The bigger picture

2019 was characterised by civil activism, bold political declarations and a rising tide of business action to deal with global challenges. At the heart of them was an effort to catalyse action to build a more socially inclusive society in the face of the climate emergency. Governments across the world committed to cut climate emissions, sometimes galvanising popular opinion with ambitious targets to cut national greenhouse gas emissions.

This thirst for change was reflected across the banking sector too. The duty of banks to play a positive role in society was evident in international initiatives like the United Nations (UN) Principles for Responsible Banking which were launched during the year and are designed to accelerate the banking industry’s contribution to achieving society’s goals as expressed in frameworks like the UN Sustainable Development Goals and the Paris Climate Agreement. Triodos Bank was closely involved in developing both the Principles for Responsible Banking and another industry-lead initiative, the Partnership for Carbon Accounting Financials (PCAF). Originally a Dutch initiative, PCAF provides financial institutions with a methodology to assess the greenhouse gas emissions of their loans and investments. During the year a global programme was launched that aims to more than double the number of financial institutions using the PCAF approach globally.

In our view these developments reflect a widespread unease in society that not enough is being done, nor quickly enough. Having stabilised for three years global carbon emissions increased over the last two years. At the same time parts of the world are wrestling with increasing levels of inequality, frustrating efforts to build more inclusive societies. While political parties seeking election in some countries during the year focused on the need to act to address the climate emergency, other political parties made a virtue of supporting polluting industries.

Acting today without losing the bigger picture

Banks, government and civil society alike face the challenge of dealing with today’s emergency while taking care of the longer-term challenges of tomorrow. A powerful example of the difficulties of meeting these simultaneous challenges took place in The Netherlands in 2019. The top court in the country determined that rules for granting building and farming permits breached EU law on protecting nature from nitrogen emissions. The court’s decision, reflecting just how unsustainable the situation has become, prompted widespread protests from Dutch farmers who took to the roads to create the largest traffic jam in Dutch history. Despite the need for a sharp decline in emissions, atmospheric concentrations of greenhouse gases have just started to level off in 2019, according to some reports. At the same time as we struggle to deal with the impact of short-term measures, we believe the agricultural system itself needs to change fundamentally to be sustainable over the longer term. We will need to address both if we’re to have any chance of living within our planetary limits while retaining a healthy society.

For Triodos Bank that means financing change, by lending to and investing in values-based enterprises that are dealing with the emergency we face today. And it means acting in the long-term to change finance as a pioneer of responsible banking. It means continuing to be the lead arranger of green energy deals in Europe, for the fourth year in a row, and playing a central role in the development of national, industry-wide initiatives – like the Dutch Climate Agreement. It aims to reduce CO2 emissions in The Netherlands by setting a clear, national reduction goal of 49% by 2030 compared to 1990.

To influence at a national and even regional level isn’t easy. We have fought at a European level to influence the debate on the development of a new green taxonomy, for example. This matters, because the proposed taxonomy risks penalising institutions offering green financial products – who will have to invest in meeting tighter regulations to ‘prove’ the green credentials of their products. In principle such measures are a good thing. But not if they neglect to make sure stakeholders are equally well informed about products linked to ‘brown’ assets like fossil fuels. Despite our relatively small size, we have persevered, often by partnering with others, to persuade decision-makers about the folly of these kinds of well-intentioned but potentially counterproductive measures. We must act in the now, without losing sight of the bigger picture.

The heroes of values-based banking. You.

We are convinced that the sustainable transition, ultimately, comes down to a question of collective will. The technologies we need to make the change required to create a more inclusive, low-carbon economy, already exist to a large degree. Work has been done to assess the long-term business case underpinning many of these new opportunities providing a compelling argument for action. And, increasingly, there are individuals and groups willing to act. We know that, because thousands of them are Triodos Bank customers. People willing to save and invest their money in the service of collective benefit. They are the heroes of the emerging consensus that the time to prevaricate is over.

We saw their passion at events in all the countries where we work throughout the year. Indeed, creating opportunities to engage with our customers, and helping them to increase their positive impact, is a critical part of our work. In The Netherlands, for example, over 1,000 people attended a day of Triodos Bank activities, connecting with a community of Triodos Bank co-workers, the businesses we finance and each other. This is just one powerful example of how we want to include people in finance.

This community of stakeholders engages with Triodos Bank’s business model which combines a moderate risk profile and fair returns with a singular focus on delivering lasting, positive impact. Our impact comes from exclusively financing sustainable sectors, via entrepreneurs and businesses addressing sustainable challenges ‘in the now’. At the same time, we aim to influence more broadly by arguing for sustainable change in the sectors where we’re active and in the banking sector itself.

Triodos Bank performance

Paying careful attention to managing risk and ensuring a fair return is a fundamental part of our banking model. But as a pioneer of values-based banking, so is impact. We published two vision papers on ‘energy and climate’ and ‘food and agriculture’ respectively during the year. Together they describe our theory of change for two of three key themes of our activity. The third is social inclusion. We will publish a vision paper on it, next year.

Our results show that Triodos Bank is increasingly able to act at scale. For example, in 2019, we financed more than 175 social enterprises in Europe via a partnership with the European Investment Fund (EIF), as part of the EU Programme for Employment and Social Innovation (EaSI). This built on more than 120 social entrepreneurs we have financed in 2018 as part of this intra-European partnership.

We continued to innovate, launching the Triodos Regenerative Money Centre – which aims to increase the conscious use of money, through donations and catalytic investments which are not consolidated in Triodos Bank's financial statements. Its focus will be on investments in a circular, socially inclusive and creative eco-system for people and the planet. And innovation was not limited to our financial products; Triodos Bank opened a ground-breaking new office, the Reehorst, in The Netherlands towards the end of the year because how we do things matters, as well as what we do. The building is one of the most sustainable in the country. More details follow in the environmental report.

We also took care of important developments within the Triodos Bank network. As we have described in previous reports, the UK office became a full subsidiary company on 1 May 2019. This effectively equips the bank for the future regardless of conclusions to the Brexit process. Due to Triodos Bank’s increasing growth, internationalisation and in line with developments on reporting in the banking sector, Triodos Bank decided to adopt the International Financial Reporting Standards (IFRS) as adopted by the European Union (EU) with effect from 1 January 2020. This meant considerable work during the year. We describe some of the consequences of this development in more depth later in this chapter.

Triodos Bank’s impact is built on the passion, skills and leadership of the diverse group of people who work here. During the year we transformed our way of working to include Change Domains. This new structure brings people together in multidisciplinary teams who benefit from iterative processes with the goal of creating a more agile way of working that supports our development as one bank operating in multiple places with a range of customers.

Broader process improvements were also made in Triodos Investment Management N.V. (hereafter 'Triodos Investment Management') during the year, delivering efficiencies and increasing our impact. Because we want to be a reference platform for values-based finance, we began the third-party distribution of funds in Germany. We created new mix funds and closed the Sustainable Real Estate fund as highlighted in previous reports. We also saw a one-off sale of a participation in Uganda’s Centenary Bank, generating additional fee income for Triodos Investment Management, which makes a substantial contribution to the Group’s financial performance.

From the start of the year we integrated an impact tool into our normal business processes to help us better understand, monitor and equip the business to steer from an impact perspective. The Impact Prism provides new insights into the impact of our loans and, in the future, our investments. Highlights include ensuring 100% of our finance is in sustainable sectors, developing detailed reports on the carbon impact of our loans and investments for a second year, and producing an extended sustainable development goal report which you can read. You can find more details on the outcomes from this work later in the chapter.

As well as these positive developments Triodos Bank continues to face the challenges of the large-scale supply of money, the continuing impact of increased regulatory costs and a low interest rate environment.

Low interest rates continue to have a downward impact on the bank’s interest margin, mainly because the growth of funds entrusted outpaces the growth of the loan portfolio. As a result, excess liquidity has grown and was placed with the European Central Bank (ECB) at a negative interest rate. The excess liquidity must be placed with the European Central Bank at a negative interest rate and at a cost for Triodos Bank.

To address the issue of shrinking margins, we will be more selective on the projects within the sectors we finance and the allocation of loan growth to the countries we are active in. We will also review critically the products and services we develop and offer to our customers. Our focus will be on loans, which will deliver both financial and impact benefits. We acknowledge that this may diminish the rate of loan growth.

Throughout the year we have combined a focus on dealing with the shorter-term challenges of the climate and social inclusion emergency we face, with developing longer-term impact that will contribute to the deep-seated transition we need. From financing ground-breaking sustainable enterprises across Europe to developing a ‘sustainable finance lab’ in Spain, inspired by a similar initiative in The Netherlands, or a German Sustainable Finance Council, we are in the business of using money consciously to address immediate and emerging challenges. With the continuing wisdom, support and passion of an extraordinary group of committed customers, investors and co-workers, we expect to contribute directly, and powerfully, to the urgent change needed across the globe.

COVID-19 outbreak in 2020

Triodos Bank considers the COVID-19 Pandemic as a significant event after closing the Annual Accounts 2019. The impact of the pandemic on people, companies and the economy at large cannot be assessed in full depth at this stage. However, the impact may have a downward effect on profitability. Measures to mitigate the operational risks are in place. Additional measures are dependent on our own assessments and the response of the authorities.

Prospects

The business of running a bank has become increasingly demanding. Providing quality products and services, meeting growing regulatory requirements including executing customer due diligence and monitoring transactions effectively, comes with costs in time and resources. Meeting the increasing costs of constantly increasing regulation creates challenges and impacts on our overall profitability.

This raises important strategic questions for Triodos Bank. We are continuously working to address them by reducing costs where we can and increasing fee income – principally through the expansion of our Triodos Investment Management activity. In addition, and importantly, we are proactively working to develop ICT and digitalisation solutions to help enhance customer experience and make processes more effective.

By harnessing our strengths as one bank, unlocking the potential of our organisation and mission, and continuing to pioneer responsible banking, we expect Triodos Bank to continue to find powerful opportunities to generate positive change.

Zeist, 18 March 2020

Triodos Bank Executive Board

Peter Blom, Chair
Jellie Banga, Vice-Chair
Carla van der Weerdt
André Haag