Do you know what your money is doing and is it doing good? Alex Blackburne speaks with Eric Holterhues from Triodos Investment Management about how sustainable investment can provide an answer to those crucial questions.
In 1980, a bank was formed that would go on to become a European leader in sustainable finance. Triodos Bank was set up with transparency at its heart and a very clear mission to show customers how their returns were being made.
It invests across three defined themes – the environment, society and culture – and has retail banking operations in its native Netherlands, as well as Belgium, Spain, France, Germany and the UK.
While its place as a leader in the European sustainable banking arena is well-documented, readers may be less aware of its investment arm. But it has significant weight in this area too, with 17 investment funds covering both retail and institutional investors.
Eric Holterhues is head of socially responsible investing (SRI) at Triodos Investment Management in the Netherlands. Speaking to Blue & Green Tomorrow, he recalls how a 2007 investigation that revealed a Dutch cancer foundation was, unknowingly, investing in tobacco companies had brought the need for sustainable and ethical investment into sharp focus.
Holterhues says that in the beginning, Triodos was simply a bank that used their clients’ savings to provide loans to smaller, non-listed companies – those that didn’t appear on stock exchanges. But as demand grew, it became clear that customers also wanted impact by investing in non- listed and listed companies via the investment funds provided by Triodos.
Triodos decided to start with impact investing – and the results have been impressive. Its investment arm grew 27% in 2013, with €2.5 billion (£2.07 billion) in assets under management. Holterhues says he has seen “massive traction” in the take-up of the sustainable funds on offer. These are either impact investing funds, which invest in non-listed companies, or SRI funds, which invest in stock-listed companies.
The investment team managing the SRI funds can only invest in companies from a defined sustainability universe. It can select companies that derive more than 50% of their annual income from a sustainable product or service – such as renewable energy providers. It also looks at best-in-class firms – those who may derive less than 50% from a sustainable product or service, but are going to great lengths to be more sustainable.
Holterhues picks out carpet manufacturer Interface as a good example. It has a strategy called Interface Mission Zero and a goal to be environmentally neutral by 2020.
“There is a lot of pollution in our seas, especially nylon nets that are put there by fishermen”, Holterhues explains.
“Interface thought that maybe they could change this, so it is now actually paying fishermen to catch the nylon nets, which it then makes carpets out of it.”
The advantage of working with bigger firms like Interface (Dutch technology company Philips is another example) is the sheer potential for sustainable change. Because of the size of listed firms, even small steps forward can be ground-breaking.
Holterhues says, “We work closely with sustainability departments at these companies and they are actually very glad that we ask questions about their approach to sustainability. They say it gives them an opportunity to have an increasing conversation within their company. The other thing is that we also engage with these companies through their annual meetings and talk about their sustainability performances.”
Triodos’ SRI strategy seems to be paying off, too. One of its two UK-based SRI funds is benchmarked against the MSCI World Index. Comparing the two over the long run, the Triodos fund has performed better. Holterhues backs this up by pointing towards a 2012 study by Deutsche Bank, which said companies that factor sustainability into their investments perform better on the stock market and offer investors less risk.
Despite this, there is still some trepidation towards sustainable investment – particularly around risk and volatility.
“I think people are unfamiliar about sustainability and there’s still this myth of it being about sustainability and not about performance”, Holterhues says.
“But Triodos Bank grows around 20 to 25% every year; our SRI investment funds grew by 33% in the last year. It’s ridiculous to say that sustainability is not worthwhile, because otherwise we wouldn’t have been here since 1980.”
While the social, environmental or cultural argument is compelling, Triodos is firmly of the opinion that people want to know – at the most basic level – what their money is doing. It comes back to the reason the bank was set up in the first place all those years ago.
Holterhues concludes, “People find that very important. I also think people have a responsibility in investing. It’s not about the world changing because of others; you can change the world yourself by investing.”