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Socially Responsible Investment Report 2016 How socially responsible investing made a difference in 2016
At the heart of Triodos Investment Management’s Socially Responsible Investment (SRI) philosophy is the belief that in the long-term, the most successful companies will be those that achieve the right balance between their social, environmental and financial performance.
Any company that intends to deliver long-term value must effectively manage its relations with all stakeholders and be responsive to their needs and demands. We believe companies that balance these interests will deliver the greatest value to all stakeholders, including their shareholders.
In this SRI Report, you read about our approach to investing on the stock market and our commitment to contribute to further improving the sustainability performance of companies. Socially responsible investing is too complex to be captured in a few metrics. For that reason, we present our 2016 results in a context of numbers, stories, and activities and by highlighting our approach: why we do what we do and how we have embedded this in our investment and engagement processes.
Rosl Veltmeijer Head of Triodos Research Triodos Investment Management
How socially responsible investing made a difference in 2016
Our investment funds
Triodos Sustainable Bond Fund invests in bonds issued by listed companies, governments and semi-public institutions.
Triodos Sustainable Equity Fund invests in global equities issued by listed large-cap companies.
Triodos Sustainable Mixed Fund invests in global equities and an aggregated portfolio of bonds.
Triodos Sustainable Pioneer Fund invests in global equities issued by predominantly small- and medium-sized, listed companies.
Our investment portfolio
A rewarding strategy
2016 at a glance
EUR 1.3 billion
Total assets under management SRI funds
Number of investee companies (bonds and equity)
Number of investee countries and regions (bonds)
n Triodos Sustainable Equity Fund 40%
n Triodos Sustainable Bond Fund 28%
n Triodos Sustainable Mixed Fund 19%
n Triodos Sustainable Pioneer Fund 13%
% Assets under management per fund
Number of companies screened
Number of pioneer companies in investment universe
Investee companies engaged with
Number of companies in investment universe
Number of engagement activities
Number of companies engaged with
Investing on the stock market offers interesting opportunities, financially as well as from a sustainability perspective. If large multinational companies begin to move in a more sustainable direction, even if only one step at a time, the wider impact will be significant.
Investing in sustainability outperformers
Triodos Research selects sustainability pioneers and best-in-class performers based on a wide range of sustainability criteria. Selected companies comply with Triodos Bank’s strict minimum standards. Due to the rigorous selection process, the Triodos SRI strategies are recognised for applying environmental, social and governance (ESG) criteria that count to the strictest in the industry.
Triggering sustainability improvement
A key element in our SRI strategy is active engagement and dialogue with the companies we may invest in, aiming to raise awareness of sustainability, to stimulate action and to create lasting positive change. Where appropriate, we will seek to discuss substantial and relevant issues with regard to ESG performance, aiming to enhance the business performance of companies.
As an investor we aim to serve as a catalyst in the transition to an economy where people and planet come first. We therefore invest only in companies that contribute to a sustainable society or clearly lead the sustainability agenda in a particular sector. Furthermore, we will not invest in companies that are associated with unsustainable services, products or business processes. This is guaranteed by our rigorous selection process.
Why do we invest on the stock market?
The companies and countries we invest in balance their social, environmental and economic performance. Sustainability is the basis for our investment policy and is firmly anchored in our overall investment process.
Any company that derives over 50% of its revenues from sustainable activities that contribute to the well-being of people and planet qualifies for investment. Companies may also qualify for investment if their overall sustainability performance puts them among the best in their sector.
Triodos Bank’s minimum standards are the bottom line: they ensure that we do not fund any business engaged in activities that are harmful to individuals, society or the environment.
The investment universe contains all companies that are selected for our SRI strategies. The actual investment decision is delegated to our external Asset Managers. They select equities and bonds based on fundamental financial analysis, looking at valuations and cash flows as the most important price drivers over the long-term and taking sentiment indicators into account.
Portfolio companies are actively monitored on a continuous basis. If a concern emerges, we start an investigation into the controversy and often enter into dialogue with the company. All companies selected for our investment universe are reassessed every three years.
We publish our complete and up-to-date sustainable investment universe, the investment portfolios, our voting ballots and our minimum standards online. We also publish information on our investment and engagement activities in monthly, quarterly and annual reports and our quarterly Research e-Zine.
Sustainability embedded in our investment process
Our rigorous investment process helps us to select the real outperformers in any sector. The textiles and apparel (clothing) industry is a case in point. This is an industry that touches us every day, but that also raises a lot of concerns related to basic labour rights in its supply chain. At the end of 2016, the investment universe included 6 companies selected from this industry whereas the whole industry contained 24 companies. The graph below shows that the companies that we have selected in our investment universe clearly outperform their industry peers on governance, social and environmental aspects.
ESG score Textiles & Apparel
0 10 20 30 40 50 60 70 80
Total ESG Score
Total ESG Score Environment Social Governance
n Investment Universe (6)* 71 70 73 69 n Index (24) 61 55 64 64
Difference 10 15 9 6
* Companies in the Investment Universe: Adidas, Asics, Gildan Activewear, Kering, Nike, V.F. Corporation
Most textiles and apparel companies have the manufacturing of their products outsourced to a large number of different suppliers. This allows for flexibility in manufacturing capacity, skills and quality depending on brand positioning, collection requirements and market developments. It also provides companies bargaining power which often comes at the expense of the workers. The production of clothes often takes place in low-wage countries, under challenging conditions. Therefore, we require that companies working in high-risk industries like Textiles and Apparel have labour rights policies and management systems with respect to their contractors and suppliers in place. Companies that have taken the right precautionary measures run less risk of becoming involved in labour rights violations than companies that do not have the policies and programmes in place.
The graph on the next page shows that the companies we have selected have such precautionary measures and as a result score well on the sustainability indicators we apply in our selection process.
Textiles and apparel
Social supply chain standards Textiles & Apparel
0 20 40 60 80 100 120
Supply Chain Management
Quality of Social Supplier Standards
Scope of Social Supplier Standards
Scope of social Supplier Standards
Quality of social Supplier Standards
Supply Chain Management
n Investment Universe (6)* 96 100 88 n Index (24) 76 70 58
Difference 20 30 30
* Companies in the Investment Universe: Adidas, Asics, Gildan Activewear, Kering, Nike, and VF Corp. Apparel
retailing companies in our universe, such as H&M and Inditex showed comparable results.
The indicators focus on: • Scope of social supplier standards: issues that are covered in a company’s policy, e.g. health &
safety, minimum living wages, maximum working hours, freedom of association and right to collective bargaining, prohibition of child and forced labour and anti-discrimination.
• Quality of social supplier standards: quality