Taking stock

Socially Responsible Investment (SRI) funds invest in stock-exchange listed companies, balancing the social and environmental impact of the investment with the investor’s financial return.  To present the larger picture, according to a Eurosif European SRI Study in 2014, the total assets under management in European SRI funds were €13 trillion at the end of 2013, according to the latest figures available. Europe is one of the fastest growing markets in the world for socially conscious investments and Triodos is leading the way in its engagement and selection process.

In addition to this selection process, Triodos Research engages in active dialogue with companies about various environmental and governance themes, as well as social policy. Engagement is not just dialogue and again in 2014, the questions asked and the suggestions made by Triodos Research led to changes in corporate behaviour. The 2014 Engagement Report summarises the year’s achievements through the pursuance of dialogue and by addressing relevant issues negatively affecting society and thus, divesting in companies unwilling to change.

It’s possible to identify companies that outperform others, that are setting the agenda in their sector – companies with a very strategic vision of what they can do to ‘green’ the world. It’s our challenge to find them.
Rosl Veltmeijer, Head of Research at Triodos Bank

Why SRI?

Triodos Investment Management has managed funds that invest in stock-market listed companies for over 15 years. The funds are among the most rigorous in the sector in terms of environmental sustainability, social performance and good governance. But the nature of investing in listed companies raises questions in itself. As a sustainable bank, should Triodos be involved with stock-listed multinational companies at all? Few meet all the requirements we demand from the organisations. On the other hand, these companies are part of the reality of the world, and their scale alone means that even minor improvements in the way they operate can have a significant positive impact, socially and environmentally.

Rosl Veltmeijer, Head of Research at Triodos Bank, explains. “Why do we do this? To offer an alternative for people who do want to invest in the stock markets in the most sustainable way possible. The next question is, how can you possibly do this? We do so by making a very deliberate choice to try and find companies that are more responsible than others – ones that are driving the whole sustainability agenda forward. If these companies change, that has a huge impact on wider society.”

Selecting sustainable pioneers

Triodos Bank’s research department is responsible for keeping up to date with the latest thinking on sustainable issues, monitoring legislative and regulatory developments, and ensuring that the selection process is based on the most relevant and reliable information available. In addition, to give a broader perspective on what are often very complex issues, Triodos Research often engages leading international experts, representing various interests and stakeholder groups. Using wide ranging criteria, the research department defines the Triodos Sustainable Investment Universe, which lists the companies selected for investment by the Triodos SRI funds. These include sustainable pioneers and companies which are sustainable frontrunners within a sector.

As well as positive selection criteria, minimum standards exclude companies with inherently unsustainable activities – for instance companies deriving direct revenue from weapons, nuclear energy, or oil from tar sands are automatically excluded. The eligible companies are selected on the basis of their sustainability, rather than financial performance with an external fund manager, Delta Lloyd Asset Management, then making the decisions on which companies to invest in from the investment universe. In line with Triodos’ commitment to transparency, the investment universe is published in full online.

“There is a big difference in sustainability performance between large companies and it’s possible to identify companies that outperform others, that are setting the agenda in their sector – companies with a very strategic vision of what they can do to ‘green’ the world. It’s our challenge to find them,” says Veltmeijer.

Activist shareholders

Triodos Research is committed to exerting the strongest possible positive influence on the companies we invest in, through active engagement. In 2014, 495 engagement actions took place involving 241 companies. Engagement is about influence and applying pressure on companies in a way that wouldn’t be possible if Triodos didn’t invest in them. And even a small change in the policy or practices of a major company can make a significant global impact.

“We put a lot of effort in engaging with these companies. We don’t do that by power, but by content. Even the front- runners can be a lot more sustainable – there are always areas to further improve. So we’re constantly trying to push them to go further,” says Veltmeijer.

Engagement is a collaborative process

In 2014, Triodos participated in a publication of VBDO on good engagement. The report, ‘Engagement, box ticking or catalyzing sustainability?’, was published early 2014. The differentiation in this study versus others is that it is one of the first to actively seek feedback from the investee companies. Such feedback questions include: How do they perceive the engagement efforts of institutional investors and what recommendations do they have for us? Recommendations made to investors range from ‘ask a limited amount of questions’ to ‘first identify if a company is open to engagement’ to ‘evaluate engagement results and seek cooperation with other investors’. The outcomes of the study and the recommendations made by VBDO are taken into account by Triodos Research to further increase the effectiveness of our engagement efforts.

People can criticise us for investing on the stock market, but I believe that the way we do it – how transparent we are, our criteria, what the investment universe and portfolio look like and how we engage – all set Triodos apart.

Some engagement has a relatively direct impact. While fewer companies were engaged, the dialogues became increasingly important and the UNPRI, the UN’s platform for responsible investments, has played an important role in this process as it gives a comprehensive overview of petitions that investors can join. One of the companies that Triodos Bank took action against via the UNPRI platform in conjunction with other investors is online retailer Amazon and consequently, persuaded the company to stop selling weapons and weapon accessories.

Veltmeijer concludes, “People can criticise us for investing on the stock market, but I believe that the way we do it – how transparent we are, our criteria, what the investment universe and portfolio look like and how we engage – all set Triodos apart. Ultimately we’re providing investors with a sustainable and transparent alternative. As an investor you know what we do with your money and can make an informed decision whether this investment philosophy fits you and your beliefs.”

For an overview of our engagement activities and how we influence the companies we invest in, please visit our socially responsible investing page.