The Pax Sustainable Allocation Fund turns 50
Impax Asset Management is celebrating the 50th birthday of the Pax Sustainable Allocation Fund (PAXIX), which launched in August 1971, marking the inception of the Pax World mutual fund family, which we are proud to manage. The Fund was the first publicly available mutual fund in the United States to use social and environmental as well as financial criteria in the investment process, and it helped give birth to the now burgeoning sustainable investment industry.
The fund’s founders, Luther Tyson and Jack Corbett, were United Methodist ministers who were opposed to the Vietnam War and wanted to avoid investing their churches’ assets in companies involved in the war, so the Pax World Fund (later renamed) excluded companies that manufactured such products as Agent Orange, napalm and other weapons. Soon after launching the Fund, Tyson and Corbett realized that if they could screen out weapons they could also screen out other things that they deemed inappropriate for church investments, so they added tobacco companies, polluters and (as earnest Methodists) alcohol and gambling to the list of excluded companies.
That was the origins of what is now called “sustainable” or “ESG” investing in the United States; it was more about what you didn’t invest in than what you did invest in.
Our investment philosophy has evolved since launching the Pax Sustainable Allocation Fund 50 years ago. While Pax World Funds still exclude companies involved in the manufacture or sale of weapons, as well as tobacco companies and fossil fuel companies, today our investment focus is squarely on the risks and opportunities arising from the transition to a more sustainable global economy.
We believe that capital markets will be shaped profoundly by global sustainability challenges, particularly climate change, environmental pollution, natural resource constraints and demographic and human capital issues such as diversity, inclusion and equality. Our view is that these trends will drive growth for well?positioned companies and create risks for those unable or unwilling to adapt.
We integrate environmental, social and governance (ESG) criteria into our investment portfolios based on the now firmly established premise that such factors can be material to how companies and investment portfolios behave, particularly when it comes to risk1. We seek to invest in companies that are better prepared for the transition to a more sustainable economy and better at managing risk, including ESG-related risk.
And we continue to evolve and innovate.
A few years back we launched the Pax Ellevate Global Women’s Leadership Fund (PXWIX), the first broadly diversified mutual fund that invests in the highest-rated companies in the world for advancing women. Our fastest-growing Fund, the Pax Global Environmental Markets Fund (PGINX), invests in companies offering resource efficiency and environmental solutions, where we see attractive growth opportunities in the critical decades ahead.
Earlier this year we sought to enhance the sustainability profiles of several of our funds to increase their exposure to powerful sustainability megatrends that we believe will only accelerate in the years to come. The Pax Global Sustainable Infrastructure Fund (PXDIX), for example, invests in companies that enable or increase access to vital physical resources such as clean energy, water, and food and agriculture, as well as vital societal resources such as healthcare, education, finance, transportation, and data and communications, all of which are expected to be critical investments as we transition to a more sustainable global economy.
Moreover, we believe that investing in companies that are better positioned for this transition is simply a smarter way to invest. Seven out of 11 Pax World Funds have four- or five-star overall Morningstar ratings for the period ending June 30, 2021, including the 50-year-old Pax Sustainable Allocation Fund (PAXIX), which has a four-star overall Morningstar rating (out of 659 50% to 70% Equity Funds based on risk-adjusted returns). Our Pax Large Cap Fund (PXLIX) ranks in the top 2% of 560 Lipper peers for risk-adjusted returns over the three years ending 7/31/2021.
We recently published an engagement report showcasing the results of our global engagement activities over the past year. We held 300 meetings with companies and achieved some notable milestones, including persuading a Chinese water infrastructure and technology provider to be more aware of its physical risks emanating from climate change, and encouraging an energy efficiency company to embrace a more diverse workplace by welcoming two female directors to its board. The global pandemic and social unrest changed the way we engaged in 2020 and the report details those changes, as well.
Today there are nearly 400 sustainable mutual funds in the United States2. New options come to market virtually every day, and this growth shows no sign of letting up. An RBC Wealth Management survey of 1,000 clients conducted earlier this year revealed that 61% want to increase the amount of environmental, social and governance-focused holdings in their portfolios3. During the first quarter of 2021, inflows to sustainable funds reached $185 billion globally2.
It is gratifying to be part of the firm that helped spark an entire industry. The wave that we played such a critical role in launching some five decades ago continues to send ripples. There is much work to be done. We continue to have a sense of urgency about addressing global sustainability challenges and we continue to be vigilant stewards on behalf of our clients and shareholders. But there are also grounds to pause, reflect and celebrate as we mark the 50th anniversary of the Pax Sustainable Allocation Fund.
Article by Joe Keefe, President of Impax Asset Management LLC, the North American division of Impax Asset Management Group and investment adviser to Pax World Funds. Based in the Portsmouth office, he is responsible for US managed strategies, as well as distribution of Impax’s full capabilities across North America.
 Julie Gorte, “The Investment Case for Sustainability: The Rise of Resilience,” Impax Asset Management, July 29, 2020.
 Jon Hale, “U.S. Sustainable Funds Continued to Break Records in 2020,” Morningstar, Feb. 25, 2021.
 Jacqueline Sergeant, “Female Investors Expect Advisors To Be Informed About ESG,” Financial Advisor, April 8, 2021.
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