Risk management

All investments in the sub-funds of Triodos SICAV I are exposed to a variety of risks. Each sub-fund is intended for long-term investors who can accept the risks associated with investing primarily in the securities of the type held in that sub-fund. In addition, investors should be aware of the risks associated with the active management techniques that are expected to be employed by the management company. An investment in shares of a sub-fund does not constitute a complete investment program. Investors may wish to complement an investment in a sub-fund with other types of investments.

Risk management framework

Triodos Investment Management has implemented an integral risk management framework throughout its organisation, in order to adequately monitor and manage the risks related to the sub-funds. The risk management framework is based on the COSO (The Committee of Sponsoring Organisations of the Treadway Commission) framework for integral risk management. Furthermore it contains a permanent, independent risk management function, as well as policies and procedures designed in accordance with European regulations and best market practices. The risk management framework describes, among other things, the roles and responsibilities of the risk management function, risk governance (the ‘three-lines-of-defence’ model) and the risk management process for identifying, measuring, mitigating, monitoring, reporting and evaluating all relevant risks related to the sub-funds. The risk management function is responsible for the implementation and execution of the risk management process and policies. The risk management function is functionally and hierarchically separated from the portfolio management function.

Operational risk within the management company

Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. The primary responsibility for the effective identification, management and monitoring of operational risk lies with the management company. Triodos Investment Management identifies, monitors and mitigates operational risks through a risk management programme that includes a periodic risk and control self-assessment.

Triodos Investment Management is committed to continuously enhancing the effectiveness and controllability of its processes.

For further details and a breakdown of the operational risks within the management company, we refer to the Annual Report of Triodos Investment Management B.V.

Main risks and risk mitigations of Triodos SICAV I

The risks that are specifically associated with a specific sub-fund are described in the section on ‘main risks and risk mitigations per sub-fund’, The general risks that apply to the SICAV I sub-funds are described below.

Market risk

All the sub-funds of Triodos SICAV I invest in transferable securities listed on regulated markets. Market risk is therefore a key risk for the sub-funds. The individual sub-funds invest in different asset classes that each have their own market risk characteristics. The underlying risks of companies in which a sub-fund holds an equity or debt interest must be considered an intrinsic part of the market risk.

Liquidity risk

As Triodos SICAV I is an open-ended fund, each sub-fund may in theory be faced with a large number of redemptions on each valuation day. In such an event, investments need to be sold quickly in order to comply with the repayment obligation towards the redeeming shareholders. Sometimes it may not be possible to liquidate a position held on behalf of the sub-fund in time and at a reasonable price. In such cases the Board of Directors may decide to suspend the redemption and issue of shares in that sub-fund. The fund performs quarterly stress tests to assess this risk. These tests have shown that the sub-funds are able to quickly convert their assets into cash.

Main risks and risk mitigations per sub-fund

Triodos Sustainable Bond Fund

Triodos Sustainable Bond Fund primarily invests in euro-denominated corporate bonds, sovereign bonds and sub-sovereign bonds that comply with the sustainable investment strategy described in the general part of the prospectus of Triodos SICAV I (section on “Sustainability assessment”), and offer good investment prospects. Currency risk is avoided, since the sub-fund only invests in euro-denominated bonds. Investors in Triodos Sustainable Bond Fund are subject to the risks associated with bonds, including fluctuations in interest rates and the risk of inflation. Investments in bonds are generally considered less volatile than other types of investment.

Interest rate risk

Triodos Sustainable Bond Fund is exposed to interest rate risk. Values of fixed income securities will generally fluctuate in inverse proportion to changes in interest rates and such fluctuations may affect bond prices accordingly. This risk is reflected by the modified duration of the portfolio, which is 5.88 at year end.

Credit risk

Triodos Sustainable Bond Fund is exposed to credit risk. Credit risk includes credit default risk and concentration risk. Credit default risk is the risk that the issuer of a bond fails to meet its obligation to repay the principal upon maturity of the bond. This risk is mitigated by carefully selecting the obligor and is further limited by not investing in bonds below investment grade (BBB). The concentration risk is mitigated by limiting the single obligor exposure in accordance with UCITS investment restrictions. In 2015 no defaults were reported for the portfolio of Triodos Sustainable Bond Fund. To further mitigate the concentration risk, the sub-fund invests in a variety of countries, industries and companies.

Triodos Sustainable Equity Fund

Triodos Sustainable Equity primarily invests in shares of large-cap companies that are listed on worldwide markets, comply with the sustainable investment strategy described in the general part of the prospectus of Triodos SICAV I (section on “Sustainability Assessment”), and offer good investment prospects. Investors in Triodos Sustainable Equity Fund are subject to the risks associated with equity and equity-related securities, including fluctuations in market prices, adverse news about issuers or markets and the fact that equity and equity-related interests are subordinate in the right of payment to other corporate securities, including debt securities. Investments in equities are generally considered more volatile than other types of investments.

Currency risk

The reference currency for Triodos Sustainable Equity Fund is the euro, but investments may be denominated either in euros or in foreign currencies. Currency exchange rates may fluctuate significantly over short periods of time, which may also contribute to fluctuations in the sub-fund’s net asset value. The currency exposure will affect the sub-fund’s performance, irrespective of the performance of its securities investments, since the currency risks that arise due to non-euro denominated investments are not hedged.

Triodos Sustainable Mixed Fund

Triodos Sustainable Mixed Fund primarily invests in shares of large-cap companies listed on worldwide markets and in euro-denominated corporate bonds, sovereign bonds and sub-sovereign bonds that comply with the sustainable investment strategy described in the general part of the prospectus of Triodos SICAV I (section on “Sustainability assessment”), and offer good investment prospects. Investors in Triodos Sustainable Mixed Fund are subject to the risks associated with bonds and equities, including fluctuations in interest rates and the risk of inflation and fluctuations in market prices, adverse news about issuers or markets and the fact that equity and equity-related interests are subordinate in the right of payment to other corporate securities, including debt securities. A fund with substantial investments in equities is generally considered relatively volatile.

Currency risk

The reference currency for Triodos Sustainable Mixed Fund is the euro, but investments may be denominated either in euros or in foreign currencies (the latter only applies to the equity part of the portfolio). Currency exchange rates may fluctuate significantly over short periods of time, which may also contribute to fluctuations in the sub-fund’s net asset value. The currency exposure will affect the sub-fund’s performance irrespective of the performance of its securities investments, since the currency risks that arise due to non-euro denominated investments are not hedged.

Interest rate risk

Triodos Sustainable Mixed Fund is exposed to interest rate risk. Values of fixed income securities will generally vary in inverse proportion to changes in interest rates and such fluctuations may affect bond prices accordingly. This risk is reflected by the modified duration of the portfolio, which is 5.89 at year end.

Credit risk

The sub-fund invests about 60% of its assets in bonds and is therefore exposed to credit risk. Credit default risk is the risk that the issuer of a bond fails to meet its obligation to repay the principal upon maturity of the bond. This risk is mitigated by carefully selecting the obligor and is further limited by not investing in bonds below investment grade (BBB). The concentration risk is mitigated by limiting the single obligor exposure in accordance with UCITS investment restrictions. In 2015 no defaults were reported for the bond portfolio of Triodos Sustainable Mixed Fund. To further mitigate the concentration risk, the sub-fund invests in a variety of countries, industries and companies.

Triodos Sustainable Pioneer Fund

Triodos Sustainable Pioneer Fund primarily invests in shares issued by small and medium-sized listed companies. Companies that are eligible for investment by the sub-fund are typically Corporate Social Responsibility industry leaders on the basis of their sustainable business processes and the sustainable products or services that they provide, as described in the general part of the prospectus of Triodos SICAV I (section on “Sustainability Assessment”). Investors in Triodos Sustainable Pioneer Fund are subject to the risks associated with equity and equity-related securities, including fluctuations in market prices, adverse news about issuers or markets and the fact that equity and equity-related interests are subordinate in the right of payment to other corporate securities, including debt securities. Investments in equities are generally considered more volatile than other types of investments. The sub-fund’s focus on small- and medium-sized listed companies further increases volatility.

Currency risk

The reference currency for Triodos Sustainable Pioneer Fund is the euro, but investments may be denominated either in euros or in foreign currencies. Currency exchange rates may fluctuate significantly over short periods of time, which may also contribute to fluctuations in the sub-fund’s net asset value. The currency exposure will affect the sub-fund’s performance irrespective of the performance of its securities investments, since the currency risks that arise due to non-euro denominated investments are not hedged.

For further information about the risks we refer to the prospectus.

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