Tolerance for a culture that makes money at the expense of others is waning. Investors are tired of questionable practices where executives at underperforming businesses are paid huge bonuses, and of companies making staggering amounts of money at a huge cost to the planet.
As a result, we are seeing more money pile into environmental, social and governance (ESG) funds, as people seek more sustainable investment options.
Asset management giants that comply with ESG standards are also seeing this shift pay off in the long run, with ESG-orientated funds tending to outperform the more “traditional” investment options.
Banking on change
It’s still a tiny market, but ethical investing is no longer reserved for the hippies. More options are coming to the fore, and people are also increasingly taking note of existing players, some of which have been several steps ahead of this ethical trend.
Triodos Bank is a perfect example, benefitting from the shift currently underway in the investment universe.
Founded in the Netherlands back in 1989, Triodos prides itself on being ethical. Now based in six European countries, including the UK, the premise is simple: the company uses money to make positive change in society – something which may perhaps seem at odds with the traditional banking world.
“Profit is a yardstick. It shows that an organisation is working efficiently, but it says nothing about the content of what it’s doing,” says Peter Blom, chief executive of Triodos, in a piece of literature issued by the bank.
Triodos is certainly doing things differently – even avoiding the hefty “compensation” paypackets which chief executives at major banks have been known to get.
“You can’t create a fairer society unless everyone’s interests are taken into account,” says Whitni Thomas, the company’s senior investor relations manager. “And we don’t have a chief executive who is grossly overpaid, because that means someone is inevitably losing out.”
It’s all about finding the right balance: making sure that the loans are affordable, savers are getting a reasonable return, and employees are getting fairly – but not excessively – compensated.
Crowdfunding the future
While the group was previously only a savings bank, it launched a crowdfunding platform at the start of this year, making it the first British bank to do so.
I ask Thomas why Triodos has embarked on this unusual move. “Our business is about connecting people, and that’s what crowdfunding is all about. We’ve been connecting investors to positive enterprises for 15 years, but we were a bit old-school and didn’t have an online platform.”
The launch of the Innovative Finance Isa (IFISA) has spurred interest, and brought crowdfunding and peer-to-peer lending businesses more into the mainstream.
“Now that crowdfunded debt securities can be held within an Isa, it means ‘normal’ people can invest in a charity bond, and get the interest tax-free,” says Thomas, adding that this was a natural step for the business.
In just three months, the platform raised more than £7m for five renewable energy and community projects.
Take Mendip Renewables, which operates a solar farm in Somerset. Triodos raised £1.8m for the company in a bond, and investors can expect to earn five per cent in interest each year, increasing in line with the retail price index, and repayable over 17 years.
You’ve also got Thera Trust, a charitable group of companies providing care and housing for people with complex learning disabilities. Triodos aimed to raise £5m to provide 14 new homes, and investors will earn 5.5 per cent interest per year over six years.
And Rendesco, a company which is raising £5.5m to develop a green energy from ground source heat pumps, pays a higher interest rate at seven per cent.
That’s not an exhaustive list, and the beauty of the platform is investors can select the individual project they want to devote their money to.
Power of transparency
While much of the financial services industry is facing criticism for being opaque and impenetrable (a reputation it is working hard to change), companies like Triodos are bucking the trend.
If you think of all the major banks in the UK, which will tell you what they do with the money held in your current account? While cash deposits are used to lend to other businesses, there is little or no information on which companies.
One of the positive outcomes of the financial crash of 2008 is the way it made people realise that banks use their money to make loans.
In some instances, those loans might not be particularly prudent, or they might be to organisations that people aren’t comfortable with – yet this information is usually hidden from plain sight, making it near impossible for people to make well-informed decisions.
Now, challenger banks are making information like this available to customers. The Triodos current account, for example, will map out and list every single organisation it has lent money to, and crowdfunding investors can choose exactly which initiatives they want to invest in.
It is the values-centric approach which attracted Thomas herself to the challenger bank. She has seen a different (and arguably darker) side of the financial world, having worked for JP Morgan for years.
“I was doing something called leveraged buyouts, which was pretty brutal, and just not aligned with my values. That was why, when I came across Triodos, it was a bit of a lightbulb moment for me; it was an organisation that was in sync with what I believe, and where I feel like I can usefully use the skills I learned, but use them for social good.”
Towards social good
And social good is very much on the public agenda. As time marches on, people are waking up to the effects of climate change.
Thomas points out that even very mainstream asset earners, like New York City’s public pension fund, are now divesting out of fossil fuels. “You’ve now got very straight-laced asset managers realising that the values of this commodity are inflated, and there’s a lot of value on paper that’s eventually not going to exist.”
While investors are grasping how funds that are invested in sustainable projects will usually outperform the more conventional options, action usually trails far behind the hype.
Indeed, there’s still a long way to go to convince millions of people in the UK to actually invest their money in socially and environmentally positive projects.
For now, Triodos is leading by example, and perhaps other financial giants could take heed of how we can help the planet, and make money in the process.