An interview with the Chairman of Triodos Investment Management's management board.
How does Triodos Investment Management define the "innovative entrepreneurs" and "sustainable businesses" it aims to support?
For us, innovative entrepreneurs and sustainable businesses are those that truly operate with the intention to generate social and environmental impact and, by doing so, contribute to lasting, positive change. For instance, to realize the goals set in the Paris Agreement we not only need to invest heavily in large-scale generation of renewable energy, but also in innovative new ideas that contribute to changing the way we use and store renewable energy.
This is where we and other investors play an important role, as a lot of money is needed to make this happen. We see this need in all sectors we are active in. And it is of course developing continuously: 30 years ago, we were the first in the Netherlands to invest in a wind turbine. Now, investing in windfarms has become mainstream. We still invest in wind energy, but we also use our experience and track record as a pioneer in impact investing to further advance the whole energy sector.
What does your investor base look like, and how does Triodos Investment Management add value for them?
Our investor base consists mostly of European investors. We cater for retail investors through our network of distribution partners, but also for family offices, high-net-worth individuals, and professional and institutional investors.
I believe the main added value we bring to the table for investors is our longstanding track record in impact investing. We have been investing in the right impact-risk-return profiles for over 30 years and it is the only thing we do. When people first encounter us they often wonder: is it real or mostly a marketing approach? It is real: it is in our DNA and at the core of our business. I am confident we will remain a pioneering frontrunner.
We have a very strong strategic position, and for all the sectors and transition themes we invest in, we have a vision, based on a theory of change and a very robust selection process. Our financial and sustainability analysts work closely together, and we discuss every decision thoroughly from a financial and impact perspective. Our sector knowledge and the in-depth discussions we have in investment committees distinguishes us from the competition. We do this with over 200 professionals. Looking for instance at our activities in financial inclusion: we do not use external data or advice to do our impact and financial analyses; we have an experienced team of about 40 people with over 20 different nationalities who actually know the sector, the countries and local markets we invest in. Having this experience in-house ultimately contributes to making impactful and sound investments with the money entrusted to us by investors
Private capital must sustain true societal wealth while still turning a profit
How would you describe a real and effective ESG strategy?
We often say when looking at the different types of sustainable investing that there are different shades of green, with ESG investing being on the lighter side and impact investing occupying the darker shades. A truly effective sustainable investment strategy starts with intentionality: which global challenge would you like to address through your investment? Then you define your key impact objectives and how you aim to realize these objectives: what type of investments, and are they managed in an integrated way? Are impact, risk and return combined in the assessment and final decision? Furthermore, you need to monitor, engage and report on your impact. Effective measurement and management of impact data is essential if investors are to know whether they are achieving the impact they seek.
What is Triodos Investment Management’s position on the European Commission’s renewed sustainable finance strategy?
We very much welcome it. It is ambitious and emphasizes the relationship between social resilience, environmental balance and financial soundness. The European Commission sees a clear role for the financial sector to contribute to a more sustainable and resilient society, especially now that the Covid-19 crisis shows the critical need to strengthen the sustainability and resilience of our societies and the ways in which our economies function. If we want to live and thrive in healthy, resilient communities, we need to ensure that private capital strengthens true societal wealth; that it reinforces equality and inclusiveness, and protects nature and ecosystems – even supporting the prevention of pandemics – while still making a profit.
We fully support the commission’s clear and ambitious target to achieve a zero-carbon economy. We believe this target should be met well before 2050 and that implies a credible target for the EU in 2030: a 65% reduction in greenhouse gas emissions to support the path to limit global warming to 1.5°C. As such, we are pleased that despite member states’ requests for more time and flexibility, especially in a Covid recovery context, the Commission stays firm and clear about their green and social ambitions.
How do you see the EU’s emerging rules on sustainable investment? Could you tell us more about the taxonomy?
We view the implementation of the EU taxonomy as a positive development. The process of reaching an agreement about the taxonomy may have been a political battle at times, but I think that the outcome is as good or slightly better than expected. One of the biggest threats was a watered-down version that would allow many players to simple label their existing investments as green, even if they hardly or don’t at all contribute to green development. However, with regulation in place, greenwashing will become much more difficult.
The metrics and thresholds that the taxonomy specifies for the various sectors imply an ambition target for those that are not yet taxonomy-aligned but wish to be. The taxonomy sets ambitions for any economic activity, aiming for zero carbon emissions in 2050. Nevertheless, there is room for improvement. The taxonomy is now being launched with a focus on green impact, and we would very much welcome the next step to include social impact as well. We are looking forward to contributing to that debate this coming political season.
One of the biggest threats to the EU’s sustainable finance taxonomy was a watered-down version that would have allowed greenwashing
How do you advocate your position in Europe? What are the networks you use or are working with?
We want to be active on two levels: to finance change and to change finance. With our track record as a successful impact investor (the financing change level) we have the credibility to discuss the strategic direction of the sector and the policies involved.
As a result, we are very active in sector organizations, several of which we have helped create. We are a founding member of the Global Impact Investing Network, a nonprofit organization dedicated to increasing the scale and effectiveness of impact investing. Other partners and networks we work with are for instance the United Nations Principles for Responsible Investment (UNPRI), to whose development we have actively contributed; the European Sustainable Investment Forum (Eurosif); and the Carbon Disclosure Project. As a partner of this latter organization, we have contributed to developing an independent scoring methodology for companies and cities to measure and manage their risks and opportunities on climate change, water security and deforestation.
Unsurprisingly we are also very active in the consultations on new EU legislation, especially when related to sustainability. As an example, we have provided input into the development of the European taxonomy, some of which have helped to push it in the right direction.
Interview by Aude Ghespiere