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Strategic Approach and Managing Risk

The GABV's combined member's total assets amounted to USD 70 billion by the end of 2013. (impact statistic)

Triodos Bank has stayed close to the mission that underpinned its founding. This mission, and the values that govern it, anchor everything Triodos Bank does. It also determines the strategic direction of the organisation. This year we have spent more time detailing that strategy in the ‘sustainable banking’ chapter of the annual report.

We have also given more emphasis to the most material issues facing Triodos Bank, and how we set out to deal with them in 2013, as part of changing sustainable reporting guidelines from the Global Reporting Initiative. These guidelines aim to help our stakeholders to better understand the most important issues affecting Triodos Bank’s business, and how we responded to them, in 2013.

All of these efforts meant 2013 was another successful year, with growth of 22% in the balance sheet, and more than 80,000 new customers during the year. In addition, all offices except Germany, who will actively campaign to raise capital in 2014, are responsible for raising capital in their country, as we have done once again in 2013, attracting EUR 68 million across all our offices. We have continued to develop our activity in France following the opening of a new representative office rather than a branch at the end of 2012, in line with plans.

Our focus is on increasing people’s quality of life. So numbers alone can be a relatively blunt instrument in assessing how far we have achieved our goal. This year we have made a significant extra step to assess our impact in a domestic and international context. An extended chapter, detailing our vision on impact and how we have fared in 2013, provides a more in-depth picture of this work and will appear in the online annual report. Triodos Bank has always been focused on making a big difference, but we think it’s increasingly important to share how we gauge how effective we have been in more depth. We intend to further increase this effort in 2014 and beyond.

The table that follows provides clarity on Triodos Bank’s key strategic objectives and the evidence we use to determine the extent to which we are delivering them.

Triodos Bank

Our key strategic objectives

How we did in 2013

Offer or develop a credible set of services so Triodos becomes the ‘bank of preference’ for its customers, via meaningful relationships.

It offered a credible set of services in The Netherlands and Spain, including sustainable mortgages, current accounts, ATMs and Point of Sale machines in 2013.

According to research conducted in 2013, Triodos Bank is the ‘first bank’ for the majority of its Dutch clients.

Subject to risk assessments, plans for current account launches in Belgium and the UK in 2015 and 2016 respectively are in place.

Sustainable Investment Fund offering, via two funds investing in listed stocks, was introduced for the first time in the UK during 2013 in addition to a number of charity bond issues.

To continue to build a resilient bank offering a fair return on equity of between 4 and 7% in normal market conditions

A return on Equity (RoE) of 4.3% against a target of 7% in normal market conditions. The RoE on required capital is 5%. This 7% target should be seen as a realistic, long-term average for the type of banking activity that Triodos Bank engages in. The branches have proven that they can achieve this level of profitability in stable economic and financial conditions. We prefer to maintain a relatively high equity base and a substantial liquidity surplus which results in a lower RoE.

A leverage ratio of 8.7% compares to a ratio of 3% required in Europe, reflecting an approach that prioritises resilience rather than short-term profit, because a high ratio means a lower – but more stable return on equity. Many banks fund their loan portfolio and other assets with money market facilities from other banks in addition to deposits, whereas Triodos Bank only finances loans with customer savings.

To strengthen and continue to develop a Pan-European base, benefiting from unity in diversity

Consistent brand and visual identity used across the network (unity).

Local market approaches taken, including developing the commercial office network in Spain and online offering elsewhere (diversity).

Sector plans created in all major sectors, informing plans for future branch-specific activity.

Risk management, control and reporting functions to be strengthened, mainly centrally, in 2014.

The French representative office developed in line with plans, working with Belgian branch to extend lending in the country. Plans to open a fully-fledged branch in France have been delayed.

To maintain a clear focus on sustainable business, both by financing existing sustainable businesses and increasingly by targeting businesses transforming to more sustainable models

We continued to provide 100% of our loans to the real economy and sustainable industries, split between environment (49%), social (29%), cultural (15%) and other (7%) categories.

Financing businesses in transition towards sustainability is an underdeveloped area for the bank’s lending and an increasingly important area of focus in 2014 and beyond.

However, the loan to deposit ratio has decreased, meaning that less money entrusted to the bank was used for lending to core sectors.

To increase the proportion of lending that’s in private mortgages, to utilize funds deposited by private customers and businesses

Sustainable mortgages, which were responsible for 7.7% of the loan portfolio in The Netherlands and Belgium in 2013 (2012: 5.8%), were developed in The Netherlands, Belgium and Spain and became key products during 2013, providing EUR 274 million in finance (2012: EUR 189 million).

To encourage co-workers to participate in a vibrant co-creative community

Weekly ‘Monday morning meeting’ continues to provide opportunity for all branches and business units to convene and discuss shared issues.

Visionary Leadership Programme further developed, with 15 participants.

The results of a survey of the Dutch branch and Head Office in 2013 suggest the co-worker group is motivated and committed. The overall score from the survey was 7.9 (out of 10) compared with 7.4 for the financial market as a whole. A similar survey has been conducted in Belgium in 2012, and is a regular element in how branch’s monitor co-worker satisfaction.

Major co-worker conference for 120 co-workers, at all levels, hosted in Berlin on the theme of arts and culture.

To be recognised by key influencers as a reference point for banking, so that Triodos Bank contributes to the development of a more diversified, transparent and sustainable banking sector

We played a significant role as a reference point in each of the countries where Triodos Bank operates, through contributions to government committees, submissions on government consultations including a response to the Green Paper on long-term finance by the European Union.

We led and engaged in debates about the future of the banking industry at high profile events, in the media and via on and offline activity.

Extensive media coverage was delivered in all branches, where Triodos Bank’s opinion on banking and sustainable finance is sought and shared.

A case study about Triodos Bank’s business model and operations was written and taught on a Harvard MBA course and at Massachusetts Institute of Technology.

Triodos Investment Management (TIM)

Our key strategic objectives

How we did in 2013

Triodos Investment Management will continue to extend and deepen the impact of its funds even in difficult market circumstances

Total Assets under Management now amount to EUR 2.5 billion exceeding an ambitious target.

Specialised microfinance funds provided finance to 110 microfinance (2012: 99) institutions and other financial vehicles, in 44 countries (2012: 45), serving 7.9 million savers (2012: 6.4 million), and 8.4 million borrowing clients (2012: 6.9 million), in 2013.

To continue to innovate in financial products that support Triodos’ mission in society

Indicator: The development of new impact investment funds

Two new impact investment funds developed In 2013: Triodos Organic Growth Fund, a long-term private equity evergreen fund, for launch in January 2014 and repositioning of Triodos Sustainable Trade Fund and the further development of Socially Responsible Investment Funds methodologies is expected during 2014. However, regarding the Ampere Fund, management will be transferred early in 2014 to another manager and will reduce the total assets under management of TIM with almost EUR 221 million.

Triodos Bank Private Banking

Our key strategic objectives

How we did in 2013

Develop Private Banking as an important addition to Triodos Bank’s retail offering to meet the demand for a holistic approach that combines financial advice, financial returns and personal values for customers. Develop meaningful dialogue with these clients.

Launch of a tailored service offering, addressing the sustainability values and risk/return profiles of clients with investable assets of between EUR 300,000 and EUR 500,000 took place in 2013. A focus on business audiences resulted in a special meeting and new bi-annual magazine both focused on the theme of the alternative use of money. Refreshed website content and a client survey postponed to 2014 due to capacity constraints.

Managing Risk – the Business of Banking

To truly understand how Triodos Bank has acted as a catalyst for change in 2013, and since its inception, requires an understanding of risk and its influence on all banks.

All banks need to take some level of risk, by definition. Regulations provide a sector-wide framework for banks to manage their risk. At the same time it is our mission to stay close to people, respond to society’s most pressing needs, and focus on the future – all elements that in our view will reduce risks effectively. In this sense our mission mitigates our risks, allowing Triodos Bank to develop a resilient business that’s able to play its part in a more diverse, sustainable and transparent banking sector. We trust that this year’s annual report will provide you with insights into how we have approached our work in 2013.