Triodos Investment Management invests in financial institutions that aim for a well-balanced mix between people, planet, and profit. This basis for our investment policy is anchored in the analysis and decision making process, and supported by a Sustainability Assessment tool. This tool emphasizes the importance of people, planet, and prosperity by providing a continuously developing measuring system. In the long run, proper measurement and reporting that truly reflect our sustainability approach leads to the best results.

ESG measuring

What does a financial institution do to make money work for positive social and environmental change? In emerging markets, evaluating risks and opportunities linked to Environmental, Social, and Governance factors (ESG) can be challenging, as it can be difficult to find a direct causal link between ESG and the results. In addition, the evaluation also primarily depends on the reliability of the data and the depth of the assessment. Moreover, results are highly context-specific and more often than not depend on many different contributing factors, making it devilishly hard to establish causal links between ESG results and specific activities of financial institutions. For this reason we have been developing and refining our approach as embedded in our Sustainability Tool for many years.

Important tool

Beginning January, we rolled out the Sustainability Assessment Tool 2.0, which is a continuation of the former sustainability assessment we had employed. The improved tool takes into account the diverse range of institutions we invest in, from ‘traditional’ microfinance institutions to larger banks targeting small and medium-sized enterprises. In addition, it challenges us and our clients to dive deeper into the role of governance. Good corporate governance is crucial for the development of stable, reliable, and responsible financial institutions. By taking a closer look at governance, we can better determine the transparency, board efficiency, and policy setting of the companies we’re evaluating. It’s important to ask the right questions that fit the diversity of our portfolio and with the Sustainability Assessment 2.0, we address a number of important topics that have been hotly debated in recent years such as fair pricing, balanced returns, and executive compensation.

This targeted approach to the analysis focuses on relevant issues to the industry. What do the interest rates and client returns look like and are there clear efficiency gains over time? How is executive remuneration structured and what does employee compensation look like? Ultimately, by addressing these questions, we’re enabling ourselves and our clients to continually improve and strengthen the typical approach to business. The sustainability assessments play an important role in both the investment decisions as well as the conversation with the financial institutions we invest in.