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Financing Change in Disruptive Times

The Transformative Power of Money

We live in a time of unprecedented global inter-connection. It’s never been easier to access the news, have conversations and collaborate with individuals and communities from different parts of the world. And yet, despite these opportunities, people seem to live and communicate in increasingly entrenched silos.

Part of this can be explained by influential social media which use algorithms to direct us to more of the same kind of content that we view and like. The more we use these social media channels to inform ourselves and our friends, the less diversity of opinion we are exposed to. At the same time the internet doesn’t distinguish on the basis of quality, or even truth. As one global commentator says the new, ‘post-truth’ media ecosystem “means everything is true and nothing is true”.

This system, despite its benign intentions, simply reinforces our own bias. The result is less and less exposure to the ‘other’ and more mistrust about what they say and do when it happens. We are less well informed and less able to empathise and connect to what is different and unfamiliar to us.

The polarised discourse that results has profound and surprising consequences in the offline world, as the referendum on Brexit in the UK and the US Presidential elections testify. Both campaigns were characterised by mistrust and misinformation on all sides, deepening and exposing divisions within society. The direct implications of these developments for Triodos Bank during 2016 were limited. Despite uncertainty about precisely what Brexit will mean for business in general, we remain committed to operating in the UK.

However, more broadly we seem to be living in two increasingly disconnected worlds; one in which a fortunate minority is increasingly prosperous and one where people feel alienated, disempowered and left behind.

In our 10 year strategy development, explored in last year’s Annual Report, we identified these diverging communities as an emerging and challenging trend. A trend which has the potential to have a very big impact on how Triodos Bank delivers its mission because its goal is to improve quality of life for all.

Triodos Bank is visible to individuals and communities actively engaged with the social, environmental and cultural challenges we all face. But are we sufficiently reaching out to communities which may be harder to access in the countries where we operate? To do that successfully means further deepening relationships and taking a less familiar and less travelled road.

The Triodos Bank branch in Malaga is more than an ordinary bank office. It fosters a new sustainable financial culture, where people are at the heart of all banking activities. As well as responding to queries and providing a professional service, the branch promotes face to face meetings and dialogue on a human, sustainable economy delivered via a patio space for networking and regular meetings and activities. The space reflects its social, financial and cultural surroundings, located in Malaga's artistic Soho district. The concept of the branch, which is built to exacting environmental standards, is built on enhancing potential relationships, offering individual customer experiences and a healthy and sustainable environment for co-workers and visitors.

We want to use our expertise as bankers to identify and find innovative ways to finance the things that bind us all – such as energy, resources and community – in a way that brings people together around practical, shared solutions to common questions.

An Integrated Response

The differences between silos of people that were so widely experienced during 2016, mask what’s common and shared between us.

Regardless of our perspective, many of our global challenges and aspirations are shared. We all want the freedom to choose how we want to live and who we want to become. This freedom is a fundamental value of humanity. But there is more. People want to be valued and respected members of society; to enjoy economic prosperity with a job, home and the finances to at least meet basic needs; and to enjoy a healthy natural environment that they are happy to take responsibility for.

These individual, social and economic desires closely reflect the three core dimensions of Triodos Bank itself. And, in our view, can only be addressed with an integrated approach that combines them: the development of the individual in freedom; living up to the reality that we are part of communities and we share one planet that feeds and shelters us; and that we live in an economic and environmentally responsible way.

This integrated approach is clear around issues such as the large-scale movement of refugees. For Triodos Bank, the creation and movement of refugees expose how social and environmental problems are linked and how important a mature, joined up response as world citizens to them is. Since 2009, an estimated one person every second has been displaced by disasters such as wars, and an average of 22.5 million people per year have been displaced by climate or weather-related events since 2008.

Governments, and even the judiciary, often still respond to these social and environmental changes as separate issues and events. Many of those who are displaced across borders as a result of climate change may not meet the legal refugee definition, for instance. The authorities have yet to catch up with the reality that climate change creates refugees who are equally deserving of shelter and support as those running away from war. The cause of their displacement is different but the effect is very similar.

If we’re to deal with these problems we have to recognise their inter-connected nature and find integrated solutions to them. Progress will be slow if civil society has a narrow understanding of both the issue and possible solutions to it, both of which are hampered when news about them is managed by special interests in silos – regardless of their political persuasion.

Practical action is possible. One way Triodos acts is by trying to strengthen individuals and communities in developing countries through inclusive finance. Funds in Triodos Investment Management, for example, provide microfinance institutions with the finance they need to lend to entrepreneurs helping them to help themselves to be more resilient in the face of financial and climatic shocks. In 2016 100 financial institutions provided inclusive finance for 13.7 million savers and 20.2 million borrowers in emerging markets.

Triodos Bank navigates between the old and the new

Against this backdrop of a fracturing civil society, companies today are confronted with the additional challenge of a 20th century world dominated by traditional business models that exclude, for example, the negative impact of their actions on the climate and which are driven by short term shareholder priorities.

At the same time, in an emerging 21st century world, people are looking increasingly for purpose-driven companies. They embrace a more integrated approach where a ‘true price’, which accounts for the broader social and environmental cost of producing and distributing a product, is more important than a low price.

Triodos Bank operates in and between these two worlds. We are a bank, for whom regulations and numbers matter. And we’re a purpose-driven organisation ourselves. We only and exclusively lend to and invest in sustainable enterprises, financing a new, fast-emerging collaborative economy where some of the old rules simply don’t apply anymore. The value creation we finance cannot (yet) always be monetised and privatised while that is still the operating model. Nevertheless this is our direction of travel and Triodos Bank is prepared to continue to be a frontrunner. It is also why these developments have encouraged us to find ways to broaden our scope beyond the work of a bank to deliver our mission.

Triodos Bank Belgium sponsors and participates as part of HERA (Higher Education and Research Awards) awards jury. The multi-disciplinary awards explore how masters students integrate sustainable development principles into their work in a number of sectors, including food, design, architecture and finance. The awards recognise the importance of integrating sustainability challenges, in a holistic way, at an important stage in their development.

Operating between the old and the new is particularly relevant as we work to deepen and extend Triodos Bank’s impact in a banking sector operating in the old paradigm of Risk and Return, following a mathematical model that is increasingly out of touch with the real economy and the real world it serves.

The response from central banks to the financial crisis of 2007/8 has been, in part, to inject more money into the financial system, through quantitative easing. This supply of money has, as intended, lowered interest rates in an effort to encourage more lending. The effect of lower interest rates on the banking sector was particularly acute during 2016 and has, in turn, put significant pressure on margins. The usually unwelcome result of this – at least for savers – is very low, and even negative interest rates in some countries, as well as lower returns for investors in banks themselves. According to current economic theory low interest rates will encourage people to spend their money instead of keeping it in saving accounts. In our view the reality is the opposite. While interest rates are so low people feel that they have to save even more money for the future.

Events were also hosted throughout the year by the Sustainable Finance Lab (SFL), an initiative co-created by Triodos Bank, which brings leading scientists together to design the models and tools required to create a sustainable finance industry. During the year an SFL seminar on the creation of money lead to high level talks with senior regulators from around Europe, influencing far reaching debate about the future of the financial system. As one leading regulator put it: “policymakers need to look beyond their conventional wisdoms and theories. That’s where the Sustainable Finance Lab comes in.”

In our view, the economic problems we face are not due to a lack of money; there is plenty of money available. For Triodos Bank and our customers whether the return on their money creates value beyond an immediate financial one is what matters. The value that money delivers for the long term interests of society and the environment it depends on, determines its long-term, real worth.

It is this conviction that underpins our commitment to only finance sustainable enterprise. It is also why we actively look to find new economic paradigms that will support a transition to a fairer and more sustainable financial system. And it is a view that determines how we understand, monitor and report the impact of our work and our customers.

Challenging times for the banking sector also create opportunities that emerge from close cooperation with sustainable entrepreneurs. To help them with their businesses and projects we have invested in innovation, such as new platforms like crowd funding and peer to peer lending and our own on and offline network. We explore what this meant in practice during the year in more detail in the results section and the rest of the report.

Triodos Bank is innovating by collaborating with La Bolsa Social, a values-based crowdfunding platform, in Spain. Triodos Bank operates accounts for investors on the platform and works at events and with content to promote new economy models, ethical finance and social impact entrepreneurs.

The Private Banking team in The Netherlands developed ‘participation with passion’ in 2016, an initiative to match private clients with social businesses requiring capital and/or advice. Businesses which share Triodos Bank’s mission, but can’t be financed directly by the bank, qualify. The project will progress in earnest in 2017.

Where we go from here

We strongly believe that when we act together we can deal effectively with enormous challenges.

While there will be setbacks in our efforts to use money consciously to contribute to sustainable change, the direction of travel is clear. There is enormous momentum behind sustainable change in the energy sector, for example.

If the measures of the United Nations (UN) Millennium Development Goals – which concluded in 2015 – are a barometer, humanity has made tremendous progress to improve people’s quality of life, in the broadest sense, in recent years.

The number of people living in extreme poverty has declined by more than half over the last two decades, for example. Gender disparity in primary, secondary and tertiary education in developing countries has been eliminated over the last 15 years, and the number of children dying under the age of five has declined by more than half over the last 25 years. However, we still face large and urgent challenges including climate change, even though ozone-depleting substances have been virtually eliminated since 1990 and CO2 emissions were almost flat for the third year in a row in 2015 despite a rise in economic growth. We must, of course, continue to take the challenge of climate change extremely seriously.

The progress we highlight here could easily disappear if we don’t deepen and extend action as an urgent priority. The Paris Climate Treaty is not optional. It is a mandatory call for large-scale action. And it is one, according to one architect of the Treaty that requires the mobilising of significant capital for a transition to a low carbon economy to take place.

Because of the magnitude of what is needed an individual contribution can sometimes feel insignificant in the face of our planetary challenges. Yet individual, local and decentralised action can add up to global change. By acting through values-based organisations like Triodos Bank ‘from the bottom up’ individuals and communities alike can contribute to international impact. It’s why we support ‘top down’ global frameworks like the Sustainable Development Goals (SDGs), which bring a global perspective and context to local issues.

Successors to the Millennium Development Goals, the 17 SDGs are a UN initiative designed to end poverty, protect the planet and ensure prosperity for all as part of a new, global sustainable development agenda. We welcome the opportunity the SDGs present to develop a universal language and a joined up framework for governments, non-governmental organisations (NGOs), the science community, the public and companies alike, to embrace the reality that true quality of life for all can only be achieved by addressing these global challenges together.

In our report this year we pilot using the SDG goals to better chart our positive impact, initially as a mapping exercise to see how far our activities are reflected in these goals, as you can see later in this report. In the future we expect they will become part of standard reporting for ourselves and the wider business community.

This integrated approach matches closely with Triodos Bank’s. It is an approach that matters now more than ever. Because an integrated view and response is precisely what we need to break out of the silos that slowed the pace of global progress in 2016.

Triodos Bank can play an even more significant role in joint action to make the world a fairer, more cohesive and sustainable place. With our expertise, the resources entrusted to us by our depositors, investors and the depository receipt holders in the bank itself, we will be active and thoughtful in pursuing our mission to deal with money consciously and make money work for the common good.

By doing so we can expect to understand each other better, appreciate our shared challenges and find lasting, sustainable ways to address them.