Impact investing is clearly on the rise. Especially now that large mainstream financial players such as Goldman Sachs and BlackRock are entering this market, which until recently was regarded with reserve from smaller players, mainly asset managers who had already been involved in sustainable investments for a long time.

How do you set up an impact portfolio and what types of investments are eligible?

IEX Profs, a platform for professional investors, presented a case to Triodos Investment Management.

The case: a pension fund wishes to allocate five million euros of its assets under management to impact investments and has an investment horizon of twenty to thirty years.

As we do not provide allocation advisement, we ‘borrowed’ the allocation already in place for Triodos Multi Impact Fund and looked into how this would actually fit this fictitious pension fund with five million euros available for impact investing. Raymond Hiltrop, fund manager Triodos Multi Impact Fund, dives into this case.

The impact investment portfolio suggested by Triodos Investment Management

“Because we know very little about this case study pension fund, we suggested to use the existing structure of Triodos Multi Impact Fund. Triodos Multi Impact Fund is our fund-of-funds with a fixed-income profile. It invests 70% of its assets in underlying Triodos funds and invests the other 30% in impact bonds”, says Raymond Hiltrop.


“Our investments are never just about risk-return profiles, but also very much about impact”, explains Raymond.” In this case we opted for the same structure as for Triodos Multi Impact Fund, because this fund covers all the themes that can be distinguished in the market for impact investing, ranging from microfinance, renewable energy and sustainable food and agriculture to investments in listed companies with sustainable operations. We believe that diversification is crucial. And not only from a risk point of view. Diversification in terms of impact is also important.”

Raymond Hiltrop, Fund Manager of Triodos Multi Impact Fund

Measurable impact

The fund is also diversified across asset classes – equities, bonds, debt, private equity – and is rebalanced on a weekly basis. Pension funds may also opt to rebalance with a different frequency, once every quarter, for instance. Critical investors often comment that the effect of impact investing is so hard to measure and indicate that this is why they still hesitate to invest in this sustainable investment category.

“All the impact themes represented in Triodos Multiple Impact Fund are measurable. We use indicators for this, ranging from the number of loan and savings clients we reach through our microfinance activities  to the number of kilowatt hours of solar power that are generated,” says Hiltrop. Triodos Investment Management does want to emphasise, however, that impact investing is not just about measurable data. “For instance, through Triodos Cultuurfonds we also support arts and culture in the Netherlands. If we were to look only at how many people have seen a particular show or exhibition, we would only consider megaprojects or megatheatres, while it is so important to also fund smaller cultural institutions.”

Tradable on a daily basis

The indicators for the portfolio have a close link to the Sustainable Development Goals of the UN, a set of goals to end poverty, protect the planet and ensure prosperity for all. Raymond continues: “These global goals are interlinked. Take climate change. This is related to our food system, economic growth, access to clean energy, and our soils among many other issues. Impact investment plays a pivotal contributing role in realising these goals as it unlocks and catalyses capital.  This allows us to measure, for instance, whether we do actually have an impact on that target group.”

The UN Sustainable Development Goals
The UN Sustainable Development Goals

Liquidity may also be an issue for impact investors – especially the larger players. The market for impact investing is growing, but is generally still small in comparison with other forms of sustainable investments. The pension fund that is the subject of this case has a (very) long investment horizon, but may occasionally have to sell investments as a result of rebalancing or in order to be able to meet its obligations.

More than half of the underlying funds in the Triodos fund-of-funds are tradable on a daily basis. The impact bonds, which represent 30% of the portfolio of the fund, are all tradable daily. Impact bonds must comply with the Green Bond Principles in order to be eligible for inclusion in the portfolio.

No green washing

Hiltrop takes this rule very seriously. “The market for impact bonds is expanding at a tremendous rate. The question is how many issuers really comply with the rules and how often greenwashing occurs. We aim to exclude greenwashing, so our selection process is very thorough.”

Each quarter, the fund manager carries out a strategic reorientation. “This means that we look at whether the allocation to themes is still appropriate, given the prospects for the underlying funds. In practice, the portfolio will be adjusted not nearly every quarter. The current quarter will be the first one since the fund was created, five quarters ago, in which we may slightly modify the portfolio allocation.”

The pension fund in this case has a long investment horizon, twenty to thirty years, which is longer than the one for the investments in the portfolio of Triodos Multi Impact Fund, which has an investment horizon of around ten to twenty years. Is that not a problem?

Hiltrop: “The funds select long-term investments in themes that have even longer horizons. 25 years from now the impact themes may look very different from the current ones; 25 years ago there were only a couple of wind turbine manufacturers, but this is now a huge market. And impact bonds, for instance, are also very much a new phenomenon. We will always follow interesting impact themes. And we will always ask ourselves and investigate which asset categories and projects are the best fit for the portfolios of our funds.”

This is a partial translation of the Dutch-language article ‘Twee portefeuilles met impact’ by IEX Profs, published on 17 Februari 2017.