The co-chairs of the signatory committee advising the PRI are confident it’s a major step forward
The Principles for Responsible Investment (PRI) has unveiled its new Reporting Framework. This is the culmination of over two years work by the PRI and its signatories.
It has involved a high level signatory committee working to develop the overall framework, as well as a series of specialist committees developing new modules for specific asset classes. The PRI has held two consultations on its design and a large-scale pilot reporting exercise last year. Following signatory feedback, some important modifications and enhancements have been made.
The revision of the framework had several goals. One key goal for many signatories is to use the information reported as a basis to evaluate their own progress and learn from their peers. When a signatory wants to understand current practice on, say, company engagement or manager appointment, the new framework will provide a very strong evidence base, showing what signatories in different parts of the world are doing. It will contain both easily comparable quantitative information and qualitative descriptions giving richer detail. The PRI will be providing a data query tool to enable signatories to easily benefit from this learning outcome.
Another objective is to enable asset owner signatories to more easily gauge the progress asset managers have been making in implementing the PRI – both their current managers, and those they are considering for appointment. Demand from clients is a key driver of asset manager interest in the PRI. In the past, some asset managers have been tempted to tick the PRI membership box and feel their job is done. By providing clients with a much richer and more comparable basis for manager evaluation, these client signals could be greatly strengthened as clients review the progress their managers are making.
The new framework is designed to facilitate this kind of client evaluation because it is divided into a series of specialist asset class modules. Clients will be able to straightforwardly compare their equity managers against each other, for example, without being distracted by information about their real estate activity.
The new framework is by no means just for investment manager reporting. Asset owners are also required to report. One important development is the new reporting module for asset owners who appoint external managers. This will cover both pension funds and other kinds of asset owner such as fund-of-fund managers. The new module will require transparency from asset owners about the extent to which they take account of ESG factors in manager appointment; the reporting they require; and the monitoring they do. Much of this information will be available both to fund managers and to their own beneficiaries and customers. The public status of this reporting may encourage a new burst of activity in this area.
Another useful feature of the new framework is that it will allow the production of automated reports for signatories to use on their own websites. All the hard work that signatories put into the process of reporting will now generate a useful document that can be used to communicate performance directly to clients and other stakeholders.
A final and very important objective of the exercise is to improve public accountability. The credibility of the PRI initiative depends on securing public trust in the good intentions and concrete progress that is being made by the investment community towards a more sustainable financial system. There is a degree of healthy scepticism about the extent of the commitment of investment institutions to take the steps necessary to truly address the challenges of sustainability and poor corporate governance. This scepticism is not always unjustified.
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