Principles for Responsible Investment: Embedding ESG issues in investments

Sep 12, 2022

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What is the PRI?

The organization known as the Principles for Responsible Investment, sometimes referred to as the PRI or UNPRI, is the leading advocate for responsible investment and it strives to:

• Understand the implication of ESG factors on investments
• Support its international network of investor signatories in embedding these ESG factors into their investment and ownership decisions

Whose interests does the PRI uphold?

The PRI works to uphold the long-term interests of:

• PRI signatories
• The financial markets and economies in which they operate
• The environment and society

Therefore, the PRI’s mission is the belief that an economically efficient, sustainable global financial system is necessary for long-term value creation. Such a system would benefit long-term responsible investors and also help the environment and society, in general.

A brief history of PRI

The PRI was launched in 2005 with the support of the United Nations and its General Secretary, who at the time was, Mr. Kofi Annan. A group of the world’s largest institutional investors was invited to join and contribute to the development of the Principles for Responsible Investment. This initial grouping included a 20-person investor group from 12 countries around the world, which was supported by a 70-person group of investment experts, intergovernmental organizations, and civil society.

Around 2008, the number of signatories increased, especially after the global financial crisis, although the principles are voluntary. That said, signatories are obligated to report the extent to which the principles have been implemented.

The 6 principles and possible actions to implement

The signatories of PRI believe that applying the following principles will help better align investors with the greater objectives of the society and have, therefore, committed to the following:

Principle 1: The signatories will incorporate ESG issues into investment analysis and decision-making processes.

Possible actions: Address ESG issues in investment policies and supporting the development of ESG-related tools, metrics and analyses.

Principle 2: Commit to being active owners and incorporate ESG issues into ownership policies and practices.

Possible actions: Develop and disclose an active ownership policy that’s aligned with the principle, exercising voting rights and monitoring compliance with the voting policy.

Principle 3: PRI signatories commit to seeking appropriate disclosures on ESG issues by the entities in which they invest.

Possible actions: The use of tools such as the Global Reporting Initiative to ask and receive standardised reporting on ESG issues in addition to the issues being integrated with annual reports.

Principle 4: Commit to promoting acceptance and implementation of the Principles within the investment industry.

Possible actions: Include Principles-related requirements in requests for proposals. A second action could be to communicate ESG expectations to investment service providers.

Principle 5: Commit to working together to enhance the effectiveness of implementing the Principles.

Possible actions: Sharing tools, and resources via information platforms and making use of investor reports as a source for learning. Additionally, supporting and developing initiatives that can help enhance the effectiveness of implementing Principle 5.

Principle 6: Each signatory commits to reporting their activities and progress towards the full implementation of the principles.

Possible actions: Disclose how ESG matters are integrated within investment practices. Another possible action could be to disclose active ownership activities with regard to voting, engagement, and policy discussions.

PRI, United Nations, and the founding signatories

As mentioned previously, the United Nations had a fundamental role in the founding of the Principles for Responsible Investment and in helping attract signatories over the years. While the PRI is NOT a part of the UN, they are partners in their goal to embed ESG issues in investments. This is reflected in the fact that the UN has two members/partners who play a significant role in the PRI’s strategy and each, holds a seat on PRI’s Board.

Specifically, the two UN partners that play a fundamental role in PRI are the UN Environment Programme Finance Initiative (UNEP FI) and the UN Global Compact (UNGC).

The former is a unique partnership between the United Nations Environment Programme (UNEP) and the global financial sector. The UNEP FI works with 200+ financial institutions that are signatories to the UNEP FI Statement on Sustainable Development to contribute to the development and promotion of associations between sustainability and financial performance.

The UN Global Compact was launched in the year 2,000 and acts as a policy platform and framework for companies that are committed to sustainability and responsible business practices. Essentially, it works to align business operations with issues such as human rights, labor, environment, and anti-corruption. With over 7,000 corporate signatories from 135 countries, the UN Global Compact is the world’s largest voluntary corporate sustainability initiative.

While there are quite a few founding signatories of the PRI, we have included a few below while the rest may be found here.

• ABN Amro Asset Management
• Aviva Investors
• BNP Paribas Asset Management
• BT Pension Scheme
• Canada Pension Plan Investment Board
• Connecticut Retirement Plans and Trust Funds (CRPTF)
• Daiwa Asset Management Co. Ltd.
• Government Employees Pension Fund of South Africa
• Government Pension Fund of Thailand
• Henderson Global Investors
• New York State Local Retirement System
• New Zealand Superannuation Fund
• Norwegian Government Pension Fund
• National Pensions Reserve Fund of Ireland
• New York City Employees Retirement System
• United Nations Joint Staff Pension Fund

In essence, both companies and investors can benefit from the PRI. Signatories sign up with an annual fee and have a great source of learning and guidance toward responsible investments. On the other hand, companies getting investments from these particular investors will go through a rigorous process to ensure they are aligned with the values and goals of the PRI signatories.

As one can imagine, this would be very attractive to most companies as the signatories include investors with trillions of dollars in assets under management, including multiple pension funds. However, being able to attract this level of investment, requires companies to up their investor reporting game by adopting standards such as GRI and being transparent and meticulous in the disclosure of their ESG performance data.

One way to make this process easier is to reach out to specialized corporate reporting design agencies like Report Yak, who have the expertise and experience within their content and design teams to incorporate tools such as the GRI Standards while ensuring that the company’s sustainability report is visually stunning with compelling content. Check out some of our award-winning reports here and reach out to discuss your next report!