to sell treasury shares for cash, as if section 561(1) of the Act did not apply to such

allotment or sale, provided that such power:

(a) shall be limited to the allotment of equity securities or the sale of treasury shares up to an aggregate nominal

amount of £3,402,985 or, if less, the amount that represents 10 per cent. of the nominal value of the Company's

issued share capital (excluding treasury shares) on the date on which this resolution is passed;

(b) shall be in addition to all pre-existing powers under sections 570 and 573 of the Act; and

power conferred on the Directors by this resolution, make an offer or agreement which would or might require

equity securities to be allotted or treasury shares to be sold after such expiry and the Directors may allot equity

securities or sell treasury shares in pursuance of such an offer or agreement as if such power had not expired.

Notice of Annual General Meeting

84 | Impax Environmental Markets plc | Annual Report and Accounts 2021

INVESTOR

INFORMATION

15. That the Company be and is hereby generally and unconditionally authorised in accordance with section 701 of the

Companies Act 2006 (the "Act") to make market purchases (within the meaning of section 693(4) of the Act) of

its Ordinary Shares of 10p each, provided that:

(a) the maximum number of Ordinary Shares hereby authorised to be purchased shall be 45,614,351 (representing

14.99% of the Company's issued Ordinary Share capital (excluding shares held in treasury) at 31 March 2022,

the latest practicable date before publication of the notice of this meeting);

(b) the minimum price (exclusive of any expenses) which may be paid for an Ordinary Share is 10p;

of (i) 5% above the average of the middle market quotations for the Ordinary Shares for the five business

days immediately before the day on which it purchases that share and (ii) the higher of the price of the last

independent trade and the highest current independent bid for the Ordinary Shares;

(d) the authority hereby conferred shall expire at the conclusion of the Annual General Meeting of the Company

in 2023 or, if earlier, on the expiry of 15 months from the passing of this resolution, unless such authority is

renewed prior to such time; and

(e) the Company may make a contract to purchase Ordinary Shares under the authority hereby conferred prior

to the expiry of such authority, which will or may be executed wholly or partly after the expiration of such

authority and may make a purchase of Ordinary Shares pursuant to any such contract.

16. That a general meeting of the Company other than an Annual General Meeting may be called on not less than 14

clear days' notice, provided that this authority shall expire at the conclusion of the Company's next Annual General

Meeting after the date of the passing of this resolution.

By order of the Board Registered Office:

Brian Smith 6th Floor,

For and on behalf of Sanne Fund

Services (UK) Limited 125 London Wall,

Company Secretary London, EC2Y 5AS

4 April 2022

Notes to the Notice of AGM

Website address

1. Information regarding the meeting, including the information required by section 311A of the Companies Act 2006,

is available from www. impaxenvironmentalmarkets.co.uk.

Entitlement to attend and vote

2. Only those holders of Ordinary Shares registered on the Company's register of members at 2.00pm on 16 May 2022

or, if this meeting is adjourned, at 2.00pm on the day two days prior to the adjourned meeting, shall be entitled to

vote at the meeting.

Appointment of Proxies

3. Members entitled to vote at the meeting (in accordance with Note 2 above) are entitled to appoint a proxy to vote

in their place. It is recommended that shareholders appoint the "Chairman of the Meeting" as their proxy where

possible. If you wish to appoint a proxy, please follow the instructions at note 6 below if you wish to appoint a proxy

through the CREST electronic proxy appointment service. In the case of joint members, only one need sign the

Form of Proxy. The vote of the senior joint member will be accepted to the exclusion of the votes of the other joint

members. For this purpose, seniority will be determined by the order in which the names of the members appear in

the register of members in respect of the joint shareholding.

4. You can appoint the Chairman of the Meeting as your proxy using the voting methods in notes 6 and 7.

5. You can instruct your proxy how to vote on each resolution by marking the resolutions For and Against using the

voting methods stated in notes 6 and 7. If you wish to abstain from voting on any resolution, please mark these

resolutions withheld. It should be noted that a vote withheld is not a vote in law and will not be counted in the

calculation of the proportion of votes "For" and "Against" a resolution. If you do not indicate how your proxy should

vote, he/she can exercise his/her discretion as to whether, and if how so how, he/she votes on each resolution,

as he/she will do in respect of any other business (including amendments to resolutions) which may properly be

conducted at the meeting.

Notice of Annual General Meeting continued

Impax Environmental Markets plc | Annual Report and Accounts 2021 | 85

Appointment of proxy

6. You can vote either:

• by logging on to www.signalshares.com and following the instructions;

• you may request a hard copy form of proxy directly from the registrars, Link Group on Tel: 0371 664 0300. Calls

are charged at the standard geographic rate and will vary by provider. Calls outside the United Kingdom will be

charged at the applicable international rate. Lines are open between 09:00 – 17:30, Monday to Friday excluding

public holidays in England and Wales; or

• in the case of CREST members, by utilising the CREST electronic proxy appointment service in accordance with

the procedures set out below.

In order for a proxy appointment to be valid a form of proxy must be completed. In each case the form of proxy must

be received by Link Group at 10th Floor, Central Square, 29 Wellington Street, Leeds, LS1 4DL by 2.00pm on 16 May

2022.

Appointment of Proxy through CREST

7. CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service

may do so for the meeting to be held on the above date and any adjournment(s) thereof by using the procedures

described in the CREST Manual. CREST Personal Members or other CREST sponsored members, and those CREST

members who have appointed a voting service provider(s), should refer to their CREST sponsor or voting service

provider(s), who will be able to take the appropriate action on their behalf.

In order for a proxy appointment or instruction made using the CREST service to be valid, the appropriate CREST

message (a "CREST Proxy Instruction") must be properly authenticated in accordance with Euroclear UK & Ireland

Limited's specifications and must contain the information required for such instructions, as described in the CREST

Manual. The message, regardless of whether it constitutes the appointment of a proxy or an amendment to the

instruction given to a previously appointed proxy, must, in order to be valid, be transmitted so as to be received by

the Company's agent (ID: RA10) by the latest time(s) for receipt of proxy appointments specified in the Notice of

Meeting. For this purpose, the time of receipt will be taken to be the time (as determined by the timestamp applied

to the message by the CREST Applications Host) from which the Company's agent is able to retrieve the message

by enquiry to CREST in the manner prescribed by CREST. After this time any change of instructions to a proxy's

appointee through CREST should be communicated to the appointee through other means.

CREST members and, where applicable, their CREST sponsors or voting service providers should note that

Euroclear UK & Ireland Limited does not make available special procedures in CREST for any particular messages.

Normal system timings and limitations will therefore apply in relation to the input of CREST Proxy Instructions.

It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal

member or sponsored member or has appointed a voting service provider(s), to procure that this CREST sponsor

or voting service provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by

means of the CREST system by any particular time. In this connection, CREST members and, where applicable,

their CREST sponsors or voting service providers are referred, in particular, to those sections of the CREST Manual

concerning practical limitations of the CREST system and timings.

The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5)(a) of

the Uncertificated Securities Regulations 2001.

All messages relating to the appointment of a proxy or an instruction to a previously appointed proxy, which are

to be transmitted through CREST, must be lodged at 2.00 pm on 16 May 2022 in respect of the meeting. Any

such messages received before such time will be deemed to have been received at such time. In the case of an

adjournment, all messages must be lodged with Link Group no later than 48 hours before the rescheduled meeting.

Appointment of a proxy through Proxymity

8. If you are an institutional investor you may be able to appoint a proxy electronically via the Proxymity platform, a

process which has been agreed by the Company and approved by the Registrar. For further information regarding

Proxymity, please go to www.proxymity.io. Your proxy must be lodged no later than 48 hours before the time of the

Annual General Meeting, in order to be considered valid. Before you can appoint a proxy via this process you will

need to have agreed to Proxymity's associated terms and conditions. It is important that you read these carefully

as you will be bound by them and they will govern the electronic appointment of your proxy. Proxymity will then

contract with your underlying institutional account holder directly to accept their vote instructions through the

platform.

86 | Impax Environmental Markets plc | Annual Report and Accounts 2021

INVESTOR

INFORMATION

Termination of proxy appointments

9. In order to revoke a proxy instruction, you will need to inform the Company. Please send a signed hard copy

notice clearly stating your intention to revoke your proxy appointment to Link Group, 10th Floor, Central Square,

29Wellington Street, Leeds, LS1 4DL.

In the case of a member which is a company, the revocation notice must be executed under its common seal or

otherwise in accordance with section 44 of the Companies Act 2006 or by signature on its behalf by an officer or

attorney whose power of attorney or other authority should be included with the revocation notice.

If you attempt to revoke your proxy appointment but the revocation is received after the time specified in note 2

above then, subject to the paragraph directly below, your proxy will remain valid.

If you submit more than one valid proxy appointment in respect of the same Ordinary Shares, the appointment

received last before the latest time for receipt of proxies will take precedence.

Nominated persons

10. If you are a person who has been nominated under section 146 of the Companies Act 2006 to enjoy information

rights:

• You may have a right under an agreement between you and the member of the Company who has nominated

you to have information rights (Relevant Member) to be appointed or to have someone else appointed as a

proxy for the meeting.

• If you either do not have such a right or if you have such a right but do not wish to exercise it, you may have a

right under an agreement between you and the Relevant Member to give instructions to the Relevant Member

as to the exercise of voting rights.

• Your main point of contact in terms of your investment in the Company remains the Relevant Member (or,

perhaps, your custodian or broker) and you should continue to contact them (and not the Company) regarding

any changes or queries relating to your personal details and your interest in the Company (including any

administrative matters). The only exception to this is where the Company expressly requests a response from

you.

If you are not a member of the Company but you have been nominated by a member of the Company to enjoy

information rights, you do not have a right to appoint any proxies under the procedures set out in the notes to the

form of proxy.

Questions at the meeting

11. Under section 319A of the Companies Act 2006, the Company must answer any question you ask relating to the

business being dealt with at the meeting unless:

• answering the question would interfere unduly with the preparation for the meeting or involve the disclosure of

confidential information;

• the answer has already been given on a website in the form of an answer to a question; or

• it is undesirable in the interests of the Company or the good order of the meeting that the question be

answered.

Issued Shares and total voting rights

12. The total number of shares in issue in the Company is Ordinary Shares of 10p each. Therefore, the total number

of Ordinary Shares with voting rights is 304,298,539 as at 31 March 2022, the latest practicable date before

publication of this report. On a vote by a show of hands, every holder of Ordinary Shares who (being an individual)

is present by a person, by proxy or (being a corporation) is present by a duly authorised representative, not being

himself a member, shall have one vote. On a poll every holder of Ordinary Shares who is present in person or by

proxy shall have one vote for every Ordinary Share held by him.

Communication

13. Except as provided above, members who have general queries about the meeting should use the following means

of communication (no other methods of communication will be accepted):

• calling the Link Group shareholder helpline on 0371 664 0300. Calls are charged at the standard geographic

rate and will vary by provider. Calls outside the United Kingdom will be charged at the applicable international

rate. Lines are open from 9.00 am to 5.30 pm Monday to Friday, excluding public holidays; or

• in writing to Link Group.

You may not use any electronic address provided either in this Notice of Meeting or in any related documents

(including the Form of Proxy for this meeting) to communicate with the Company for any purposes other than those

expressly stated.

Notice of Annual General Meeting continued

CONTENTS

STRATEGIC REPORT

Investment Objective 1

Financial Information 1

Performance Summary 1

Chairman’s Statement 2

Manager’s Report 6

Environmental Impact Report 10

Climate Disclosure

Structure of the Portfolio 16

Environme

ntal Markets Classification 17

Ten Largest Investments 19

Details of Individual Holdings 21

Investment Policy, Results and Other Information 23

Engaging with our Stakeholders 30

Sustainability and Stewardship

GOVERNANCE

Board of Directors 38

Directors’ Report 40

Corporate Governance 45

Directors’ Remuneration Policy 49

Directors’ Remuneration Implementation Report 50

Report of the Audit Committee 53

Statement of Directors’ Responsibilities 55

Independent Auditor’s Report 56

FINANCIALS

Income Statement 60

Balance Sheet 61

Statement of Changes in Equity 62

Statement of Cash Flows 63

Notes to the Financial Statements 64

INVESTOR INFORMATION

10 Year Financial Record 78

Alternative Performance Measures 79

Glossary 81

Directors, Manager and Advisers 82

Notice of Annual General Meeting 83

ANNUAL

REPORT

2021

Designed and printed by Perivan

Annual Report & Accounts

For the year ended 31 December 2021

Impax Environmental Markets plc

Celebrating

twenty years

Impax Environmental Markets plc Annual Report and Accounts 2021