Peter Webster: When it comes to the future of the PRI - it's not just size that matters
The impact that PRI signatories can demonstrate is what matters
The views of the author are his own and should not be read as representing those of PRI or Vigeo Eiris.
The future success of the PRI needs to be about both incremental changes and bold leadership, and it needs all signatories, including service providers, to contribute.
The PRI is a remarkable creation and its success is often attributed to its model of recruiting asset owners who then encourage their asset managers to sign up to the same principles and report on progress. It is a model that has benefitted both groups and seen the initial set of 60 signatories in 2006, swell to over 2,300 signatories managing $86 trillion of assets, Including most of the world’s top 20 institutional investors.
There are two problems with this commonly-applied definition of success however. Firstly it’s not just size that counts – it’s the impact PRI signatories can demonstrate that matters. And secondly, the scale of assets alone overlooks the importance of PRI’s service provider signatories in making responsible investment effective.
Not that small is beautiful
Responsible investment no longer sits on the fringes of capital markets and PRI’s increasing reach is an enormous success to build on. By working with both governments and other like-minded organisations, the PRI has increased alignment and clarified concepts within the responsible investment sector and removed many barriers to sustainable finance. It has set an ambitious agenda in its 10 Year Blueprint, designed to tackle major challenges like climate change, signatory accountability and building a more sustainable financial system.
But the truth is that the PRI needs to do more to empower its signatories if it is to deliver substantial real-world impact. It has great examples to cite from active ownership engagements ranging from improving health and safety in the apparel industry, to encouraging 26 oil and gas companies to improve disclosure of fracking practices or, as just one example of the early wins of the Climate Action 100+ partnership, persuading oil and gas giant Shell to set short-term emission reduction targets linked to executive remuneration.
So now PRI needs to help its signatories to pinpoint those positive social and environmental benefits that come from their integration of ESG across asset classes or through engagement discussions.
In particular, PRI should offer leadership on the SDGs by sharing and promoting models for investors to align their portfolios and actions as investors with the SDGs goals and targets. And building on its leadership role on the EU sustainable finance action plan to help create a global approach to creating financial markets that drive sustainability.
The key role of service providers
These challenges cannot be met by focussing only on the PRI’s asset owner and asset management community.
As the current service provider representative on the PRI Board, to which I’m seeking re-election this month, I’ve been privileged to see first-hand how the innovation and expertise of this group of 300+ organisations has driven responsible investment forward.While sometimes overlooked, they provide crucial links between investors and issuers and between market players and their stakeholders.
Many asset owners and managers take for granted the ability to undertake informed proxy voting, the availability of independent ratings on corporate ESG performance or access to climate scenario analysis tools. Yet all these and more are only available this thanks to the PRI’s service providers.
And it is service providers who are right now pioneering ideas that might remake the future of responsible investment from use of artificial intelligence to the inclusion of ESG criteria in credit rating and means to assess real world impact.
So, to be successful, PRI strategies need to fully engage service providers, small and large, and provide them with the opportunity to contribute to the growing impact of the responsible investment movement.
‘Business as usual’? We are not there yet.
To deliver change at the scale required and make responsible investment ‘business as usual’ the PRI needs to focus on both incremental and large-scale changes.
On the incremental side, PRI must continue to support investors advancing on their own journeys: sharing best practices and up-grading PRI’s reporting and assessment processes to improve its impact. While sometimes painful, it remains a valuable learning tool that every year catalyses measurable improvements across the signatory base.
To make better use of the expertise and passion that lives within its service provider community the PRI data portal must become a simple and intuitive means for owners and managers to find the service providers they need.
And PRI needs to keep developing the diversity and global reach of the network. It’s great that our first Chinese asset owner joined this year, and now we need more PRI presence on the ground in more countries, with more globally diverse staff, and more materials in multiple languages.
In terms of step changes: PRI should use its unique position at the heart of global responsible investment to tackle the challenges of ESG data – working with companies, data providers and users to overcome multiple conflicting requests for data and provide investors with decision useful information. It’s an area where it’s particularly clear that involving service providers is vital to a successful outcome.
PRI should build on its Climate Change experience to explore new transformational models for investor engagement: collaborating with like-minded parties; ambitious in setting the “asks”; and public about the outcomes.
Most ambitiously PRI can give clear guidance for investors’ roles in delivering the SDGs and highlight where significant policy action on SDG issues is most likely and should be priced into markets – as it did last month with its ground-breaking Inevitable Policy Response on the carbon transition.
A lot has been achieved, but there is a lot more to do if we are to reach that promised land where no-one needs count the assets supporting responsible investment… because the consideration of ESG issues has become ‘investment as usual’.
Peter Webster is Director of International Affairs at Vigeo Eiris and PRI Board Director.