“Does a company make a demonstrable and measurable contribution to the transition to a sustainable economy? The answer to this question is decisive for our selection of listed companies,” says Hans Stegeman of Triodos Investment Management. Hans Stegeman is Head of Research and Investment Strategy, the department that assesses the sustainable intentions of listed companies and engages in an intensive dialogue with these companies to determine whether they really do follow a sustainable course.
The manner in which you select listed companies has changed. What is different compared to how you used to do this?
“Until recently, we based our selection mainly on our very strict minimum criteria. According to these criteria, companies must, for instance, provide good labour conditions, restrict animal testing to a minimum and use only wood that is certified as sustainable. We still find these minimum requirements important, but now our first move is to establish if a company helps to bring the realisation of a sustainable future a step closer. Not until we have found that this indeed the case, do we take out our list of minimum criteria and check if the company meets all the requirements. And sometimes we grant a sort of ‘exemption’ from one of the criteria if there are good reasons to do so.”
How does that work: granting an exemption?
“A good example is Yamaha, the Japanese manufacturer of musical instruments. We believe that music and culture are inherent to a liveable, vital and sustainable world. That is why we have recently started investing in Yamaha. The issue here was that for manufacturing its instruments, the company sometimes uses wood that has not been certified as sustainable. In the past that would have been a reason for us to exclude the company from investment. But that is no longer the case. In the past year we had two intensive meetings with Yamaha and these convinced us that many aspects of the company's production process are very sustainable and responsible. The fact that not all of the wood that the company uses has been certified is mainly due to the fact that Yamaha uses very unusual types of wood for which certification is often not even available. This is why we have decided to overlook this and invest in the company even though it does not meet this criterion.”
How do you determine whether a company contributes to the transition to a sustainable economy?
“We do this on the basis of seven transition themes, for example renewable energy, sustainable food and agriculture, prosperous and healthy people and circular economy. We want the companies that we invest in to make a contribution to one or more of these themes. I believe that this new, positive approach also distinguishes us from many other sustainable investors. Most of them still mainly use checklists and exclusion criteria. That certainly offers a solid basis for the selection of listed companies. We ourselves also worked like that for many years. Except we realised increasingly often that by using that method we did not necessarily select the companies that really help to make the world a better place. Often we ended up mainly with companies that did nothing wrong.”
According to Hans Stegeman the new and positive selection method is a lot more intensive than the old method. “If you want to determine the positive contribution that a company makes, you need to take a very good look. We therefore often have in-depth discussions with the companies that we invest in. In the past we also talked to companies, but now we delve a lot deeper. We require companies to give us concrete examples of their positive contribution to a sustainable future.”
Does the new approach result in new choices?
“Definitely. I already mentioned Yamaha. Another example is Signify, formerly Philips Lighting. We have recently added Signify to our portfolios. The company is a pioneer in the development of energy-efficient led technology. But furthermore, the company also develops innovative service offerings, such as ‘light as a service'. This means that the company does not sell led lamps, but light. Or in other words: it leases the lamps to the users but retains the ownership. This means that Signify has a direct interest in making the lamps as sustainable and recyclable as possible, because at the end of the lease period the lamps are returned to the company. We find this service concept very compelling. It is a concrete embodiment of the structure of a circular economy.”
Have companies that you previously invested in been dropped?
“Good examples are large financial institutions. We invested in these institutions for many years, because they met all of our minimum criteria. But we could not establish how banks contribute to the transition to a sustainable future. Do they actually contribute to any of our seven transition themes? It proved really difficult to find concrete examples. This is why in the past year we removed these institutions from our portfolios and have stopped investing in them. We now focus our energy and attention exclusively on those companies that do make a genuine contribution to and give shape to a sustainable future.”
This article is the translation of an interview by Tobias Reijngoud, published in De Kleur van Geld.
Read more about Triodos Investment Management’stransition themes.