The SRI market is strong and flourishing. Over the years the industry has witnessed significant changes and investment strategies have become more sophisticated. Triodos Investment Management applies a combination of strategies to determine the companies eligible for investment in its SRI products and services.

When Triodos Investment Management first established its’ sustainable investment fund in 1997 there were few funds offered in the market. The term SRI – socially responsible investment – was unfamiliar. Nowadays almost all fund houses offer one or more socially responsible investment (SRI) funds alongside their traditional funds. And the number of studies that demonstrate that returns of SRI in funds can compete with traditional investment funds are also increasing. What sets Triodos Investment Management apart from most fund houses is that we do not offer SRI funds alongside regular funds, but rather specialise in sustainable investment only.

From the outset, Triodos combined several different strategies in its investment process. In its European SRI Study 2012 , SRI think-tank Eurosif discerns as many as seven different strategies that are currently adopted by European SRI investors. Triodos uses many of them in combination.

1. Sustainability themed investment
Triodos Investment Management applies sustainability themed investment, by selecting companies that contribute to specific themes such as clean planet, climate protection and healthy people. Whereas the Triodos Sustainable Pioneer Fund may only invest in these companies, the other SRI funds may also invest in these companies.

2. ESG screening or the ‘best-in-class’ approach
This environmental, social and governance (ESG) screening is the first step in our selection process of large companies. Triodos Sustainability Research uses the sustainability scores to determine those companies that perform the best in their sector.

3. Norms-based screening
Norms-based screening is the fastest growing strategy. Triodos Sustainability Research applies it in its minimum standard screening to assess whether a company complies with international standards and norms. For example companies are expected to refer to the UN Universal Declaration of Human Rights, OECD guidelines or UN Global Compact in their human rights policies.

4. Exclusion from investment universe
Together with the best-in-class strategy, this strategy follows closely on the heels of norms-based screening. Triodos Sustainability Research, for example, has long had a policy to exclude companies involved in the manufacture of weapons – a strategy which rapidly increasing in popularity.

5. Integration of ESG factors in financial analysis
This strategy sees asset managers explicitly include ESG risks and opportunities into traditional financial analysis. Investment decisions are based on a systematic process and appropriate research sources. Triodos Sustainability Research does not use this method because an ESG analysis is our starting point. Our asset manager is only permitted to invest in companies that meet our strict sustainability criteria.

6. Engagement and voting on sustainability matters
Stimulating companies to improve their sustainability performance has always been part of the Triodos investment strategy. In early years, companies were only contacted during the assessment process and were asked to provide additional information. This would help determine if they met the Triodos criteria, however it was often difficult to get a response. These days Triodos Sustainability Research has multiple contacts with companies in its investment universe. In 2004, Triodos strengthened its active ownership strategy by voting at Annual General Shareholder meetings. In 2012, Triodos engaged with 86% of the companies that it has selected for sustainable investment.

7. Impact investment
This is the latest investment strategy trend in the SRI industry. It has been defined as ‘investments made with the intention to generate social and environmental impact alongside a financial return, and it should be financially sustainable in the long run’. Impact investment is often set apart from SRI, as it also includes investments in emerging markets and microfinance. Most impact investing strategies operate outside the stock-exchange and invest directly in entrepreneurs or projects that generate the impact these investors seek.  Next to the four investment funds that invest on the stock exchange, the bulk of the 18 investment funds and EUR 2.4 billion in assets managed by Triodos Investment Management would fall into this category.

Triodos applies a combination of responsible investment strategies and will continue to monitor industry developments. As more strategies become available the SRI market can continue to grow.  

Note: The issues explored in this article are relevant for sustainable investments on the stock market. Triodos Bank believes that our socially responsible investments are a powerful means of promoting our values and working for greater sustainability, while enabling us to offer a complete range of attractive investment options to customers who choose to invest on the stock market.