I have to disagree with the editorial you recently published by Hugh Wheelan, “The UN PRI is facing major test of credibility – Revision of reporting framework is a blow to the initiative” (link). Investors globally are increasingly focused on understanding the environmental, social and governance (ESG) risk factors and potential opportunities that impact their investments. Asset owners today want better transparency into how their assets are managed and what elements are driving performance. A path forward to responsible investing is emerging and PRI is on course to lead the way.
More than six years ago, I stood with former UN Secretary General Kofi Anan and asset owner colleagues from around the world at the NYSE to launch the Principles for Responsible Investment. Development of the Principles took many months of intense work by 20 Institutional investors from 12 countries, plus the support of an extensive multi-stakeholder group of experts. The Principles are as – if not more – relevant today than they were then.
This is particularly evidenced by the remarkable growth in the number of signatories to the Principles. We have grown from 183 at the one-year anniversary of the Principles, to now over 1000. This growth indicates that more mainstream investors now recognize the important link between governance, social and environmental factors and long term value for investors.
The PRI is a network of investors that are working together to develop better sustainable investment practices and, while there has been rapid growth in the signatory base, it is important that we get the Reporting Framework right, and ‘getting it right’ takes time.
If we look to other processes – such as the development of auditing and accounting standards – these are complex processes that have taken years to develop. Similar to the development of these standards, where exposure drafts are released to the public for comment, the PRI Reporting Framework pilot involved a working model, which was then tested by a group of signatories. Those signatories are now providing comments to the PRI, which will be reviewed and incorporated as appropriate. We all recognize that, even with these changes, this Framework will likely require tweaks from time to time. Even now, revisions to auditing and accounting standards continue to take place as practices have evolved over time.Sustainable investment is an evolving field. Transparency is the bedrock of stable, well-functioning and efficient markets. With investors, policy makers and other stakeholders increasingly demanding transparency of RI activities, the new PRI reporting framework has been designed to allow signatories to report on their responsible investment activities and progress in a systematic way.
It’s important to remember the basic Principles for Responsible Investment as we continue our dialogue:
• We will incorporate ESG issues into investment analysis and decision-making processes
• We will be active owners and incorporate ESG issues into our own corporate governance policy
• We will seek appropriate disclosure on ESG issues by the entities in which we invest
• We will promote acceptance and implementation of the Principles within the investment industry
• We will work together to enhance our effectiveness in implementing PRI
• We will report on activities and progress towards implementing PRI
Responsible investment should be at the heart of the investment process for every investment institution. Investors are still learning how best to consider ESG factors in investment decision-making. As a result, we should be cautious not to ‘stifle innovation’ towards developing better practices, as we continue to break new ground on understanding how ESG issues matter, and the impact they have on investment risk and return.
The development of a robust reporting framework is highly important to the accountability of the PRI initiative and will impact the sustainable investment field more broadly. This work is full of potential, and it is critical that the PRI take its time in the development process, to produce a Reporting Framework that facilitates the prudent management of assets and long term value creation.
Priya Mathur is a member of the California Public Employees’ Retirement System (CalPERS) Board of Administration and also serves as a member of the PRI Board and the PRI Advisory Council.