Principles for Responsible Investment
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The United Nations-supported Principles for Responsible Investment (PRI) Initiative is an international network of investors working together to put the six Principles for Responsible Investment into practice. Its goal is to understand the implications of sustainability for investors and support signatories to incorporate these issues into their investment decision making and ownership practices. In implementing the Principles, signatories contribute to the development of a more sustainable global financial system.
The Principles are voluntary and aspirational. They offer a menu of possible actions for incorporating environmental, social and corporate governance (ESG) issues into investment practices across asset classes. Responsible investment is a process that must be tailored to fit each organisation’s investment strategy, approach and resources. The Principles are designed to be compatible with the investment styles of large, diversified, institutional investors that operate within a traditional fiduciary framework.
As of April 2013, over 1200 signatories representing US$ 34 trillion assets under management have signed up to the Principles. In some cases, before retaining an investment manager, institutional investors will inquire as to whether the manager is a signatory to the United Nations-supported PRI.
In early 2005, the then UN Secretary-General, Kofi Annan, invited a group of the world’s largest institutional investors to join a process to develop the Principles for Responsible Investment. A 20-person Investor Group drawn from institutions in 12 countries was supported by a 70-person group of experts from the investment industry, intergovernmental organisations and civil society. The Principles were launched in April 2006 at the New York Stock Exchange.
The Principles are 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 was created alongside the Principles to help put the framework into practice.
Over 1000 investment institutions and close to 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 through the annual Reporting and Assessment process.
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.
Work streams of the initiative
The PRI Initiative has a range of activities to support signatories' implementation of the Principles. These include an Implementation Support team covering different asset classes (including Listed equity, Fixed income, Private equity, Property, Hedge funds, Commodities and related investments, Infrastructure, Inclusive finance, Environmental and social themed investing, and Small and resource-constrained signatories), an online collaborative engagement Clearinghouse for investors, an annual reporting and assessment process, and an Academic Network. Other work streams include a number of local networks, webinar series, and PRI in Person - an annual responsible investment conference. More information can be found on the initiative's Web site.
The PRI’s collaborative 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 426 collaborative shareholder engagements on ESG issues such as water sustainability and slave labour in Brazil.
Annual Reporting and Assessment Process
The annual reporting process for PRI asset owner and investment manager signatories seeks to achieve three main sets of objectives, including accountability, signatory transparency and signatory assessment. In 2012, the PRI launched a new Reporting Framework to provide a set of standardised indicators relevant and to the point for all investors, with separate pathways for direct and indirect investors and specific asset class supplements.
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.
- UK company law and US corporate law
- Corporate Social Responsibility
- Institutional investor and Stewardship Code
- Sustainable Asset Management (SAM)
- Lemke and Lins, Regulation of Investment Advisers §2:158 (Thomson West, 2013).
- Homepage of the PRI
- Video interviews conducted by the PRI
- Homepage of UNEP FI
- Homepage of UNGC
- Responsible investment review by PRI signatory
- Report by PRI signatory on applying the Principles
- PRI signatory website for responsible investment practices