Risk management

The sub-funds of Triodos SICAV I and all their investments 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 may be employed by the management company. An investment in shares of a sub-fund does not constitute a complete investment programme. Investors may wish to complement an investment in a sub-fund with other types of investments.

Operational risks

Operational risks are the risk of damage resulting from inadequate or failed internal processes, people and systems or from external events, such as changes in laws and regulations. In order to manage the operational risks, Triodos Investment Management has comprehensively documented its risk management policy. These risks are determined, measured, managed and monitored on an ongoing basis by means of appropriate procedures and reporting methods.

ISAE 3402

The objective of an ISAE 3402 Assurance Report is to provide assurance about the quality of the control measures related to the services provided. The ISAE 3402 guideline provides two types of reports. An ISAE 3402 type I report provides assurance about the framework and the existence of the implemented control measures. On April 11, 2017, Triodos Investment Management obtained an ISAE 3402 type I report as at December 31, 2016. An ISAE 3402 type II report provides assurance about the effective functioning of the implemented control measures. On March 12, 2018, Triodos Investment Management obtained an ISAE 3402 type II report for the period July 1, 2017 until December 31, 2017.

Solvency

Triodos Investment Management amply meets the minimum solvency requirements for asset managers. This makes Triodos Investment Management a solid party that is sufficiently able to absorb setbacks.

Financial risks 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.

Country risk

The sub-fund invests in several developed countries. The country risk mainly consists of the risk of changes in political stability and economic conditions, such as consumer confidence and regional appetite for and faith in the products and services of the companies that the sub-fund has invested in. The country risk is mitigated by investing primarily in western European countries.

Currency risk

Currency risk is the risk that unfavorable changes in exchange rates will have a negative impact on the sub-fund’s profits and assets. Since the sub-fund only invests in euro-denominated bonds, currency risk for euro-based investors is avoided.

Interest rate risk

Interest rate risk is the risk that unfavorable interest rate changes on the financial markets will have a negative impact on the profit and net asset value of the sub-fund.

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 6.25 as per December 31, 2017. The modified duration of the benchmark was 6.24. Triodos Sustainable Bond Fund is exposed to interest rate risk.

Credit risk

Credit risk is the risk that the counterparty is not able to meet its obligations towards a fund (in case of debt) and the losses that might be incurred as a result. In case of investments in equity this risk also covers the risk that the expected periodical distributions (dividend) and returns do not meet the expectations of the investor/ participant. Credit risk comprises of counterparty risk and concentration risk.

Counterparty Risk

Financial investment products such as stocks, options, bonds and derivatives carry counterparty risk. Within the SICAV I sub-funds this contains the risk that the counterparty cannot meet its obligations in the period between trading, confirmation, matching and settling the positions. This risk however is small and limited in time to typically two to three days between the trade date and the settlement date of a security transaction during which period the sub-fund has either the cash or the underlying securities until final settlement takes place.

Counterparty risk within the SICAV I sub-funds is limited and does not include the risk related to outstanding or received collateral as there are no activities such as securities lending or trading in derivatives.

Bonds are rated by agencies like Moody’s and Standard and Poor’s from AAA to junk bond as a gauge of the level of counterparty risk. This risk is mitigated by carefully assessing the credit quality of the obligor when selecting a bond issue and is further limited by refraining from buying bonds below investment grade (BBB).

Concentration risk

Concentration risk will increase a sub-fund’s exposure to adverse developments affecting the value of a company, country, currency or sector. This risk is mitigated by limiting the exposure to single obligors, industry sectors and countries in accordance with UCITS investment restrictions. In 2017 no defaults were reported for the portfolio of Triodos Sustainable Bond Fund.

The credit risk of the sub-fund, measured in terms of the weighted average rating of the portfolio, is AA3. The average rating of the benchmark is also A1.

Triodos Sustainable Equity Fund

Triodos Sustainable Equity Fund 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.

Equity risk

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 with respect to payment rights, equity and equity-related interests are subordinate to other corporate securities, including debt securities. Investments in equities are generally considered more volatile than other types of investments.

The equity risk is mitigated by avoiding large exposures to any one issuer, sector or country. The diversification of the portfolio across these categories is shown on page 67 and further.

Country risk

The sub-fund invests in several developed countries. The country risk mainly consists of the risk of changes in political stability and economic conditions, such as consumer confidence and regional appetite for and faith in the products and services of the companies that the sub-fund has invested in. The country risk is mitigated by investing primarily in North American and western European countries.

Currency risk

Currency risk is the risk that unfavourable changes in exchange rates will have a negative impact on the sub-fund’s profits and assets.

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 performance. The currency exposure will affect the sub-fund’s performance, irrespective of the performance of its securities investments, since the currency risks that arise through non-euro denominated investments are not hedged. The sub-fund’s currency exposure as a percentage of the portfolio is shown below.

Counterparty Risk

Financial investment products such as stocks, options, bonds and derivatives carry counterparty risk. Within the SICAV I sub-funds this contains the risk that the counterparty cannot meet its obligations in the period between trading, confirmation, matching and settling the positions. This risk however is small and limited in time to typically two to three days between the trade date and the settlement date of a security transaction during which period the sub-fund has either the cash or the underlying securities until final settlement takes place.

Counterparty risk within the SICAV I sub-funds is limited and does not include the risk related to outstanding or received collateral as there are no activities such as securities lending or trading in derivatives.

Concentration risk

Concentration risk will increase a Sub-Fund’s exposure to adverse developments affecting the value of a company, country, currency or sector. This risk is mitigated by limiting the exposure to single obligors, industry sectors and countries in accordance with UCITS investment restrictions.

Breakdown by currency as at December 31, 2017 (as a % of portfolio)

Triodos Sustainable Mixed Fund – Breakdown by currency (pie chart)

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 with respect to payment rights, equity and equity-related interests are subordinate to other corporate securities, including debt securities. A fund with substantial investments in equities is generally considered relatively volatile.

Equity risk

Investors in Triodos Sustainable Mixed 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 with respect to payment rights, equity and equity-related interests are subordinate to other corporate securities, including debt securities. Investments in equities are generally considered more volatile than other types of investments.

The equity risk is mitigated by avoiding large exposures to any one issuer, sector or country. The diversification of the portfolio across these categories is shown on page 78 and further.

Country risk

The sub-fund invests in several developed countries. The country risk mainly consists of the risk of changes in political stability and economic conditions, such as consumer confidence and regional appetite for and faith in the products and services of the companies that the sub-fund has invested in. The country risk is mitigated by investing primarily in North American and western European countries.

Currency risk

Currency risk is the risk that unfavourable changes in exchange rates will have a negative impact on the sub-fund’s profits and assets.

The reference currency for Triodos Sustainable Mixed 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 performance. 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. The sub-fund’s currency exposure as a percentage of the portfolio is shown below.

Interest rate risk

Interest rate risk is the risk that unfavourable interest rate changes on the financial markets will have a negative impact on the profit and net asset value of the fund.

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 3.42 as per December 31, 2017. The modified duration of the fixed income part of the benchmark was 3.74. Triodos Sustainable Mixed Fund is exposed to interest rate risk.

Credit risk

Credit risk is the risk that the counterparty is not able to meet its obligations towards a fund (in case of debt) and the losses that might be incurred as a result. In case of investments in equity this risk also covers the risk that the expected periodical distributions (dividend) and returns do not meet the expectations of the investor/ participant. Credit risk comprises of counterparty risk and concentration risk.

Counterparty Risk

Financial investment products such as stocks, options, bonds and derivatives carry counterparty risk. Within the SICAV I sub-funds this contains the risk that the counterparty cannot meet its obligations in the period between trading, confirmation, matching and settling the positions. This risk however is small and limited in time to typically two to three days between the trade date and the settlement date of a security transaction during which period the sub-fund has either the cash or the underlying securities until final settlement takes place.

Counterparty risk within the SICAV I sub-funds is limited and does not include the risk related to outstanding or received collateral as there are no activities such as securities lending or trading in derivatives.

Bonds are rated by agencies like Moody’s and Standard and Poor’s from AAA to junk bond as a gauge of the level of counterparty risk. This risk is mitigated by carefully assessing the credit quality of the obligor when selecting a bond issue and is further limited by refraining from buying bonds below investment grade (BBB).

Concentration risk

Concentration risk will increase a Sub-Fund’s exposure to adverse developments affecting the value of a company, country, currency or sector. This risk is mitigated by limiting the exposure to single obligors, industry sectors and countries in accordance with UCITS investment restrictions. In 2017 no defaults were reported for the portfolio of Triodos Sustainable Mixed Fund.

The credit risk for the fixed income part of the sub-fund, measured in terms of the weighted average rating of the portfolio, is AA3. The average rating of the benchmark is two tiers lower, at A1.

Breakdown by currency as at December 31, 2017 (as a % of portfolio)

Triodos Sustainable Pioneer Fund – Breakdown by currency (pie chart)

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”).

Equity risk

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 with respect to payment rights, equity and equity-related interests are subordinate 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.

The equity risk is mitigated by avoiding large exposures to any one issuer, sector or country. The diversification of the portfolio across these categories is shown on page 84 and further.

Country risk

The sub-fund invests in several developed countries. The country risk mainly consists of the risk of changes in political stability and economic conditions, such as consumer confidence and regional appetite for and faith in the products and services of the companies that the fund has invested in. The country risk is mitigated by investing primarily in North American and western European countries.

Currency risk

Currency risk is the risk that unfavourable changes in exchange rates will have a negative impact on the fund’s profits and assets.

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 performance. 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. The sub-fund’s currency exposure as a percentage of the portfolio is shown below.

Counterparty Risk

Financial investment products such as stocks, options, bonds and derivatives carry counterparty risk. Within the SICAV I sub-funds this contains the risk that the counterparty cannot meet its obligations in the period between trading, confirmation, matching and settling the positions. This risk however is small and limited in time to typically two to three days between the trade date and the settlement date of a security transaction during which period the sub-fund has either the cash or the underlying securities until final settlement takes place.

Counterparty risk within the SICAV I sub-funds is limited and does not include the risk related to outstanding or received collateral as there are no activities such as securities lending or trading in derivatives.

Concentration risk

Concentration risk will increase a sub-fund’s exposure to adverse developments affecting the value of a company, country, currency or sector. This risk is mitigated by limiting the exposure to single obligors, industry sectors and countries in accordance with UCITS investment restrictions.

Breakdown by currency as at December 31, 2017 (as a % of portfolio)

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

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