As an impact investor we understand finance to be transformational and define it as directing money for the benefit of people and the environment while delivering healthy financial returns to investors.
We use the theory of change framework as the basis for our impact management and measurement (IMM) practices and apply the mechanics of this framework for effective outcomes-based steering and accountability. The theory of change consists of five steps: start with your mission (making money work for change), determine the need of change and your vision for solutions, set key impact objectives, define the activities that you are going to undertake, and monitor and report your impact in the context of numbers and stories. The circular nature of this framework supports regular insights to use in evaluating our impact performance and goals.
Our 2019 impact reports are closely aligned with internationally and nationally recognised standards. The impact indicators presented here follow the IRIS+ core indicator set of the Global Impact Investing Network (GIIN), where applicable, and we have expanded on this to include additional elements of other leading industry initiatives. For example, our ecological footprints align with the Partnership for Carbon Accounting Financials (PCAF) methodology, and we have included indicators of the Dutch Central Bank’s UN Sustainable Development Goal reporting framework.
To capture the complexities and nuance of impact outcomes, we report in both numbers and stories.
The case studies we present in this report are representative of our impact strategies and are clearly linked to the impact goals of the investee or fund. We believe that vivid storytelling is essential to capturing the full, multidimensional, context of impact. It also helps us to communicate anecdotal outcomes and express elements of performance that cannot be captured in numbers.
Impact indicators are limited to between five to ten Key Performance Indicators (KPIs) per investee. For diverse portfolios, we identify several general high-level indicators, however we do not consider these ‘impact indicators’. Rather we think of these as measures of ‘reach’ or ‘influence’. Combined with additional reporting at investee level, these fund level ‘proxy indicators’ offer meaningful information to assess the fund’s overall impact.
The role of Triodos Investment Management
We make a clear distinction between the impact of Triodos Investment Management (Triodos IM) as an investor and the impact of our portfolio companies. In our reporting, we want to answer two main questions about the role of Triodos IM, which link back to our defined impact goals:
- Which effect did we have on the investee?
This is about the role of Triodos IM as a provider of capital and as an enabler of the investee, providing additional support.
- What effect did we have at sector level?
With its activities, Triodos IM wants to inspire. This can refer to the sector in which the investee operates or to the financial sector at large.
It is our ambition to lead the industry in terms of impact depth, reach, and capabilities, and to remain nimble for constant improvement. We have set several goals for our IMM practices in 2020:
- Over the course of the year, we expect to more deeply integrate the Impact Management Project’s five dimensions of impact as part of our regular investment evaluations. These dimensions are already closely aligned with our impact evaluation methodologies, and we aim to embed them into our processes even further.
- We plan to roll-out a proprietary impact assessment tool called the Triodos Impact PRISM. This tool will allow us to systematically assess the sustainability value of our individual investments against social, environmental and economic criteria. It will also capture the long-term impact potential of our investees through a Purpose Module, which assesses the company’s strategy and vision. The Triodos Impact PRISM will provide deeper insights and reports to help us to better understand, monitor and equip the business to steer more deliberately on impact. These reports will include UN SDG assessments per investment, fund, and sector.
- During the year, we will take steps to elaborate on our climate risk management and disclosure, as aligned with the Taskforce for Climate Related Financial Disclosure (TCFD). We made an impressive first step for meaningful carbon risk disclosure in this report and expect further progress on understanding the transition and physical risks of our portfolios this year.