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 2020 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.
EU Sustainable Finance Disclosure Regulation (SFDR)
As per 10 March 2021, the SFDR has come into force. This regulation stems from the Sustainable Finance Action Plan (SFAP), which aims to stimulate sustainable investments in the EU in order to help achieve the climate goals of the Paris Agreement and the European Green Deal.
All Triodos IM funds available for investors have sustainable investments as their objective as set out in article 9 of SFDR. Article 9 investment products are products that focus specifically on achieving a sustainability goal. Sustainability is a binding and mandatory part of the investment process for these products. To make money work for positive change, we assess our investments through two sustainability impact lenses:
- Inside Out: the impact of our organisation and investments on the sustainability factors in the outside world, resulting in positive and/or negative impact;
- Outside In: the impact of sustainability factors in the outside world on our organisation and investments, resulting in sustainability risks.
During 2021, we will implement the Regulatory Technical Standards (RTS) which prescribe the content, methodologies and presentation of sustainability-related disclosures. The RTS includes both pre-contractual and periodic product disclosures.
More SFDR related information and updated prospectuses in light of the new regulations are available on the website of Triodos IM.
For fund-specific SFDR disclosures, please visit the sustainability section of our fund pages.
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 2021:
- Over the course of the year, we expect to more deeply integrate the theory of change framework as part of our regular investment evaluations and progress our impact evaluation methodologies through an interdisciplinary impact management and measurement domain.
- 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.
- We plan to further strengthen our proprietary impact assessment tooling. This tooling allows us to systematically assess the sustainability value of our individual investments against social, environmental and economic criteria. It also captures the long-term impact potential of our investees, when assessing the company’s strategy and vision. The Triodos Impact tooling 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.