Impax Environmental Markets : Half-yearly Financial Report 2022

Celebrating

twenty years

Impax Environmental Markets plc

Half-yearly Financial Report 2022

INTERIM REPORT 2022

CONTENTS

Investment Objective, Financial Information	1
Chairman's Statement	2
Manager's Report	4
Environmental Impact Report	7
The Investment Process	12
Structure of the Portfolio	13
Environmental Markets Classification	14
Ten Largest Holdings	15
Top Thirty Portfolio Investments	17
Interim Management Report	18
Directors' Statement of Responsibility	19
Condensed Income Statement*	20
Condensed Balance Sheet*	21
Condensed Statement of Changes in Equity*	22
Condensed Statement of Cash Flows*	23
Notes to the Financial Statements*	24
Alternative Performance Measures	29
Directors, Manager and Advisers	30

* Unaudited

LSE Green Economy Mark: The Green Economy Mark recognises London-listed companies that generate over 50% of their total annual revenues from products and services that contribute to the global green economy. IEM was awarded the mark in 2019 alongside Impax Asset Management Group.

B| Impax Environmental Markets plc | Half-yearly Financial Report 2022

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, notably 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 30 June 2022 and 31 December 2021

410.9p

Net asset value ("NAV") per share

2022	410.9p
2021
	496.4p

400.0p

Ordinary Share price

2022	400.0p
2021
	547.0p

PERFORMANCE SUMMARY

For the six months ended 30 June 2022

	% CHANGE2,3
NAV total return per Ordinary Share1	(17.0)%
Share price total return per Ordinary Share1	(26.7)%
MSCI ACWI Index	(11.0)%
FTSE ET100 Index	(20.6)%

1. These are alternative performance measures.
2. Total returns in sterling for the six months to 30 June 2022.
3. Source: Bloomberg and FactSet.

(2.7)%

Ordinary Share price (discount) premium to NAV1

2022	(2.7)%
2021	10.2%

£1,249.2m

Net assets

2022	£1,249.2m
2021
£1,480.0m

ALTERNATIVE PERFORMANCE MEASURES ("APMs")

The disclosures as indicated in footnote 1 above are considered to represent the Company's APMs. Definitions of these APMs and other performance measures used by the Company, together with how these measures have been calculated, can be found on page 29.

Impax Environmental Markets plc | Half-yearly Financial Report 2022 | 1

Chairman's Statement

John Scott

Chairman

"notwithstanding the recent headwinds, the Company's longer term performance remains excellent"

The first part of this year has been challenging for markets in general, and Impax Environmental Markets (the "Company", or "IEM") has not been spared. Following three years of strong performance, IEM's share price has fallen in absolute and relative terms over the first six months of 2022 (the "Period"). War has brought devastation to Ukraine, caused turmoil in commodity markets and further stoked inflation. Our income has grown, however, and we have declared a first interim dividend of

1.5 pence per Ordinary Share, an increase of 15% as compared with that declared in 2021.

Over the six months to the end of June, the Company's share price fell by 26.7%, and the net asset value ("NAV") by 17.0%. This trailed broader equity markets, with the MSCI All Country World Index ("MSCI ACWI"), its global comparator, declining by 11.0%. It is some comfort that the Manager, on an NAV basis, was able to outperform our environmental benchmark, the FTSE Environmental Technology 100 ("FTSE ET100"), due to judicious stock selection. Over the Period, although IEM's share price has slipped from a small premium to a modest discount, the share price has generally remained close to the Company's NAV, as is discussed further below. It is relevant at this point to remind shareholders that, notwithstanding the recent headwinds, the Company's longer term performance remains excellent. For the five years to the end of the Period, the share price is up 77.8%, with MSCI ACWI up 50%. On an annualised basis over ten years, MSCI ACWI has returned 11.6% per annum and the IEM plc share price 16.6%.

The outlook for markets at the start of the Period was already cloudy, even before the Russian invasion of Ukraine. Inflation was on the rise, driven by the release of demand pent up by the COVID-19 pandemic and supply chain constraints. In addition, the prospect of central banks increasing interest rates was weighing on the small- and mid-cap sectors in which IEM tends to invest, and equity markets were facing pressure from the end of quantitative

easing programmes. The outbreak of the biggest war in Europe in 75 years intensified these challenges.

Beyond Ukraine itself, the immediate impact of the conflict has been on energy markets, as the West seeks to reduce its dependence on Russian fossil fuels. The resulting rise in energy prices will serve to undermine growth and stimulate inflation, but it has also added an energy security dimension to the low-carbon transition. EU policymakers in particular have moved swiftly to cut the bloc's reliance on Russian energy exports with plans that, while disruptive in the near-term, are positive from an environmental as well as an energy security perspective.

The predicament policymakers face is how to plug immediate shortfalls in energy supply while cleaner alternatives can be brought online. The risk, from a climate perspective, is that fossil fuels from Russia are simply replaced with fossil fuels from elsewhere, enabled by investment in infrastructure that risks locking in hydrocarbon use for decades to come.

Notwithstanding the longer-term imperatives to take action on climate change, investors' enthusiasm for the sector has cooled in recent months. Part of the reason is those funds' poor performance, as investors have favoured sectors such as conventional energy and financials. Another reason is growing concern in the market about 'greenwashing', where fund managers have been perceived to have overstated the Environmental, Social and Governance ("ESG") credentials of their products.

This is a real concern for an emerging sector such as ours. Definitions of ESG and sustainable finance are fluid. The popularity of the theme over the last few years has encouraged many to jump onto the bandwagon of ESG. It is a concern drawing regulatory scrutiny, with the US Securities and Exchange Commission proposing to follow the EU with rules on ESG fund labelling. We welcome the increased scrutiny being applied.

We believe that our 20 year record of investing in environmental markets and our unambiguous focus on companies providing the solutions to sustainability challenges set us apart from many of the more recent entrants to the space. We can also point to clear impact against a number of environmental metrics, as we set out on pages 7 and 8.

INVESTMENT PERFORMANCE

During the Period, the total return of the NAV per share saw a decline of 17.0% and the share price total return fell by 26.7% as the premium at which the shares were trading at the end of December unwound. IEM underperformed the

2| Impax Environmental Markets plc | Half-yearly Financial Report 2022

"we are encouraged both by the continuing investment proposition of environmental solutions and the commitment by policymakers to environmental challenges and the need for a green recovery"

MSCI ACWI, its global comparator index, which fell by 11.0% on a total return basis. As discussed above, the Company suffered from a rotation by investors from quality and growth to value stocks. However, our NAV outperformed the FTSE ET100, its environmental benchmark, which fell by 20.6% due to IEM's avoidance of the car maker Tesla and other expensive tech names.

GEARING

As of 30 June 2022, the Company's net gearing was 3.8%, above the 1.6% net gearing as of the end of 2021.

The 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. As discussed below, the Company's shares are now trading close to, but at a small discount to, NAV which precludes further issuance until such time as

a premium returns. In the absence of share issuance, expanding our investment capacity via increased gearing remains an option.

PREMIUM AND DISCOUNT CONTROL

The Company's Ordinary Shares traded at a premium to NAV of 10.2% on 31 December 2021 and a discount to NAV of 2.7% on 30 June 2022, having traded in a range of a 14.1% premium to a 6.6% discount during the Period.

The year began with continued investor demand and the issue of shares at a premium to meet that demand. In February 2022 the shares moved from trading at a premium to trading at a discount. Since then, the Board has been using its authority to purchase its own shares when necessary to prevent a material discount from emerging. The Board maintains its intention to keep shares trading close to NAV during normal market conditions. During the Period, 7.6 million new shares were issued, 1.7 million shares were bought back into treasury with 112,900 shares subsequently reissued in March and 400,000 shares reissued since the period end at a premium to NAV, with the result that 1.2 million shares remain in treasury.

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.

On 28 July 2022, the Board announced a first interim dividend for the current financial year of 1.5 pence per Ordinary Share (2021: 1.3 pence per Ordinary Share), payable on 26 August 2022 to shareholders who appear on the register at 5 August 2022, with an ex-dividend date of 4 August 2022.

THE BOARD

Shareholders may recall that my original plan was to retire at the May 2022 AGM, whereupon Simon Fraser was

to have taken over from me. Tragically, Simon died last August, in the light of which at the Company's recent AGM shareholders approved my continuing to serve as Chairman for a further year. Recruitment is underway for a Chair designate and for a replacement for non-executive director Vicky Hastings, who will retire at or before the 2023 AGM depending on the needs of the Board.

OUTLOOK

Uncertainty in global markets - from inflation, rising interest rates, geopolitical tensions and disrupted commodity markets - is likely to weigh on the Company's performance in the near-term. Looking further ahead, the Directors

and the Manager are encouraged both by the continuing investment proposition of environmental solutions and the commitment by policymakers to environmental challenges and the need for a green recovery. The outlook for superior, long-term growth remains fully intact for the companies owned by IEM, which are providing solutions to some of the world's most pressing environmental challenges.

John Scott, Chairman

1 August 2022

DIVIDEND

The Company's net revenue return for the Period was

£7.5 million, compared with £5.7 million earned in the same period last year. The increase in net revenue is attributable to the growing size of the Company and the recovery of portfolio companies' earnings post-pandemic.

The Company's dividend policy, as approved by shareholders at the May 2022 AGM, is to declare two dividends each year and to pay out substantially all earnings by way of dividends.

Impax Environmental Markets plc | Half-yearly Financial Report 2022 | 3