15th December 2023

How to manage impact

Triodos Investment Management connects a broad range of investors who want to make their money work for lasting, positive change with innovative entrepreneurs and sustainable businesses doing just that. In doing so, we serve as a catalyst in sectors that are key in the transition to a world that is fairer, more sustainable and humane.

We have built up in-depth knowledge throughout our 25 years of impact investing in sectors such as Energy & Climate, Inclusive Finance and Sustainable Food & Agriculture. We also invest in listed companies that materially contribute to the transition toward a sustainable society. Assets under management as per end of June 2023: EUR 5.7 billion.  

Triodos Investment Management is a globally active impact investor and a wholly owned subsidiary of Triodos Bank NV. 

How to manage impact

For Triodos Investment Management (IM), impact means having the power to transform and direct money in such a way that all people can live a prosperous life on a thriving planet. Impact Managers Nikkie Pelzer and Rebecca Spohrer explain how Triodos IM is living up to this long-term vision.

How do you see your role as an impact manager?

“Being an impact manager is all about connecting the dots,” says Rebecca Spohrer. “Making a positive impact is the key driver for everyone working at Triodos IM. We often say, ‘it’s in our DNA.’ A key part of our role as impact managers is to connect the expertise of our investment professionals with emerging industry best practices and norms to capture impact in an understandable and decision-useful way. It’s about improving consistency and clarity around impact throughout our investment process, aligning departments, developing our monitoring system, and linking our impact ambitions with external regulatory requirements. We must be able to track and clearly communicate about impact internally and externally to understand and optimise how our investees are delivering positive and reducing their negative impact on people and planet and articulate our contribution to impact as an investor.”

Nikkie Pelzer: “A great part of our work also focuses on implementing external requirements driven by increasing EU regulation on sustainability, such as the Sustainable Finance Disclosure Regulation (SFDR) and EU Taxonomy. We welcome this legislation; it enhances transparency and prevents greenwashing and impact washing as financial players can no longer hide the true colours of their investment funds. The regulation asks us to communicate on the sustainable investment objectives, any significant harm caused, how sustainability risks impact the financial return, and more. Furthermore, this regulation helps us learn and grow and we sincerely hope that this also results in more capital being geared towards financial instruments that contribute to a greener economy.”

Can you give examples of how regulation helps Triodos IM learn and grow?

Rebecca: “Sustainable finance is rapidly evolving from stating positive intentions to accountability for results. Investors and regulators are saying, ‘don’t just tell me about your impact, show me’. The SFDR helps by setting the standard for disclosures to check and identify impact claims. It has helped us refine and enhance our impact management practices internally.

For all our investment funds – both public and private markets - we have developed an impact framework that translates our intention to make money work for positive change into actions and expected results. These frameworks strengthen our decision-making process when analysing new investment opportunities. For example, part of the mandate of Triodos Emerging Markets Renewable Energy Fund is to increase access to clean, reliable, and affordable energy for households and SMEs in emerging markets. This means that our investment team actively seeks investments based on how they will deliver this objective and collect data on progress according to certain key performance indicators. It’s our job to make sure the teams have the tools, systems and processes in place to make sure this is done with a high degree of quality and consistency.”

Nikkie: “The regulation also requires us to clearly identify and disclose the risks, or potential negative effects of the investment on people and/or planet, and report (quantitatively) any actual ‘adverse impacts’. In the case of a large-scale renewable energy projects, this may relate to land-use effects on biodiversity, or conflicts resulting from displaced communities. So, our investment managers also engage closely with investees and other investors to uphold the highest performance standards and ensure that these risks are avoided or mitigated as much as possible. The publication of the Principles Adverse Impact statements for all sustainable European funds is due mid-2023. We are lobbying to ensure that the legislator oblige all funds, not only sustainable funds, to be transparent on harm caused by investment decisions. That would be fair, and investors would know what they are investing in.”

To what extent is impact management and measurement for private debt and equity funds different?

Rebecca: “Our direct private debt and equity investments are all about building long-term relationships and trust with our investees. This is for us the foundation to engage with the companies in our portfolio personally and closely in defining and measuring their progress towards meaningful impact objectives and being aware and transparent about their negative impact.

However, to gather, maintain and control the quality of impact data on the private side is challenging. For example, to fulfil our SFDR obligations, we must report on our investee’s environmental footprint, such as their proportion of non-renewable energy usage, and on social metrics, such as the gender pay gap. This means our investees also need to develop the internal systems and processes to report on this data, which takes time, management commitment and resources. This is different from our funds that invest in listed companies; here we can acquire a full range of data from external parties. Also, publicly listed companies are more used to publishing required financial and sustainability-related reports.

It’s also good to realise the broad diversity of companies in our private debt and equity funds – from a microfinance institution in Jordan to an energy storage developer in the Netherlands and a French-based crowdfunding platform for sustainable food and agriculture. Each fund and mandate has different impact objectives, key performance indicators and material risks.”

What is key in bringing impact management and measurement to the next level?

Nikkie: “Collaboration, exchanging ideas and experiences. Asset managers can increasingly work together to harmonise impact measurement and management practices.This will free up reporting capacity for delivering and enhancing the positive impact that we all stand for.  This collaboration is already happening. In 2022, we took part in developing the first impact performance benchmark initiated by the Global Impact Investing Network, we are participating in a research initiative to gain insights into how end-clients benefit from the products and services offered by the companies in our portfolio, and we work with a third-party provider for one of our funds to define pathways for portfolio companies in the sustainable food sector to reduce CO2 emissions.”   

Rebecca: “Thinking beyond the numbers. We as investors have gotten very good at counting: how many households gained access to clean energy, or how many women took out a microfinance loan. That alone is a huge undertaking to make sure that data is of high quality! However, it is also important to consider depth in addition to breadth. Are disadvantaged communities able to equally access that clean energy? How do financial service providers listen to and incorporate the wants and needs of women into their products and services? By challenging ourselves and our investees to ask these deeper questions, we as investors can contribute to more meaningful progress.”