Fund Manager Trounces 100% of Peers Using Toughest ESG Strategy
A portfolio manager at Triodos Investment Management outperformed all peers in the first seven months of 2022 using Europe’s strictest sustainable fund category.
(Bloomberg) -- A portfolio manager at Triodos Investment Management outperformed all peers in the first seven months of 2022 using Europe’s strictest sustainable fund category.
The Triodos Energy Transition Europe Fund, which invests in wind, solar and energy-storage projects, is up almost 50% so far this year. No other fund registered as Article 9 -- the greenest classification within the EU’s environmental, social and governance investing rulebook -- has done better, according to data compiled by Morningstar Inc. through the end of July.
Vincent van Haarlem, who manages the $190 million fund from the Netherlands, said the strategy has been to target private companies and startups in emerging technologies.
“The energy transition requires taking away bottlenecks and one of them is providing entrepreneurs who have good ideas with the resources they need to realize them quickly,” he said in an interview. In recent months the fund has announced a solar-technology venture with German firm Einhundert Energie GmbH, a minority stake in Danish wind and solar park developer WindSpace, and a majority stake in a Dutch lithium-ion energy storage system.
The Triodos fund has managed to strike a sweet spot at the intersection of Europe’s energy-supply crunch and growing demand for the bloc’s cleanest fund category. About $6 billion flowed into Article 9 funds last quarter, while about $30 billion exited a laxer ESG category known as Article 8, according to Morningstar.
The popularity of Article 9 among investors means asset managers are increasingly trying to adopt the designation. But not all can keep it. Morningstar estimates that over a dozen funds recently had to abandon Article 9 registrations, following guidance from the EU.
“Over time, there will be a smaller and smaller group pretending to be green when they’re obviously not,” van Haarlem said. “It will become a risk for a company to label funds sustainable while they are not because you might be exposed.”
Against a backdrop of soaring fossil-fuel prices, Triodos is among investors betting that renewables are ripe for huge and lasting gains. Generation Investment Management, which is chaired by environmentalist and former US vice president, Al Gore, has dubbed the current cycle in energy markets a “sustainability revolution,” which it likens to the industrial and digital revolutions. And Brookfield Asset Management Inc. has hailed the “massive opportunity” it says renewables now offer.
The Triodos fund’s performance this year was over 10 percentage points better than its nearest Article 9 competitor, according to the Morningstar data. The MSCI World Index has dropped 18% this year. The MSCI World Energy Sector Index is up 34% year-to-date.
Van Haarlem said Russia’s war on Ukraine, and the energy crisis it spawned, turbo-charged gains in his portfolio this year. “Traditionally renewables have had a subsidies-based business case, but the energy crisis has moved prices beyond subsidy levels,” he said. “They’ll still be needed if the pace of growth is too slow to achieve the climate goals of governments.”
The Triodos fund has a time horizon that extends beyond 10 years, allowing it more flexibility than many of its peers and giving it more freedom to wait out downturns. The fund closed its doors to new money in April 2021, but has since opened again. Van Haarlem said he “will soon be in contact with prospective investors.”
Clients treated the fund as “something of a safe haven” during the pandemic, he said. “Investor inflow increased sharply but it was challenging to spend it at the same rate.”
Triodos used the pandemic to construct “several large projects” which van Haarlem says were “very favorably financed in a low-rates regime and once they hit the market the power prices went through the roof.”
“We’re reaping that fruit now,” he said.
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