Simon Whistler is senior manager, real assets with the United Nations Principles for Responsible Investment team. Drew Campbell, senior editor of i3, and Whistler discussed the UN PRI, its principles and the most recent round of signatory commitments in 2019.
What is the UN PRI?
The PRI is the world’s leading proponent of responsible investment. It works to understand the investment implications of environmental, social and governance (ESG) factors and to support its international network of investor signatories in incorporating these factors into their investment and ownership decisions. As an independent organization, the PRI encourages investors to use responsible investment to enhance returns and better manage risks but does not operate for its own profit. We also engage with global policymakers but are not associated with any government, and we are supported by, but not part of, the United Nations.
What are the UN PRI principles?
The six Principles for Responsible Investment are a voluntary and aspirational set of investment principles that offer a menu of possible actions for incorporating ESG issues into investment practice. In implementing them, signatories contribute to developing a more sustainable global financial system.
Principle 1: We will incorporate ESG issues into investment analysis and decision-making processes.
Principle 2: We will be active owners and incorporate ESG issues into our ownership policies and practices.
Principle 3: We will seek appropriate disclosure on ESG issues by the entities in which we invest.
Principle 4: We will promote acceptance and implementation of the Principles within the investment industry.
Principle 5: We will work together to enhance our effectiveness in implementing the Principles.
Principle 6: We will each report on our activities and progress towards implementing the Principles.
Who are the signatories?
The PRI has a signatory base of over 2,350 investors around the world. 55 percent of our signatories are based in Europe, but the signatory base is also growing fast in other regions such as the United States, Latin America and China. In the United States, for example, we’ve added more than 100 new signatories in the past 12 months, bringing the total there to more than 460. Together, these signatories represent more than $82 trillion in total assets under management — a majority of the world’s professionally managed investments.
PRI welcomes different types of signatories including asset managers and asset owners. We’ve seen an expansion in the types of asset owners joining in sectors including endowment/foundations, sovereign wealth funds, governments, public treasuries (e.g., City of Chicago and Illinois State Treasurer joined in 2018, and the Dutch central bank joined in March 2019) and family offices.
What are the signatories signing on to do?
By joining the PRI, signatories commit to implementing the six principles as a means of supporting the organization’s overall mission to help build an economically efficient, sustainable global financial system that will support long-term value creation, by rewarding long-term, responsible investment and benefit the environment and society as a whole. To that end, the PRI also works actively to help signatories implement the Principles by providing tools and guidance on responsible investment practices, by fostering good governance, integrity and accountability, and by addressing obstacles to a sustainable financial system that lie within market practices, structures and regulation.
What are some of the key takeaways from the most current round of reporting?
The 2018 reporting cycle provided further evidence of the growing momentum behind responsible investment. We had 1,459 reporters last year, compared with 1,237 in 2017, and 1,036 in 2016, and the proportions of signatories achieving the highest scores in relation to their responsible investment strategy and governance is also on the increase. In 2016, 50 percent of signatories achieved a score of A and A+ in these areas; in 2018, more than 60 percent of signatories achieved the same. So, we are seeing more signatories and better practices being put into place in general. That trend also feeds down into specific issues, such as climate. Here we are seeing asset owners increasingly seeking to take the initiative in driving low carbon investments or action on climate change by companies they invest in. For example, in 2018, more than 50 percent of asset owners reported seeking climate change integration by companies they are invested in, and close to 50 percent targeted low carbon or climate resilient investments. These figures have grown consistently during the past three reporting cycles.
What is the response rate — do most participants provide all the information requested?
The response rate for the past two years has been close to 90 percent. What’s important to understand is that reporting means responding to a mix of mandatory and voluntary questions. We’ve tried to minimize the reporting burden, but at the same time ensure that investors who do want to highlight their responsible investment practices in more depth have the opportunity to do so. On that front, we’re seeing more reporting on voluntary indicators each year, a further indication perhaps of the seriousness with which signatories are addressing responsible investment, and ultimately also a means for them to highlight their good practices to their peers and potential clients.
How is the UN PRI’s reporting put into practice by investors?
Reporting is just one piece of the puzzle in terms of how the PRI works with investors to drive stronger responsible investment practices. The information and data we gather through the reporting goes alongside the work that we do in terms of providing guidance and tools for investors on different asset classes and different elements of integrating responsible investment in investment processes, as well as the support we provide to investors on engaging with their investees on key issues such as climate change, human rights and tax, among others.
How do the principles help investors with asset management?
We understand that investors have different strategies and priorities, but we aim to facilitate the right conversations — internally and externally — on responsible investment that ultimately guides better practice, whether in asset management, strategic asset allocation or investor engagements.
UN PRI is currently soliciting feedback for its next round of reporting — is there anything to report yet?
Nothing as yet. Reporting only closed last week. We’re always looking to keep the reporting framework up to date and reflective of the most material responsible investment issues for investors. We’ll look at each module year-on-year and make minor adjustments as necessary, but there can be more substantial changes. For example, next year it will be mandatory for investors to report on their approach to the Taskforce on Climate-related Financial Disclosure, as one of the most concrete ways in which signatories can indicate their efforts on addressing climate change. We’ve had a good response from investors on this issue this year and last, when reporting was voluntary. Now we expect signatories to step up further. Similarly, in time we will seek ways to introduce reporting with regards to the Sustainable Development Goals (SDGs), as the concept of investing for impact becomes more mainstream. This will go in line with our broader efforts to educate and provide guidance to investors on incorporating the SDGs into their investment processes.
By continually updating the reporting framework, we therefore push signatories to stay on top of the key issues in responsible investment as they evolve.