The United Nations Principles for Responsible Investment (PRI) were developed by an international group of institutional investors reflecting the increasing relevance of environmental, social and governance (ESG) issues to investment practices. The process was convened by the United Nations Secretary-General. The PRI goals are intended to understand and address the investment implications of ESG issues and to support signatories in integrating these issues into investment and ownership decisions. There are more than 1400 PRI signatories from over 50 countries, representing US$59 trillion in assets. The PRI’s mission is based on the recognition that an economically efficient and sustainable global financial system is a necessity for long-term value creation. Such a system will reward long-term responsible investment and benefit the environment and society as a whole. There are six specific actions that comprise the Signatories’ commitment to the PRI:
(1) to incorporate ESG issues into investment analysis and decision-making processes; (2) to be active owners and incorporate ESG issues into ownership policies and practices; (3) to seek appropriate disclosure on ESG issues by the entities in which invested; (4) to promote acceptance and implementation of the PRI within the investment industry; (5) to work together to enhance effectiveness in implementing the PRI; (6) to report on activities and progress towards implementing the PRI.
Since their promulgation, the PRI has stimulated growing interest in responsible investment practices worldwide. As a result, there is greater awareness and recognition that ESG issues are financially material and a better understanding that integrating these issues into investment policy forms part of an investor’s fiduciary duty to clients and beneficiaries. Increased concern has emerged about the impact of short-termism on company performance, investment returns, and market behavior. Greater attention is given to public policy requirements for investors to exercise their rights and responsibilities as owners. An emerging pressure from competitors seeking to differentiate themselves through responsible investment is also evident. Overall there is now a greater public appreciation of ethical motivations of investors, clients, and beneficiaries.
The PRI serve as valuable platforms for formalizing and focusing responsible investment initiatives, raising awareness, and providing common standards and expectations for all stakeholders. Implementing each of the six principles is a voluntary and inspirational process for each signatory. A possible list of actions for implementation includes the following specific recommendations: address ESG issues in investment policy statements; support development of ESG-related tools, metrics, and analyses; assess the capabilities of internal investment managers to incorporate ESG issues; assess the capabilities of external investment managers to incorporate ESG issues; request investment service providers, such as financial analysts, consultants, research firms, and rating agencies, to integrate ESG factors into research and analysis; encourage academic research on the PRI topics; advocate ESG training for investment professionals; develop and disclose an active ownership policy consistent with the PRI; exercise voting rights or, if outsourced, monitor compliance; develop an engagement capability; participate in the development of policy regulation and standard setting; file shareholder resolutions consistent with long-term ESG considerations; engage with companies on ESG issues and participate in collaborative initiatives; request investment managers to undertake and report on ESG-related engagement; request standardized reporting on ESG issues; request ESG issues to be integrated within annual financial reports; request information from companies regarding adoption and adherence to relevant norms, standards, codes of conduct or international initiatives; support shareholder initiatives and resolutions promoting ESG disclosure; include PRI requirements in requests for proposals; align investment mandates, monitoring procedures, performance indicators, and incentive structures with long-term PRI objectives; communicate ESG expectations to investment service providers; support the development of tools for benchmarking ESG integration; support regulatory or policy developments that enable implementation of the PRI; support and participate in networks and information platforms to share tools, pool resources, and make use of investor reporting as a learning source; collectively address relevant emerging issues; develop and/or support appropriate collaborative initiatives; disclose how ESG issues are integrated within investment practices; disclose active ownership activities, including voting engagement and policy dialog; disclose requirements from service providers in relation to the PRI; communicate with beneficiaries about ESG issues and the PRI; report on progress and achievements relating to the PRI; seek to determine the impact of the PRI; and make use of reporting to raise awareness among a broader group of stakeholders.
When fully implemented, the PRI will have a profound effect on the role of investments and institutional investors in achieving socially responsible objectives. The culture of maximizing profit regardless of the resulting social consequences will gradually diminish and will be replaced by a more ethical approach that reflects a genuine concern for the betterment and well-being of society as a whole. The PRI should, over a period of time, be able to deliver a similar commitment to social and economic justice as the UN Sustainable Development Goals.