Environmental Technologies: Providing Superior Returns While Addressing Climate Change

Bruce Jenkyn-Jones (United Kingdom)Managing Director - Impax Asset Management Limited

Pegasus House, 37-43 Sackville Street, London, W1S 3EH, UKTel: +44 (0)207 7434 1122 Fax: +44(0)207 7437 1245Impax Asset Management is authorised and regulated by the Financial Services Authority

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Environmental Technologies: Providing Superior Returns While Addressing Climate Change

Weak infrastructure

• Power grids

• Water sewerage

• Waste processing

Consumers

• Population pressure

• Higher living standards

Resource scarcity

• Fossil fuel prices

• Commodity prices

• Water scarcity

• Limited landfill

Pollution

• Local air pollution

• Global climate change

• Contaminated land

• Water quality

Economic growth is unsustainable…..

Legislation

• Target market sizes

• Mandatory capex

• Emission limits

• Financial support

Technology

• New solutions

• Corporate R&D

• Government support

• Economies of scale

…but “society” is responding

Powerful Drivers Behind the Environmental SectorMany largely independent forces are driving significant changes across the economy in favour of cleaner / greener products and services.

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Source: OECD Environmental outlook to 2030

Greenhouse gas emissions are rising rapidly… … but must be drastically reduced by 2050 to limit the impact of climate change

Source: IPCC

Rising Greenhouse Gases Need to be Stabilised

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Source: IEA, 2008

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1950 1953 1956 1959 1962 1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004

US Production

North Sea Production

US WTI Oil Price Peak Oil - US production peaked in 1970; North Sea in 2000

Source: 1950-1970 Economist 100 years of Economic stats, 1971-1984 BP Statistical Review of world energy, 1985 -2004 International Energy Agency Oil Market Report.

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1980 1990 2000 2010 2020 2030

Reference

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Low Price

ProjectionsHistory

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1980 1990 2000 2010 2020 2030

Reference

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ProjectionsHistory

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Increasing Energy Prices and Finite Fossil Fuel Reserves

GHG Reduction: Importance of Energy Efficiency

Source: Princeton University 5

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Source: OECD Environmental outlook to 2030

• Current water usage is unsustainable with steadily growing demand for finite resources

• Water scarcity is already an economic constraint in China, India, Australia and Western US

• Scarcity worsening with climate change, rising living standards and depleting groundwater supplies

• 47% of the world population is predicted to be living in areas of high water stress by 2030

• World population growth, predicted at 80 million a year means an increased demand for freshwater of about 64 billion cubic meters a year

Source: The United Nations World Water Development Report 3

Increasing Water Stress and Scarcity

7Source: OECD Environmental outlook to 2030

US$277 billion forecast expenditure require to upgrade water infrastructure (2008-2020)

Source US$12.8

Other US$2.3

Treatment US$53.2

Transmission and distribution

US$183.6

Storage US$24.8

Source: The United Nations World Water Development Report 3

Source: US EPA

• For every 1 dollar invested in safe water and sanitation returns can be expected between $3 and $34*

• Replacing aging water infrastructure in industrial countries could cost up to $200 billion a year

• The US stimulus package has dedicated $18 billion to water infrastructure

* World Health Organisation cited in The United Nations World Water Development Report 3

Massive Investment in Water Infrastructure and Treatment Needed

Environmental Markets Size and Growth

Economic sector

Energy

Materials

Industrials

Consumer Discretionary

Consumer staples

Financials

Information Technology

Utilities

Conventional Sub-Sectors

Oil, Gas and Consumable Fuels

Chemicals, Basic Resourcesand Construction Materials

Capital Goods and Support Services

Automobiles & Components, Consumer Durables and Consumer ServicesFood Retail, Household Products and Agriculture Banks, Insurance and Real EstateSoftware, Hardware and Semiconductor Equipment

Electric, Gas, Water and Sewerage

Environmental Markets

• Wind power generation eqpt.

• Biofuels

• Solar energy generation eqpt.

• Water treatment eqpt.

• Waste technology eqpt.

• Pollution control solutions

• Environmental testing & gas sensing

• General waste management

• Value added waste processing

• General environmental

• Hazardous waste management

• Carbon & other env. assets trading

• Renewable energy developers and IPPs

• Environmental consultancies

• Power network efficiency

• Industrials energy efficiency

• Buildings energy efficiency• Transport energy efficiency

• Water utilities

• Other renewable eqpt.

• Water infrastructure companies

Rapid

substitution

Environmental Sector Key Data

• Market size: $500 billion +

• Growth rates (CAGR):10-20%

• ROIE: 10%-20%

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Listed Equity: FTSE Markets

Renewable energy

developers

Solar energy

generation eqpt.

Wind power

generation eqpt

Biofuels Other renewables

eqpt.

Power network

efficiency

Industrials energy

efficiency

Buildings energy

efficiency

Transport energy

efficiency

Power network

efficiency

Industrials energy

efficiency

Buildings energy

efficiency

Pollution control

solutions

Environmental testing &

gas sensing

Waste technology

eqpt.

Value added waste

processing

Hazardous waste

management

General waste

management

Environmental consultancies

Carbon & other

environmental assets trading

General environmental

Energy

Waste

Water

Renewable & Alternative Energy Energy Efficiency

Pollution ControlWater Infrastructure & Technologies

Environnemental Resource Management & Trading Waste Management & Technologies

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Growth in the Environmental Universe

Environmental Opportunities

*Estimated Size

Source: Impax and Bloomberg

**

Number of companies

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FTSE EOAS performance vs MSCI World

• Annualised outperformance ~4%

• Beta 1.05

• Tracking error 7.0%

• PE ratio 15.6x

• EPS growth 17.6%

Data for the FTSE EO All Share has been back-tested. The index was launched June 2008.

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● Impax is FTSE’s global partner for the environmental sector

● 18 environmental sector indices

● Launched in 2007

● Adopted by major pension funds as a benchmark

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• US Climate Bill – uncertainty on Climate Bill, KGL proposal delayed. Expect clarity Q2

• US Renewable Energy - Continuing uncertainty on federal RES & stimulus provisions. State RPS requirements remain in place/expanding

• Europe Renewable Energy – FiT cuts in Germany, Italy, Czech Republic, Spain. UK FiT introduced

• US & Europe Transport Energy Efficiency - Enhanced US CAFE standards deadline: 2016 and EU CO2 standards

• China - 12th Five Year Plan – 2x increase in environmental budget; specific clean energy targets expected. More details Q2-3

• Japan Renewable Energy - 10% by 2020 target. FiT for all renewables, recently extended for wind, hydro & geothermal

Current Legislative Considerations

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• Polysilicon pricing – Broker channel checks suggest spot prices at c.$50-$55/kg. Stable after sharp declines (2009)

• Turbine Pricing – believed to be at 2006 levels, and at least 20% lower than peak prices

• EV Battery pricing – Numerous auto OEMs launching low volume HEVs/EVs. Battery manufacturers building commercial scale plants to come online in next 12-24m. Suggestion that pricing forecasts of c.$500 per kWh in 2013/14 (50% decline from today) need to occur for scale adoption.

• Fracturing technology – Horizontal drilling and modern fracturing techniques. Marginal cost of gas production now as low as $2.5/Mcf – this has fundamentally changed the energy industry

• Smart grid – rollout of AMR/AMI, high voltage and DC grid

• LEDs – costs falling and brightness increasing. TV/PC market led – general lighting gaining traction

• Cellulosic ethanol – first commercial scale facilities due to come on line in the next 12m

Current Technology Considerations

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Strong Investor Endorsement

Investors in segregated accounts

EuropeanInstitution

Investors in pooled vehicles

+ > 100 other institutions

Consultants

White label funds

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<15x13%

<15x-20x25%

>20x43%

Unprofitable4%

Cash15%

>$2bn25%

$200m-2bn54%

<$200m6%

Cash15%

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Portfolio Characteristics*

Parvest Environmental Opportunities Fund by market cap as at 30th April 2010. Source: Impax AM

Company SizeSector Breakdown

Forward 12 months’ PE RatioShare Listing

En. Efficiency22%

Ren & Alt Energy 19%

Waste 22%

Services3%

Water 14%

Pollution 5%

Cash15%

N America33%

Europe34%

Australia3%

Japan4%

Asia ex Jap11%

Cash15%

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Performance since Inception

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Source BNPP AM, in €, as at 30th April 2010, past performance is not a guide to future performance

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Summary and Conclusions

•Climate change creates mitigation and adaptation investment opportunities

•The sector has seen strong growth over the last 10 years

•The drivers of the sector have been robust through the financial crisis

•Diversified range of opportunities that contribute to strong performance of sector

•Growth and M&A are key drivers of performance

•Sector has matured substantially and currently trading at attractive valuations

•Dynamic sector leads to emerging opportunities in new sub-sectors and

geographies

Bruce Jenkyn Jones

[email protected]

Disclaimer

This document has been prepared by Impax Asset Management Limited (Impax, authorized and regulated by the Financial Services Authority). The information and any opinions contained in this document have been compiled in good faith, but no representation or warranty, express or implied, is made as to their accuracy, completeness or correctness. Impax, its officers, employees, representatives and agents expressly advise that they shall not be liable in any respect whatsoever for any loss or damage, whether direct, indirect, consequential or otherwise however arising (whether in negligence or otherwise) out of or in connection with the contents of or any omissions from this document. This document does not constitute an offer to sell, purchase, subscribe for or otherwise invest in units or shares of any fund managed by Impax. It may not be relied upon as constituting any form of investment advice and prospective investors are advised to ensure that they obtain appropriate independent professional advice before making any investment in any such Fund. Any offering is made only pursuant to the relevant offering document and the relevant subscription application, all of which must be read in their entirety. Prospective investors should review the offering memorandum, including the risk factors in the offering memorandum, before making a decision to invest. Past performance of a fund is no guarantee as to its performance in the future. This presentation is not an advertisement and is not intended for public use or distribution.

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