Triodos Bank is founded on a simple concept – that money can be used for good – if the opportunities exist to make it happen. This idea, once revolutionary, is now increasingly gaining traction among business and individuals keen to yield a financial return while contributing positively to society. Today, the bank manages assets worth EUR 9.6bn, a 20% increase on 2012, and serves more than 500,000 customers in five European countries.
“From the beginning, we’ve acted as a catalyst for change,” explains Dan Hird, Triodos’Head of Corporate Finance. “As an impact investment pioneer, we’ve consistently shown that there is another way – that finance can be a powerful tool to improve lives and build a low carbon economy.”
Triodos offers investors a ‘happy medium’ between straight philanthropy and ‘looking after number one’, according to Hird. Customers seeking lower risk investments can opt between straightforward personal savings or investing in a fund, with the knowledge that they are supporting one of the bank’s key areas of focus, such as renewable energy, organic farming, fair trade, microfinance and third sector organisations. Alternatively, they can invest in specific projects directly through corporate finance. While this approach typically carries a higher risk, there is a growing appetite for it, Hird confirms.
“We’re seeing an increasing flow of available capital for impact investment as investors, many of whom have been seeking alternatives since the economic crisis, learn more about generating positive social impacts alongside a financial return,” says Hird. “The challenge now for providers like Triodos is to develop more products at a sufficiently rapid pace.”
Indeed, impact investors expect to commit 19% more capital to impact investments in 2014 compared to 2013, according to the latest J.P. Morgan and GIIN impact investor survey, ‘Spotlight on the Market’.
Among the growing range of alternatives open to today’s investors, Hird cites ethical bond funds, Enterprise Investment Scheme (EIS) funds and community-owned renewable schemes, as well as the new Retail Charity Bonds Platform developed by Allia and Canaccord.
From Triodos’ perspective, impact investment is already yielding distinct social and environmental returns. For example, larger charities and social enterprises are benefitting from investors’ support as grants become harder to obtain and the UK government encourages the third sector to compete with private companies for public service contracts, amid public spending cuts.
“We work with robust, creditworthy third sector organisations with stable reputations, delivering a consistently positive impact to society,” explains Hird. “We help them to raise capital from investors through bonds, particularly when seeking finance through traditional routes proves challenging.
“Linking our reputation to the success of social impact projects is a fundamental statement of our confidence in their ability to succeed,” he continues. And as an FCA-regulated bank, we clearly specify both the anticipated returns and the level of risk involved. You could describe this approach as highly regulated crowdfunding.”
For example, Triodos raised £5m through a retail bond (offering a return of 5% over five years) for Greenwich Leisure Limited (GLL), a social enterprise empowering underprivileged London communities to lead more active lifestyles by running affordable leisure facilities. Similarly, the £3m it raised for Birmingham-based company Midlands Togetherwill allow the firm tobuy, refurbish and sell 75 derelict properties, employing up to 150 ex-offenders over the five-year period of the bond.
“In instances like this, where there’s a relatively high level of risk involved, it’s vital that the business model is successful,” explains Hird. “But we’ve seen a high degree of interest in Midlands Together. Investors are impressed by the strong examples of young men getting their lives back on track.”
Triodos is also seeing growing interest in social housing projects, raising £10m for Golden Lane Housing through a fully subscribed bond issue in 2013. Some 800 investors took part, providing Golden Lane with sufficient capital to buy 30 properties to house 100 people with a learning disability.
The success of this bond was a significant ‘shot in the arm’, according to Hird, firm proof that investing in projects with a positive social impact is of interest to investors. And as public awareness grows, more people may consider investing at least 5-10% of their savings in a project doing good in society, he believes.
“The future growth of impact investing will depend on high quality products staying successful in the market,” he concludes. “We’ve learnt that combining the right risk profile with a robust product and significant social impact holds great appeal for investors. As product innovations continue to emerge, creating new options to invest, we will see impact investing go mainstream.”
This article was originally published on the Impact Investor website.