Triodos Microfinance is a global asset manager financing financial institutions such as banks or microfinance institutions in South America, Africa, Southeast Asia and Central Asia with a primary focus on financial inclusion, including  SMEs and the “real economy.”

In an interview following her presentation at European Microfinance Week, Tatiana Kalinina, senior analyst sustainability and impact at Triodos, explained to Paperjam that the fund management industry is sometimes challenged by the strict definition of the article 9 regulation that requires holdings in sustainable investments to amount minimally 80% of the asset under management. “The main challenges are not even the sustainability of investments.” Concerned about investors’ redemptions, it may be an issue for some funds committed to highly illiquid debt or equity investments in banks to maintain only 20% in liquidity.

The administrative challenges do not stop there. Triodos is confronted with the unavailability of data from financial institutions in the Global South as “they don’t need to report and whatever proxy data that we can find is very often not relevant for our specific case,” Kalinina said on 14 November 2024, referring to the EU’s Corporate Sustainability Reporting Directive. Still, Triodos can handle the proxy data because “we are overreporting and more conservative” on matters such as emissions.

So many questions about biodiversity

Only after going through the byzantine administrative roadblocks did Kalinina start talking to Paperjam about biodiversity, which is not simpler. “There is a big debate in the industry about what is biodiversity… how is biodiversity being harmed… what is restoring or preserving biodiversity?”

Yet she remarked that her industry is expected to “already measure and report on that.” In a cry from the heart, she said “we are all doing our best… but give us tools, give us methodologies… we are not scientists in biodiversity, we are financial experts.”

Kalinina explained that the environmental taxonomy (a social taxonomy is currently in the making by the EU) has six goals. Contributing to these goals should not be mutually self-harming. She recalled that only two of these objectives are defined (believed by Paperjam to be climate change mitigation and climate change adaptation), but biodiversity is not one of them.

Finding strength through unity

Kalinina takes comfort in being part of the Social Performance Task Force, an investor which covers biodiversity. Some of their members were speaking on the same European Microfinance Week panel. Erstwhile focusing on indebtedness, impact and sustainable investors nowadays regularly meet through several working groups related to SFDR, including biodiversity, to address questions such as “what does SFDR require from us? Do we have a similar interpretation?”

Separately from the taxonomy, she said that SFDR has a “specific primary adverse impact indicators that is dedicated to biodiversity.” She commented that the wording is still too vague about key biodiversity sensitive areas, and would like EU to be more specific about what investors should be reporting.

Too much is like not enough

Kalinina opined that European funds are caught between a rock and a hard place, as they are seen as asking for too much information from investees. How can it be different when the regulator pressures the funds to get ever more information from the receiving end of their investments? It’s all about balancing the need “to adjust [the data] and transform it in a way that…  is helpful for us to measure what we [need] to measure such as potential harm.”

“The regulation from the European Commission was written not for small farmers in the Global South, but for big corporates in Global West,” argued Kalinina. In the Global South, she stressed that the data on biodiversity that Triodos requests from SME clients through banks is perceived as “irrelevant” when managing their day-to-day business.

“It is not their priority.” The challenge is about presenting the request in a way that makes it “relevant and proportionate” for the SMEs by transferring knowledge. Kalinina suggested that sharing expertise developed in regenerative and biodynamic agriculture by farmers in the Netherlands is an example of such a win-win collaboration.