Triodos launches new ethical investment funds

Triodos Bank, the Dutch based sustainably managed bank, has this week made its first move into the UK ethical investment market with the launch of a new range of funds.

This is good news for the bank and good news for ethical investors – as it adds choice and colour for both.

When considering where to invest ethically, SRI investors typically consider two areas alongside standard financial considerations: how ‘responsible’ the fund manager is – and how ‘green’ or ‘ethical’ the assets are.   Triodos is a specialist bank which is ‘on a mission’.  It is well established and highly respected in the microfinance and renewable energy financing markets – and has had operations in the UK for many years.  Its unique heritage sets it aside from almost any other provider of comparable ethical funds.  As such, unlike most fund managers, Triodos has nothing to prove with regard to its own ethical credentials.

Ethical perspective

When it comes to how green or ethical the investment assets are however this is where it becomes more complicated.  The new funds are relatively ‘mainstream’.   The Triodos Sustainable Equity Fund in particular holds a range of larger blue chip stocks, most of which will probably be considered controversial by someone somewhere  – and some of which are currently very much under the media spotlight.  (Which are probably best covered in a future blog)…

Some of this may of course  relate to the international nature of the bank and its clients as different nations tend to have diverse perspectives.  But this is not to imply that their stock selection processes are not thorough.   Quite the opposite. In fact there is a wealth of detail on their website explaining a complex company approval process – which I will come to shortly.  This simply means that like any fund – ethical or otherwise – a fund manager’s investment decisions will suit some investors better than others.

Ethical approach

The way the funds operate means that potential investee companies have to jump through numerous hoops in order to be accepted into the funds.  None the less, this does look like a nudge towards ‘conventional investment’ for Triodos – and may surprise some investors.   This is not however unchartered territory for them.  The funds are managed by the parent company’s investment division and have been up and running for some years in Europe.  It is the creation of Sterling denominated funds which are new – not the concepts.

This history enables the bank to talk about tried and tested processes as well as a relevant  track record.  These processes  involve the consideration of both ‘positive’ and ‘negative’ aspects of companies behaviour regarding both ‘sustainability’ and ‘ethical’ issues.  Their focus is on the following areas:

The Sustainable Equity fund is relatively blue chip oriented but excludes companies involved in child labour, nuclear energy and environmental crimes.

The Sustainable Pionneer fund  is harder for most companies to meet the entry criteria for as it only invests in leaders in the following areas:

  • Climate protection (sustainable energy)
  • Healthy people (medical technology)
  • Clean planet (environmental technology and water)
  • Corporate social responsibility (CSR)

The Sustainable Pioneer Fund is closer to the core Triodos’ business strategy and is likely to readily win favour with existing clients and other investors who are wishing to support and encourage market leading business practices.

The Sustainable Equity Fund may be more helpful for existing clients who are looking to spread their money around a little – although it may take a little time to explain because of some of the fund holdings.  This fund appears to be more similar to some existing Balanced Ethical and Sustainability Themed funds and therefore more useful for the ‘mass market’ ethical investors in need of diversification – or a new home for their money.

Both however can be packaged as a Triodos ISA, so new and existing clients may well be able to support either or both through that route.

The criteria above are however only the starting points of the funds.  The rest of the company approval process (which is in addition to the investment selection process) breaks down into three main areas, which are:

  1. Identifying companies with ‘exceptional’ sustainability credentials. (Those with 50% or more of their revenue derived from ‘sustainable’ products or services are potentially allowable for investment)
  2. Identifying the front runners amongst all companies in all sectors  –  the fund managers will only look at the top 50% of companies (those which are best at management of  ‘sustainability’ related issues)
  3. Apply ‘minimum standards’ (ethical screens etc) to all companies that make it through steps above to make sure all meet the minimum required standard.

An engaging USP

In addition to these areas, the fund managers also engage with companies to encourage better business practices.  This is potentially the most exciting area of these funds given that what Triodos may lack in critical mass it makes up for in expertise.

The bank’s core business strategy and lending criteria  mean their fund managers could potentially draw on more expertise than most other fund managers could ever dream of.   This could put them in an excellent position to make some very interesting recommendations to some of the world’s largest companies.

There is however a hitch.  Although this is an exciting launch,  Triodos in the UK is technically the distributor of these funds, not the fund manager – and the pricing strategy reflects this. The 4% initial charge (reduced to 3% until 28 June) looks more set to suit the direct market than the adviser market.

Triodos is a wonderful business and are old friends of ours.  I hope these funds enjoy great success and am as sure as I can be that they will.  However I fear that as much as advisers may like these funds they may only be able to support them when fee agreements permit.

I would very much welcome advisers comments on this (and will happily feed your comments through to Triodos)  … but in the meantime I wish the Triodos team every success.  It is great to see genuinely new funds coming through in the post RDR world!

Links: 

Julia@sriServices.co.uk

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