Funds could also allow your money to make an even greater impact by supporting companies that develop solutions to the world's most critical sustainability challenges.

This article aims to break down the basics of how funds work, what impact investing is, and what makes the Triodos Impact Investment funds stand out.

The information we provide is here to help you make your own well-informed investment decisions. But it’s not financial advice or a recommendation to invest. If after reading the information, you're still not sure, it's worth considering financial advice.

What is an investment fund?

A fund is a “pot” that is made up of the money of lots of different investors. By pooling resources it means the fund can invest in multiple companies or organisations, and typically the costs are a lot lower than investing in them all individually yourself.

The idea is that you’re essentially spreading your money across different companies and thereby spreading your risk. While some of the companies may not do well and decrease in value, others might perform better and counteract some of the loss. It’s less risky than putting all your money in one particular investment, but there’s still the risk that you could lose money.

Even though the risk is spread out, companies can still be impacted by what’s going on globally, or in their specific sector. All investments go up and down in value over time. Investing is generally recommended for the long term (5+ years) to allow time for these economic fluctuations to balance out, although there’s no guarantee this will happen.

Read more on impact investment risk

Who decides which organisations the fund invests in?

It is the job of the fund manager to assess different organisations and decide if they’re right for the fund. They’ll do this based on whether they think a company is going to do well in the future and whether it meets the fund’s aims and goals. The fund manager will look at investments which make up the fund regularly and adjust or add to it to ensure there’s a good balance across sectors and regions.

But it’s not one size fits all: there are lots of different types of funds. For example, some funds hold shares (equities) and may focus on either smaller companies (like the Triodos Pioneer Impact Fund) or large ones (like the Triodos Global Equities Fund). Other funds invest in bonds which offer fixed returns over a specific time period (like the Triodos Sterling Bond Fund). Equity funds are generally higher risk than bond funds but aim for higher returns, so you need to decide what level of risk you’re willing to take.

Whenever you’re investing in a fund, read the Key Investor Information Document (KIID) first. This should tell you what kind of sectors it invests in, the types of investments it holds, and the risks it’s subject to.

What is an impact investment fund?

Many traditional investments are starting to avoid investing in certain industries that cause environmental and societal harm, like fossil fuels and fast fashion. Impact investing goes beyond that. It means investing to generate a positive, measurable social and environmental impact alongside a financial return.

We take this approach when it comes to the Triodos Impact Investment Funds.

We’re extremely stringent about what we invest in. Our minimum standards exclude some of the things you might expect, like fossil fuels, gambling, weapons, and tobacco. We also exclude companies that don’t meet our standards on human rights or treat their workforce with respect and dignity.

We only invest in organisations that are driving the transition to a more sustainable and fairer society. Simply put, if there’s no positive impact, we don’t invest in it. So, investing in a Triodos Impact Investment Fund is one way to ensure that your money is making an impact.

To learn more about our approach to impact investing, visit the Triodos Investment Management Knowledge Centre.