Triodos Sterling Bond Impact Fund: Investor Update Q2 2026

Keep in mind that our commentary on the fund, as well as its past performance, is not a guarantee of what will happen in the future. It is also not financial advice – you should consider talking to a professional adviser if you're not sure whether an investment is right for you. 

These investments are designed to be held for the long term. Like all investments, your money is at risk — investments can go down as well as up, currency fluctuations can affect the value of your investment, and you may not get back the full amount you invest.

How does the fund work? 

The Triodos Sterling Bond Impact Fund aims to generate a positive impact on society and the environment, while also delivering a stable income, by investing in a diversified portfolio of bonds.

Unlike shares, bonds are loans made to companies or governments. These loans pay a fixed rate of interest over a set period, offering a regular income. The fund invests in corporate bonds, green and social bonds, and UK government bonds (Gilts), with a focus on higher-impact issuers.

Economic and market context 

At the start of the second quarter, 10-year government bond yields were moving unpredictably in major economies. This changed when tensions rose in the Middle East conflict.

After the war escalated, bond markets didn't move in one clear direction. Instead, yields jumped up and down many times as investors reacted to news about the war and its economic impact. By the end of the quarter, yields had gone up in the US and Japan, while they came down in the eurozone and UK.

Yields only dropped slightly when the Iran conflict was de-escalated in June. This small drop likely happened because inflation was rising in many countries, and the war was hurting economic growth.

The difference in borrowing costs between European countries became a bit smaller during the quarter. However, the overall trend was higher yields, especially in countries with weaker economies.

Performance update 

The Sterling Bond Impact Fund had a positive second quarter, performing better than its benchmark. The fund performed well thanks to its corporate bonds and gilts. However, the specific corporate bonds we chose didn't perform as well as those in the benchmark.

Having more corporate bonds and fewer gilts than the benchmark helped our returns overall. Changes in the interest rate curve didn't affect performance much.

In the broader market, corporate bonds performed best, while gilts did worst because the benchmark limits which gilts can be included.

Portfolio engagement

During the quarter, we actively engaged with several companies in our portfolio to address important governance and sustainability issues.

In April, we spoke with Procter & Gamble about executive pay and with Vodafone about water use, energy costs, workplace safety, and pay equality. We identified 12 cases of potential forced labour concerns related to excessive overtime, insufficient breaks, and missing policies. All cases have now been investigated and resolved.

In June, we met with Toyota (who visited our office) and United Utilities. With Toyota, we mainly discussed financial performance, though we also raised questions about their use of rubber and leather. With United Utilities, we talked about upcoming UK regulatory changes. The company is developing an integrated water management plan in Manchester that's now being expanded across Northwest England. Their near-term goals include reducing emissions by 40% by 2030.

We're monitoring how UK water companies are improving their environmental performance. While pollution incidents remain a challenge - often caused by heavy rainfall or power failures - United Utilities is taking action by:

• Reducing power failures
• Adding more battery storage
• Responding quickly to leaks
• Improving supply chain coordination
• Exploring AI-based monitoring systems

The company has relatively few pollution incidents compared to peers, and all water companies now have pollution prevention plans in place. We'll continue our dialogue with these companies to support their progress.

Return

As of 31/06/2026

Calendar year return

Benchmark: Bloomberg Barclays UK Gilt 1–5-year Total Return Unhedged GBP index (50%) and the Bloomberg Barclays Sterling Non-Gilts Total Return Value Unhedged GBP index (50%). Returns incorporate the ongoing charges, but do not take into account the impact of the annual service charge on the performance of your investment.

Portfolio changes

In June, we added a sustainability bond from the International Bank for Reconstruction and Development (IBRD) to the fund. IBRD is the original World Bank institution, established in 1944 and owned by 189 countries. As the world's largest development bank, it provides financing and advisory services to middle-income and creditworthy low-income countries. The bond's proceeds will fund both social projects (healthcare, education, affordable housing) and green initiatives (climate-smart agriculture, sustainable water management). IBRD follows the World Bank's exclusion criteria, which prohibit investments in alcohol, tobacco, weapons, and other restricted sectors.

Investing glossary of terms