Triodos Sustainable Pioneer Fund invests in listed companies that actively contribute to the development of innovative solutions for the future. Triodos Senior Sustainability Analyst Arthur van Mansvelt shares his insight on three pioneering companies, and discusses what makes the fund unique.
Innovative solutions for the future
What do heart valves, sustainable infrastructure finance and bicycle components all have in common? The companies that produce them – Edwards Lifesciences, Hannon Armstrong Sustainable Infrastructure Capital, and Shimano – are all engaged in innovative and ground breaking activities to safeguard our planet and improve people’s quality of life. They are all also in the portfolio of the Triodos Sustainable Pioneer Fund, which invests in listed shares of primarily small and midcap companies that focus on renewable energy (climate protection), environmental technology (clean planet), medical technology (healthy people). It also invests in companies that are pioneers in corporate responsibility within their respective sectors. Triodos Senior Sustainability Analyst Arthur van Mansvelt explains why these three companies are exemplars of the portfolio.
Healthy people: Edwards Lifesciences
Edwards Lifesciences is an American medical equipment company that develops patient-focused medical innovations for structural heart disease, critical care and surgical monitoring. Its products include heart valves that are deliverable via catheter and eliminate the need for traditional open-heart surgery. Arthur van Mansvelt: “Edwards Lifesciences develops innovative medical technologies that contribute to the theme of healthy people. Its products are designed to help patients live longer, healthier and have better quality of life.”
Climate protection: Hannon Armstrong
Hannon Armstrong Sustainable Infrastructure Capital (Hannon) is a very interesting company for the climate protection theme. Hannon provides debt and equity for sustainable infrastructure projects that increase energy efficiency, provide cleaner energy, or make more efficient use of natural resources. It primarily focuses on financing the refurbishment of public buildings such as schools and hospitals to make them more energy efficient. Arthur van Mansvelt: “ With new, energy efficient installations for climate control, lighting, etcetera, Hannon’s customers achieve significant greenhouse gas emissions reduction but also energy cost savings, which aids their ability to repay the finance of the investment by Hannon.”
Clean planet: Shimano
Shimano manufactures bicycle components and encourages commuting by bicycle. The Japanese company also has specific guidelines for its suppliers encouraging them to develop products with a reduced environmental impact. Arthur van Mansvelt: “Shimano has been specifically selected under the clean planet theme because it provides products for environmentally friendly transportation, which reduces energy use and air pollution.”
More than a thematic approach
A thematic approach is not uncommon, but what’s unique to Triodos Sustainable Pioneer Fund is the requirement that investee companies generate a minimum of 50% of their total revenues from products and services in one or more of the themes. This condition has been a prerequisite since the fund’s inception in 2007, and means that the impact on sustainable development is significant. Arthur van Mansvelt: “Our pioneers really earn most of their revenues from the contribution to a more sustainable society. More people riding bicycles, receiving critical medical treatment, and using more renewable power, that is real impact.”
In addition to this 50% revenue threshold, the fund’s investment universe also includes pioneers in Corporate Social Responsibility (CSR). One example is US company Tesla, which has an exclusive focus on electric vehicles, electric drive and battery technology, and is considered a pioneer in low impact mobility and energy efficient innovations in the automobile industry. Arthur van Mansvelt: “Whilst most of the selection process hasn’t change over time, how we assess CSR pioneers has. In the past we applied a more quantitative best-in-class approach, assessing performance against key indicators. Now however, we take a more qualitative approach, scrutinising the mission of a company to ensure that they are truly driven by sustainability. We’re very strict on identifying true pioneers – they must have very concrete solutions for significant sustainability challenges.”
Rigorous and selective research method
The research method developed by Triodos Research to identify true sustainability pioneers is rigorous and selective. Many of the companies that Triodos Research looks at do not make it through the theme selection and the minimum standards screening process. Arthur van Mansvelt: “Small and medium-sized companies are often younger and their sustainability reporting is usually less mature. This also goes for companies that are business-to-business oriented, instead of dealing directly with consumers. Insufficient information in the public domain can make it difficult to assess a company, but we see that as an opportunity to engage and promote transparency. Last year (2016), we had active dialogue with 47 of the 51 companies in the portfolio on climate change policies and disclosure, supply chain responsibility, animal testing and more.”
The fund currently invests more than EUR 170 million and can only grow in the future. Arthur van Mansvelt: “Our expectation is that more companies will strive to provide sustainable solutions that meet the complex challenges facing our planet, and will do business in a sustainable way. This will without doubt offer new investment opportunities for the fund.”