A few days ago a colleague asked me for one word to describe 2020. My initial reaction was not for this blog, but on deeper reflection I landed on the word “rollercoaster”. Much like a radical ride, it was a year full of adrenaline inducing ups and downs, and sometimes thrilling, sometimes nauseating unexpected twists. From a global perspective, it impacted every human being on the planet and highlighted the fragility of our interconnected systems. It also bore witness to the deepest global recession in peacetime. Despite this deeply challenging year, and the initial market panic, Triodos IM was able to manoeuvre quickly and without trepidation. I am very proud of the team for its flexibility and resilience in switching gears smoothly and even improving our efficiency. Some projects were delayed, but we managed to grow our portfolio, receive decent net inflow and continued to invest. We put SDG 17 into practice through genuine cooperation and collaboration with sector peers on two critical initiatives – Coordinating principles to support the microfinance sector, and the Finance for biodiversity pledge. Although the year is yet to officially end, and despite the persistent global uncertainty, I am able to look back on 2020 positively, with our impact equity and bonds funds firmly above EUR 3 billion and Triodos Green Fund well above 1 billion.
The profound changes we have all experienced this year have prompted the impact investing sector to further evolve. Twenty-five years ago, retail investors, private bankers, and high net worth individuals with altruistic conviction sparked the creation of the sector. Products like those of Triodos IM were developed to help meet their latent demand. These days however investing in impact attracts more than those with firmly held beliefs of wanting to create positive change. Longer-term trends and track record maturity of decent returns now attracts different players at different entry points. Some are just dipping a toe in the water, while others are establishing deeper ESG integration mandates. An increasing number of financial advisors, gatekeepers, and institutional investor representatives have expanded their interpretation of fiduciary duty beyond pure financial risk-return, aligning with that of society’s view. They are making different choices about how to look at returns with a different, more forward-looking lens. Now, more than ever, impact investing can offer relatively low risk profiles, good return rates and for some, an opportunity to diversify their portfolio. Investments are directed towards where our world is headed rather than in yesterday’s success stories, which also makes them more stable. The market is reaching a tipping point where asset managers who make the choice to finance new products and new companies are also starting to understand their passive role and their level of influence.
These sector developments have generated a need for better transparency around what ESG, sustainable or impact investing actually means. There are some very genuine products in the market, but there are also those that are not. One example is passive trackers that offer a best-in-class investment approach, yet they don’t change investor exposure to unsustainable sectors. New regulatory frameworks have also evolved, with the EU Taxonomy taking effect earlier this year, and EU non-financial disclosure regulations planned for March 2021. These frameworks provide new definitions, compliance standards and disclosure thresholds that will no longer allow brown assets to hide behind the skirts of low-level, light-green impact. However, we will need to remain vigilant throughout the implementation phase to ensure that they do reduce greenwashing and do not become watered down.
Stepping off the rollercoaster and into next year, the world will certainly face tough times, particularly when monetary and budgetary support is phased out. There will likely be ongoing stock market volatility, record levels of unemployment and bankruptcies when the budget support from governments ends. Nonetheless, or perhaps because of this, we have to keep asking ourselves what kind of world do we want to live in? What kind of recovery should we continue to strive for? For some financial players it will be business as usual, with a short-term focus on financial returns and central bank stimulus packages that support the ‘old’ economy. I believe however that the sustainable finance sector is a key part of the solution and I expect that it will continue to flourish, particularly when pension funds and institutional investors ramp up their sustainable investment strategies.
At Triodos IM we will be striving to achieve ambitious growth targets, focusing on implementing more streamlined controls, and looking at opportunities for potential new funds. We are open to extending our future cooperation with our sector peers to proactively address global challenges like climate change, biodiversity, social inequality and food security. I know that our strong, ethical and professional team will be able to create new processes that will still enable us to deliver on matching our heart with our head, and facilitate and support those looking to achieve a better world and more meaningful impact through investment.
Jacco Minnaar is Chair of the Management Board at Triodos Investment Management.