Responsible Investor

Shining a responsible light

The UN PRI has been a huge success in putting ESG issues into the public arena. But might investors need to do more to avoid a backlash?

Justice Louis Dembitz Brandeis, one of the most progressive US judges in history and a free market supporter, once underlined the importance of transparency in public life when he said: “Sunlight is said to be the best of disinfectants; electric light the most efficient policeman.”
As a progressive, Brandeis would have supported initiatives such as the highly successful UN Principles for Responsible Investment (UN PRI).
In just a year, the PRI has cemented its importance in the world of institutional investment with 195 signatories – both asset owners and asset managers – running about $9 trillion (€6.6bn) in assets. There are few equivalent investor lobbies of such magnitude.
The PRI needs to be congratulated, not only for its introduction of progressive principles against which investors can work to introduce environmental, social and governance best practice into their investment, but also for its acknowledgement that good principles can flounder if adherents have no incentive to improve.
The introduction of the UN PRI scoring system is the right carrot for the job. Ratings and performance are what makes the institutional investment world tick. Applying an annual ranking to progress made against the principles – with the requisite anonymity without which such an initiative could be still born – brings market practice to responsible investment. Carried out in the correct way it will give UN PRI a necessary impetus.

In launching Responsible Investor, we aim to mirror the endeavours of the UN PRI in encouraging investors to look seriously at responsible investment within their fiduciary duties. Research carried out by Freshfields, the law firm, and investment consultants Watson Wyatt and Mercer, suggests that issues including sustainability should be integral to institutional investment because they can materially affect returns over a long-term horizon; the raison d’etre of pension funds.
This discussion is by no means settled, however. Responsible Investor will be at the heart of the debate. We believe responsible investment makes good business sense for institutions and their members, but that there is a growing need to identify potential sources of responsible returns and to evaluate relevant investment products in the market.
In addition, we will challenge industry assumptions and shibboleths where we find them.
To this end, regarding the UN PRI, we have two caveats and one question mark.
The first caveat is whether asset managers could start to use the stamp of a good PRI score to market their funds?
This could be a problem because the PRI scoring system is based on voluntary submission of information to a lengthy questionnaire.
The hurdle can be cleared by regularly signalling to investors that the PRI score is not indicative, but directive. The PRI score should be a signpost for

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