Principles of Responsible Investment (PRI) is an initiative and a set of aspirational and voluntary guidelines for investment entities wishing to address environmental, social, and corporate governance (ESG) issues. Over 850 companies have signed up to the principles.
Contents |
PRI is based on the notion that ESG issues, such as climate change and human rights, can affect the performance of investment portfolios and should therefore be considered alongside more traditional financial factors if investors are to properly fulfill their fiduciary duty.
The six principles provide a global framework for mainstream investors to consider these ESG issues. The PRI Initiative has also been created alongside the Principles to help put the framework into practice.
Over 650 investment institutions, and 200 service providers have signed up to the Principles, with an increased sign up arising from the global financial crisis of 2008-2009, according to a report in the Financial Times.
The Principles are ‘voluntary and aspirational’ and they do not have minimum entry requirements or absolute performance standards for responsible investment. However, signatories have an obligation to report on the extent to which they implement the Principles. In 2009, five signatories were delisted for not fulfilling this obligation.
The PRI Initiative has a Secretariat of around 30 staff based mostly in London, with staff based in New York, as well regional offices in Seoul, Sao Paulo, Amsterdam, Tokyo and Cape Town. An Australian office is to be set up in late 2011.
The Principles as listed on the official website are as follows:
As institutional investors, we have a duty to act in the best long-term interests of our beneficiaries. In this fiduciary role, we believe that environmental, social, and corporate governance (ESG) issues can affect the performance of investment portfolios (to varying degrees across companies, sectors, regions, asset classes and through time). We also recognise that applying these Principles may better align investors with broader objectives of society. Therefore, where consistent with our fiduciary responsibilities, we commit to the following:
1. We will incorporate ESG issues into investment analysis and decision-making processes.
2. We will be active owners and incorporate ESG issues into our ownership policies and practices.
3. We will seek appropriate disclosure on ESG issues by the entities in which we invest.
4. We will promote acceptance and implementation of the Principles within the investment industry.
5. We will work together to enhance our effectiveness in implementing the Principles.
6. We will each report on our activities and progress towards implementing the Principles.
In 2005 the United Nations Secretary-General, in coordination with the United Nations Environment Program Finance Initiative and the UN Global Compact, invited a group of the world’s largest institutional investors to join a process in developing the Principles.
Individuals representing 20 institutional investors from 12 countries participated in this process supported by a 70-person multi-stakeholder group of experts from the investment industry, intergovernmental and governmental organizations, civil society and academia. The process was conducted between April 2005 and January 2006 and the Principles themselves were launched by Kofi Annan at the New York Stock Exchange in April 2006.
The PRI Initiative has a range of activities to support signatories' implementation of the Principles. These include the Engagement Clearinghouse online forum, an annual reporting and process, the Private Equity Work Stream, and the Academic Network. Other work streams include the ‘Emerging Markets Project’, ‘Small Funds Initiative’, ‘PRI in Practice’ blog and ‘PRI in Property’ work stream. More information can be found at the initiative's Web site.
The PRI’s Engagement Clearinghouse is an online forum that enables PRI signatories to work together to seek changes in company behaviour, public policies or systemic conditions. Such collaboration helps investors to pool their resources and influence in order to achieve greater impact when engaging with investee companies. It has resulted in over 177 collaborative shareholder engagements on ESG issues such as water sustainability and slave labour in Brazil.
This is an annual online questionnaire for PRI asset owner and investment manager signatories. The aggregated results are published in the yearly Report on Progress document and show the extent to which the signatory base is putting the Principles into practice. The 2010 report revealed 95% of asset owners, such as pension funds, and 87% of investment managers now have an overall investment policy that addresses ESG issues. The document is published alongside the Annual Report of the PRI Initiative.
PRI's ‘Private Equity Work Stream’ brings together Limited Partners (investors), General Partners (private equity firms) and advisors, to raise awareness and support implementation of responsible investment in this particular asset class. In July 2009 PRI published two documents developed by the Private Equity Steering Committee.
The PRI Academic Network is a web-based network for knowledge exchange between practitioners of responsible investment and relevant parts of the academic community. It provides freely accessible avenues for research, education and network-building on critical responsible investment issues.