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Triodos Investment Management B.V.

PRI reporting framework 2017

You are in Direct - Listed Equity Active Ownership » Engagement

Engagement

Overview

LEA 01. Description of approach to engagement

New selection options have been added to this indicator. Please review your prefilled responses carefully.

01.1. Indicate whether your organisation has a formal engagement policy.

01.2. Indicate what your engagement policy covers:

01.3. Attach or provide a URL to your engagement policy. [Optional]

01.4. Provide a brief overview of your organization’s approach to engagement

With the money entrusted to Triodos SRI funds comes the responsibility - and the power - to influence the way the companies in which we may invest do business. The key element in our SRI strategy is active engagement and dialogue with the companies we invest in or are considering to invest in, aiming to raise awareness of sustainability, to stimulate action and to create lasting positive change. Where appropriate, we will seek to discuss substantial and relevant issues with regard to ESG performance, aiming to enhance the business performance of companies.

Engagement takes place during the assessment of a company, by means of (proxy) voting at AGMs and through collaborative engagement. Furthermore, we engage with companies, nongovernmental organisations, governments and independent experts to maintain our in-depth knowledge of sustainability issues.

01.5. Additional information [optional]


LEA 02. Reasoning for interaction on ESG issues (Not Completed)


Process

Process for engagements run internally

LEA 03. Process for identifying and prioritising engagement activities

New selection options have been added to this indicator. Please review your prefilled responses carefully.

03.1. Indicate whether your organisation has a formal process for identifying and prioritising engagement activities carried out by internal staff.

03.2. Describe the criteria used to identify and prioritise engagement activities carried out by internal staff.

other description

          See LEA 03.3
        

03.3. Additional information. [Optional]

Company alerts (if these companies are selected for sustainable investing) are addressed as top 1 priority. We have a target to pick up alerts within one week. This often involves company contact. We promise our clients that we only invest in companies that meet our strict investment criteria. In case one of our investment criteria is likely to be violated by a company, we contact the company straight away to identify the severity of the issue and the measures a company undertakes to solve the issue.

Our second priority is engagement during the research process. Often company contact is required to determine if a company meets the investment criteria of Triodos. By asking questions we raise awareness for a topic within a company and we therefore consider this form of dialogue also as engagement.

The third priority is thematic engagement . We carefully assess the relevance of a  particular topic for Triodos and the potential impact on the investment universe and make an informed decision about whether or not to pursue an engagement opportunity when it arises. This form of engagement raises an opportunity to set clear engagement goals at the beginning and to measure the outcome of the engagement efforts. In 2016 we focused our thematic engagement activities on Animal welfare, Remuneration, Climate protection and Living wage.

The fourth priority is collaborative engagement. When an opportunity arises, we consider the relevance of the topic and our exposure through holdings. We may choose to be lead investor in contacts with companies that we have holdings in. The size of our holdings does not play a role in our decision making process.

The last priority is our proxy voting activities. The priority of proxy voting is steered by the AGM agenda. We do not have any influence on that. So in terms of priorities the AGM agenda may interfere with other priorities but we allow this to happen because of our aim to vote at all meetings.


LEA 04. Objectives for engagement activities

New selection options have been added to this indicator. Please review your prefilled responses carefully.

04.1. Indicate if you define specific objectives for your engagement activities.

04.2. Indicate if you monitor the actions that companies take following your engagements.

04.3. Indicate whether your organisation defines milestones and goals for engagement activities carried out by internal staff.

04.4. Indicate if you do any of the following to monitor and evaluate the progress of your engagement activities carried out by internal staff.

04.5. Additional information. [Optional]

Our main objective for our engagement activities is to motivate change within a company. Engagement efforts can only be successful when the company understands what it is you demand from it and why. Why is it relevant for the investor and why is it considered relevant for the company itself. These engagement efforts often take time. Companies do not change overnight. We generally stop our engagement efforts only when the company shows no responsiveness to our questions or when the company took all recommendations on board and successfully implemented them.

A large part of our dialogue with companies takes place as part of the research process and is focused on gaining insight in corporate ESG implementation processes, to assess compliance with our minimum standards. While doing this, we formulate our questions in such a way that we hope to inspire the companies to address our concerns if this is not already the case. As part of our monitoring process, we will also pose questions when a selected company becomes involved in controversies. When a company does not answer our questions, it may not be selected for investment.

The companies we target for further engagement are companies that are selected for sustainable investment by Triodos. These companies are already doing well. The ESG areas for improvement are therefore never strategic issues, otherwise the company would not have been selected for sustainable investment. Nevertheless, there are always areas for improvement and depending on the urgency and materiality of the topic for the company we will actively follow the progress made by the company.

When we engage with multiple companies on a particular issue outside the research process, we make an engagement plan that includes goals and deadlines. Progress is actively monitored and when sufficient companies take further steps towards sustainability, this may lead to a strengthening of our minimum standards.

For proxy voting we monitor systematically which resolutions have received considerable opposition from shareholders and we track how such resistance has changed company behavior.

Each engagement effort is registered and requires a specific action to be closed by the responsible researcher. Before an action is closed the researcher needs to log whether or not the engagement effort has been successful and if so, what change is made by the company.


Process for engagements conducted via collaborations

LEA 05. Process for identifying and prioritising collaborative engagement

New selection options have been added to this indicator. Please review your prefilled responses carefully.

05.1. Indicate whether your organisation has a formal process for identifying and prioritising collaborative engagements

05.2. Describe the criteria used to identify and prioritise collaborative engagements

05.3. Additional information [Optional]


LEA 06. Objectives for engagement activities

New selection options have been added to this indicator. Please review your prefilled responses carefully.

06.1. Indicate if you define specific objectives for your engagement activities carried out collaboratively.

06.2. Indicate if you monitor the actions companies take following your collaborative engagements.

06.3. Indicate whether your organisation defines milestones and goals related to engagement activities carried out via collaborations.

06.4. Indicate if you do any of the following to monitor and evaluate the progress of your collaborative engagement activities.

06.5. Additional information. [Optional]

In addition to seeking dialogue with individual companies, we also regularly work together with other investors, for example pension funds, to further steer sustainable performance. Partnerships with other shareholders help maximise the effectiveness of actions. We participate in the European Social Investment Forum (Eurosif) and four of its national member organisations (UKSIF, Forum Nachhaltige Geldanlage, Dutch Association of Investors for Sustainable Development and SpainSIF), the International Corporate Governance Network (ICGN), Eumedion and United Nations supported Principles for Responsible Investment (UNPRI). Several of these organisations engage in an active dialogue with listed companies about corporate sustainability or focus on bringing institutional investors together for joint dialogue with companies.

Collaborative engagement efforts may be very time consuming, depending on the role we play as an investor and the number of companies involved. We therefore make a careful assessment before deciding to participate in collaborative engagement, in which we consider the objective and the added value to our minimum standards, and the companies targeted. In collaborative engagement, we focus on companies that are selected for investment by Triodos, but in some cases we may go beyond this.


General processes for all three groups of engagers

LEA 09. Share insights from engagements with internal/external managers

09.1. Indicate if insights gained from your engagements are shared with your internal or external investment managers.

Type of engagement

Insights shared

Individual/Internal staff engagements

Collaborative engagements

09.2. Additional information. [Optional]

Our asset managers have access to the Research database in which ESG information can be found on each company. This includes engagement efforts and outcomes that are part of the selection process.

In case our engagement insights have a clear exposure to the financial performance of a company, our asset manager is informed pro-actively.


LEA 10. Tracking number of engagements

10.1. Indicate if you track the number of engagements your organisation participates in.

Type of engagement
Tracking engagements

Individual / Internal staff engagements

Collaborative engagements

10.2. Additional information. [OPTIONAL]

All company engagement efforts are tracked in a database. Information that is tracked includes topics for engagement, contact person, reason for engagement, whether or not the engagement is closed and whether or not it has been succesful.


Outputs and outcomes

LEA 11. Number of companies engaged with, intensity of engagement and effort

11.1. Indicate the amount of your listed equities portfolio with which your organisation engaged during the reporting year.

Number of companies engaged

(avoid double counting, see explanatory notes)

Proportion (to the nearest 5%)
Specify the basis on which this percentage is calculated

Individual / Internal staff engagements

213 Number of companies engaged
90 Proportion (to the nearest 5%)

Specify the basis on which this percentage is calculated

Collaborative engagements

145
10 Proportion (to the nearest 5%)

Specify the basis on which this percentage is calculated

11.2. Indicate the proportion of engagements that involved multiple, substantive and detailed discussions or interactions with a company during the reporting year relating to ESG issue.

Type of engagement

% Comprehensive engagements

 

 

Individual / Internal staff engagements

 

 

Collaborative engagements

11.3. Indicate the percentage of your collaborative engagements for which you were a leading organisation during the reporting year.

Type of engagement

% Leading role

 

 

Collaborative engagements

11.5. Additional information. [Optional]

In our collaborative engagement efforts we focus on companies that are selected for investment by Triodos, although some collaborative engagements go beyond these.


LEA 12. Engagement methods

12.1. Indicate which of the following your engagement involved.

          Public policy engagement
        

12.2. Additional information. [Optional]


LEA 13. Engagements on E, S and/or G issues (Not Applicable)


LEA 14. Companies changing practices / behaviour following engagement

14.1. Indicate whether you track the number of cases during the reporting year where a company changed its practices, or made a formal commitment to do so, following your organisation’s and/or your service provider's engagement activities.

14.2. Indicate the number of companies that changed or committed to change in the reporting year following your organisation’s and/or your service provider's engagement activities.

Number of company changes or commitments to change

Individual / Internal staff engagements

16

Collaborative engagements

2

14.3. Additional information [Optional].


LEA 15. Examples of ESG engagements

15.1. Provide examples of the engagements that your organisation or your service provider carried out during the reporting year.

Topic or ESG issue
          Basic labour rights
        
Conducted by
Objectives

Companies have the responsibility to protect the rights of workers, both in their own organisation and in their supply chain. Internationally operating companies often have complex supply and production chains. Protecting only the rights of their own employees is insufficient. Most controversies take place in the supply chain. An important area of improvement with regard to basic labour rights is wages. In many countries there is no minimum wage, or it is so low that workers and their families live in poverty. One of the topics that we are currently addressing is living wage.

Scope and Process

Together with ASN Bank and pension investor MN-Services we engage on this topic with 14 textiles and apparel companies. Two companies not targeted by this group but part of our investment universe are approached by us individually. These are VF Corp and TJX Companies.

Outcomes

Engagement will continue in 2017.

Topic or ESG issue
          Animal welfare
        
Conducted by
Objectives

In 2014, we started engaging for improvement of farm animal welfare practices in relation to the food retail and restaurant industries. Our goal was to improve the standards of at least five companies of the ten companies contacted. After two years of in-depth engagement with the companies contacted we were able to conclude that our goal has been achieved. In 2016, Triodos Research followed up with companies in the food retail and restaurant industries with whom we engaged and provided recommendations in 2014.

Scope and Process

Although the companies in our universe are making good progress, they still have to deal with a number of obstacles. Making improvements in their supply chain, for example, largely depends on the financial capacity of farmers to improve their practices. Having learned about these obstacles helps us to develop our own standards further. Whilst companies in our investment universe are already leaders in farm animal welfare, particularly for fresh meat and eggs, we expect to see the leading companies develop more initiatives related to dairy and processed food. We will therefore continue our engagement efforts with companies in our investment universe.

Outcomes

Five companies have significantly improved their practices, and have started new activities to improve farm animal welfare in their supply chain that go beyond the required legal minimum standards. Among the frontrunners with regard to improved performance are Colruyt, Whitbread and Whole Foods Market.

Topic or ESG issue
          Diversity
        
Conducted by
Objectives

Improve transparency about diversity

Scope and Process

In a letter sent in December 2016 to 104 investee companies, we call upon companies to publicly disclose their policy, programmes and targets on diversity within their organisation, to develop a target for board diversity, and to publicly disclose an evaluation of this policy and the actual achievements.

Outcomes

In 2017, we will follow up on this letter.

Topic or ESG issue
          Climate change
        
Conducted by
Objectives

End 2015, we sent a letter to all our investee companies (110), calling on them to speed up their efforts to bring a halt to climate change. In our letter we stated that for us, a corporate climate protection strategy starts with full support from the board. It requires boards to develop a climate strategy policy and to monitor progress. We called upon companies to disclose their strategy on climate protection, develop targets that are in line with the COP21 Universal Agreement, to disclose their roadmap to meeting these targets and their annual progress in this regard. Finally, we also called on them to refrain from lobbying against policies aimed at meeting the Universal Agreement.

Scope and Process

During 2016, we closely monitored the progress made by companies on these targets. We also called on companies to publicly report their CO₂ emissions, thus allowing us to monitor the total carbon footprint of our investment portfolio.

Outcomes

Twenty companies responded to our letter.

Topic or ESG issue
          Animal testing
        
Conducted by
Objectives

Raise awareness with company of our requirements on animal testing

Scope and Process

When we contacted Japanese personal products company Kao about animal testing in February 2016, it could not present an animal testing policy covering all company activities. It was therefore not eligible for investment.

Outcomes

In September 2016, the company sent us its newly published animal testing policy. The company now meets our requirements and as a result is now part of our investment universe.

Topic or ESG issue
          Bioethics policy
        
Conducted by
Objectives

Help company improve its sustainability performance.

Scope and Process

US biopharmaceutical company Baxalta focuses on therapies for the treatment of blood and immune system disorders and cancer. The company was spun off from healthcare equipment company Baxter, selected since 2011, in July 2015. As a result of this spin-off, the new company needed time to build its ethics and corporate social responsibility policies and programmes. Initially, the company lacked both an animal testing policy and a policy on genetic engineering and discussions were held about our requirements.

Outcomes

In February 2016, the company sent us its bioethics policy. With this policy in place, the company meets our strict requirements on animal testing and genetic engineering. During the year, however, we learned that the company has been acquired by Shire and have consequently removed it from our investment universe.

Topic or ESG issue
          Conflict minerals
        
Conducted by
Objectives

Improve supply chain management

Scope and Process

In 2016, we engaged with German wind turbine producer Nordex on the topic of conflict minerals. The company was newly assessed and approved for investment early 2016. The company stated not to be aware of the topic of conflict minerals but promised to look into this topic.

Outcomes

In a follow-up call in the fourth quarter we learned that the company is currently assessing the types and volumes of potential conflict minerals used. We will be informed once results from this assessment are available.

Topic or ESG issue
          Human rights
        
Conducted by
Objectives

Raise awareness of controversial aspects of project financed.

Scope and Process

Dutch development bank FMO is a close partners in many investment projects and engagement efforts. Therefore, we felt it necessary to question the company about its financial involvement with the Aqua Zarca project in Honduras. Civil protest against this project ended with the murder of one of the protest leaders.

Outcomes

As a result of broader criticism raised by multiple stakeholders about the project, the company decided to stop financing the project.

15.2. Additional information. [Optional]


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