Annual Financial Report

RNS Number : 1892H

Impax Environmental Markets PLC

05 April 2022

 

LEI: 213800RAR6ZDJLZDND86

5 April 2022

Impax Environmental Markets plc

Annual Financial Report Announcement

For the year ended 31 December 2021

Investment objective

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

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

FINANCIAL INFORMATION

At 31 December	2021	2020
Net asset value ("NAV") per Ordinary Share	496.4p	411.2p
Ordinary Share price	547.0p	422.5p
Ordinary Share price premium to NAV1	10.2%	2.7%
Net assets	£1,480m	£1,093m
Ongoing charges1	0.85%	0.95%

PERFORMANCE SUMMARY²

For the year ended 31 December	2021	2020
NAV total return per Ordinary Share1	21.3%	31.0%
Share price total return per Ordinary Share1	30.1%	28.9%
MSCI AC World Index3	19.6%	12.7%
FTSE ET100 Index3	13.1%	90.3%

1.  These are alternative performance measures.

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

3.  Source: Bloomberg and FactSet.

ALTERNATIVE PERFORMANCE MEASURES ("APMs")

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

STRATEGIC REPORT

Chairman's Statement

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 '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.

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.

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 register on 7 January 2022, with an ex-dividend 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 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 further6,237,000 million 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 remain18.3 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. 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.

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

Manager's Report

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. 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.

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.

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

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. 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

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.

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.	Increasing
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.	Neutral
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.	The Board has made a statement on premium/discount control in normal market conditions. 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.	Neutral
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.		Neutral
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.	Neutral

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.	Neutral
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. The Company invests in a broad portfolio of companies which are spread geographically, limiting the impact of location specific weather events.	Neutral
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.	Neutral
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.	Neutral
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.	Neutral
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.	Neutral

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.

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

Income Statement

		YEAR ENDED 31 DECEMBER 2021			YEAR ENDED 31 DECEMBER 2020
		REVENUE	CAPITAL	TOTAL	REVENUE	CAPITAL	TOTAL
	NOTES	£'000	£'000	£'000	£'000	£'000	£'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".

Balance Sheet

		AS AT	AS AT
		31 DECEMBER	31 DECEMBER
		2021	2020
	NOTES	£'000	£'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.

Statement of Changes in Equity

				CAPITAL	SHARE
			SHARE	REDEMP-	PUR-
		SHARE	PREMIUM	TION	CHASE	CAPITAL	REVENUE
YEAR ENDED		CAPITAL	ACCOUNT	RESERVE	RESERVE	RESERVE	RESERVE	TOTAL
31 DECEMBER 2021	NOTE	£'000	£'000	£'000	£'000	£'000	£'000	£'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

				CAPITAL	SHARE
			SHARE	REDEMP-	PUR-
		SHARE	PREMIUM	TION	CHASE	CAPITAL	REVENUE
YEAR ENDED		CAPITAL	ACCOUNT	RESERVE	RESERVE	RESERVE	RESERVE	TOTAL
31 DECEMBER 2020	NOTE	£'000	£'000	£'000	£'000	£'000	£'000	£'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.

Statement of Cash Flows

		YEAR ENDED	YEAR ENDED
		31 DECEMBER	31 DECEMBER
		2021	2020
	NOTES	£'000	£'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	YEAR ENDED
	31 DECEMBER	31 DECEMBER
	2021	2020
	£'000	£'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)

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.

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

(b) Investments

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

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

(c) Reporting currency

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

(d) Income from investments

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

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

(e) Nature and purpose of equity and reserves:

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

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

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

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

The capital reserve reflects any:

· gains or losses on the disposal of investments;

· exchange movements of a capital nature;

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

· expenses which are capital in nature.

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

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

The Company's distributable reserves consists of the share purchase reserve, the capital reserve attributable to realised profits and the revenue reserve.

(f) Expenses

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

Management fees

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

Finance costs

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

Transaction costs

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

(g) Taxation

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

Deferred taxation

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

(h) Foreign currency translation

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

(i) Financial liabilities

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

(j) Cash and cash equivalents

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

(k) Estimates and assumptions

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

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

(l) Dividend payable

Final dividends payable to equity shareholders are recognised in the financial statements when they have been approved by shareholders and become a liability of the Company. Interim dividends payable are recognised in the period in which they are paid. The capital 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.

2 INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS

	2021	2020
	£'000	£'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
(c) Gains on investments in year (per Income Statement)
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.

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	LEVEL 2	LEVEL 3	TOTAL	LEVEL 1	LEVEL 2	LEVEL 3	TOTAL
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'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	2020
	£'000	£'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	2020
	£'000	£'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	CAPITAL	TOTAL	REVENUE	CAPITAL	TOTAL
	£'000	£'000	£'000	£'000	£'000	£'000
Investment management fees	2,471	7,412	9,883	1,599	4,796	6,395

At 31 December 2021, investment management fees accrued were £2,730,000 (2020: £1,953,000).

 

5 OTHER EXPENSES

	2021			2020
	REVENUE	CAPITAL	TOTAL	REVENUE	CAPITAL	TOTAL
	£'000	£'000	£'000	£'000	£'000	£'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
	1,360	-	1,360	1,097	-	1,097

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	CAPITAL	TOTAL	REVENUE	CAPITAL	TOTAL
	£'000	£'000	£'000	£'000	£'000	£'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.

7 TAXATION

(a) Analysis of charge in the year

	2021			2020
	REVENUE	CAPITAL	TOTAL	REVENUE	CAPITAL	TOTAL
	£'000	£'000	£'000	£'000	£'000	£'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	2020
	£'000	£'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

(c) Investment companies which have been approved by the HM Revenue & Customs under section 1158 of the 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	2020
	£'000	£'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.

8 RETURN PER SHARE

	YEAR ENDED	YEAR ENDED
	31 DECEMBER	31 DECEMBER
	2021	2020
	£'000	£'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

	2021		2020
	RATE	£'000	RATE	£'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

	2021		2020
	RATE	£'000	RATE	£'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	2020
	£'000	£'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

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
		LOAN		LOAN
		CURRENCY		CURRENCY
BANK LOANS-FIXED RATE	INTEREST RATE	AMOUNT	£'000	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:

		2021	2020
PAYABLE AFTER MORE THAN ONE YEAR AT 31 DECEMBER		£'000	£'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.

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	2020
	£'000	£'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	2020
	£'000	£'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

15 TRANSACTIONS WITH THE MANAGER AND RELATED PARTY TRANSACTIONS

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.

 

16 FINANCIAL RISK MANAGEMENT

As an investment trust, the Company invests in equities for the long-term so as to enable investors to benefit from growth in the markets for cleaner or more efficient delivery of basic services of energy, water and waste, as stated in the Company's investment objective. In pursuing its investment objective, the Company is exposed to a variety of risks that could result in either a reduction in the Company's net assets or a reduction of the profits available for dividends. These risks include market risk (comprising currency risk, interest rate risk, and other price risk), credit risk and liquidity risk. 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	2020
	%CHANGE1	%CHANGE1
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.

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	2020
	POTENTIAL	POTENTIAL
	EFFECT	EFFECT
	£'000	£'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	25 BPS
	INCREASE	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.

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.

	2021EXPECTED AS PERCENTAGE AT LIMIT		2020EXPECTED AS PERCENTAGE AT LIMIT
	1 IN 20	1 IN 100	1 IN 20	1 IN 100
	(95%)	(99%)	(95%)	(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.

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	2020
	£'000	£'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
		NON-			NON-
	INTEREST	INTEREST		INTEREST	INTEREST
	BEARING	BEARING	TOTAL	BEARING	BEARING	TOTAL
	£'000	£'000	£'000	£'000	£'000	£'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

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 453p and the Company's share price has decreased by 14.6% from 547.0p 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.

This announcement does not constitute the Company's statutory accounts.  The financial information for 2021 is derived from the statutory accounts for 2021, which will be delivered to the registrar of companies. The auditors have reported on the 2021 accounts; their reports were unqualified and did not include a statement under Section 498(2) or (3) of the Companies Act 2006.

The Annual Report for the year ended 31 December 2021 was approved on 4 April 2022.  It will be made available on the Company's website at www.impaxenvironmentalmarkets.co.uk.

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

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

4 April 2022

For further information contact:

Secretary and registered office:

Sanne Fund Services (UK) Limited

6th Floor, 125 London Wall, London, EC2Y 5AS

 

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FR USUORUNUSRAR