RI interview – James Gifford, UNPRI: fees, growth, public policy and global expansion

UNPRI executive director maps out its strategy in a crucial year.

Each year since its inception in 2006 has been a big step forward for the United Nations Principles of Responsible Investment. Signatory numbers have risen constantly to reach over 850 today, drawn from 45 countries and representing assets in excess of $22 trillion – over 10 per cent of the estimated total value of global capital markets. But 2011 could prove to be its most important marker yet. Firstly, in April this year, the initiative will move to a mandatory fee as opposed to the current voluntary contribution. Second – and related to the first – the PRI is rapidly becoming a fully-fledged ‘organisation’ with a permanent, global staff of about 30, a far cry from its beginnings as a dedicated, small group of committed individuals including executive director, James Gifford, and New York-based chief operating officer, Jerome Tagger. RI recently revealed that Tagger would shortly be leaving the PRI to be replaced in the COO role in March by Mark Blair, who recently joined as director of operations and finance in London. Blair was former chief finance officer of General Atlantic, the business arm of the UK-based Atlantic Philanthropies, and began his career as an investment analyst in the City of London. Third, the increased staff levels are enabling the PRI to deepen its work streams across asset classes and into areas where greater focus is required, or where RI has been slower to develop. Signatories also look likely to have to meet new transparency guidelines this year on implementation of the six PRI principles Link to related RI story .That move comes after criticism from some quarters that PRI members need to practice what they preach. In October last year, Roderick Munsters, chief executive of Robeco, the Dutch fund manager, told RI that there needed to be more independent external monitoring of what PRI signatories “do and what they communicate”.
Finally, the initiative will replace its inaugural chair, Donald Macdonald, who has come to the end of his tenure. Macdonald was widely respected for his passion and ability to bring people together across the institutional investment spectrum and will be a hard act to follow. His replacement is to be announced shortly.
On the first issue of fees, signatories will start to pay annual, sliding-scale subscriptions from April. The level will not go beyond the previous voluntary maximum of $10,000 (£6,600), but it could provide the PRI with a seven-figure annual revenue base.
Fees for some investors will be set according to assets under management. Other signatories will pay according to staff numbers.
Speaking to Responsible-investor.com, James Gifford says he expected to see some signatory drop off as a result of the fees introduction, although he believes it will be minimal: “We want to have committed PRI signatories and part of this comes with funding the increasing work that we are doing. If we want to move to a global and in-depth coverage we need 100% of signatories contributing, not just the 30% that have been financially supportive to date.” Part of the fees drive is to fund the

PRI’s ‘staffing-up’. Recent, experienced hires include Jamie Dettmer, a former journalist and head of communications at the Cato Institute, who joined as director of communications. His arrival suggests the PRI could develop along the lines of Cato as a public policy ‘think-tank’. However, Gifford says the PRI has no plans to lobby directly on policy but rather provide a bridge between investors and policy makers on research for responsible investment themes: a “thought leadership centre”, he says.
As an example, he cites the PRI’s work with global stock exchanges on sustainability issues. “They are quasi regulatory bodies and we have stimulated interest among exchanges on RI issues.”
Katy Swanston, former SRI officer at Newton Investment Management and ESG research manager for the RI Academy in Australia, has also joined the PRI to look after member implementation support for its six principles, which Gifford says remain a key challenge for the initiative. The PRI is currently recruiting four new staff, with the most senior being a director of strategic initiatives, responsible for the signatory recruitment and to develop its regional networks, the PRI Academic Network, and fundraising. The dramatic increase of staff numbers, says Gifford, reflects a broad expansion of its asset class work streams: “The private equity arm is developing well and we have seen good interest. We also have a project underway with the Dutch government, which has a unit focusing on ‘inclusive investment’ tolook at issues in the financing of small and medium sized companies. Our work on listed equities is constantly extending and early this year we will put out a new paper on passive investment in response to feedback from passive managers on Principle 1 (to incorporate ESG issues into investment analysis and decision-making processes) and what it means for indexed investment. We have more work to do on fixed income where there is large interest and Katy Swanston is currently mapping out that work stream.”

“We want to have committed PRI signatories.”

Other new streams, he says, include infrastructure investment, which has received seed financing from France’s €200bn+ Caisse des Dépôts et Consignations (CDC), the government-owned, long-term investment bank. A stream is also being developed based around the Millennium Development Goals: the eight international development targets signed by UN member states to achieve by 2015, including the eradication of extreme poverty, reducing child mortality rates, fighting disease epidemics such as AIDS, and developing a global partnership for development. Gifford says the PRI will look at the potential for impact investing and microfinance to contribute. The PRI’s Small Funds Initiative, he says, is also moving forward with its aim of helping smaller investors develop RI checklists and
templates for integrating ESG requirements into mandates and investment research. On hedge funds, work is still at an early stage despite an increasing number of signatories. One planned project will look at whether hedge funds should be voting their shares more at corporate annual general meetings and how they might be encouraged to do so. The broad thrust of these work streams, says Gifford, is to further the PRI’s role of promoting responsible investing as part of mainstream investment rather than redirecting capital, which he says can often be the focus of sustainable investment initiatives. The second major plank of PRI strategy outside of asset classes is to increase its regional influence. Says Gifford: “To date, the PRI has been strongest in developed markets and notably the English-speaking world. We’ve had good response in Europe, the US, Australia, South Africa, Brazil, South Korea and latterly Japan where we feel there is a big shift happening. Even in Europe though we need more of a push into Germany, Italy and Spain. But if we want to ‘mainstream’ there are some major markets where we have a lot of work to do: China and India are the two obvious ones. They are both a real challenge, but the bright spot is on environmental management. We haven’t yet rolled out a strategy here, but to have the kind of presence we need on the ground is another reason to move to the fees policy.”A third major strategy focus is the policy/government space alluded to earlier. Notably, the PRI aims to persuade more government owned/sovereign wealth funds to sign up. The PRI’s current project on ‘universal ownership’ – the idea that many institutional investors ‘own the market’ through the diversity and size of their holdings, and should therefore have a stake in overall economic sustainability – could, he says, be one such influence: “We believe it has the potential to demonstrate why many investors should be involved in promoting long-term sustainable markets from a social and investment perspective. Corruption, for example, hurts investors, damages the economy and is economically inefficient. To this end, we’ll also be looking at areas like education and human capital. Feedback from asset owners is that they are very supportive of this. We want to raise awareness amongst policy makers of responsible investment as a tool to assist them and we have had particularly good input so far from the Danish and Australian governments.” A related expansion in the area of public/private investment will see the PRI increase its work on supporting initiatives like the Prince Charles-backed P8 group of pension funds looking at environmental financing, green bonds, and partnerships with transnational development banks. Gifford concludes: “I think we can be a useful relationship broker at this level.”