PRI calls for mandates with reporting requirements on fees and ESG performance

New report looks to counter weaknesses in asset owner implementation

Asset owners should issue investment mandates that require reporting on asset managers’ fees and pay structures that support ESG performance to help drive responsible investment, according to a new report from the Principles for Responsible Investment (PRI).

Asset owners should issue mandates with ESG integration and reporting requirements, the report says, “including on stewardship activities and turnover, with fees and pay structures that support performance”. They should also assign specific weight to ESG factors in investment manager and investment consultant performance.

The suggestions are part of a series of recommendations as the PRI looks to show how asset owners can step up responsible investment and come amid a series of initiatives as the initiative celebrates its 10-year anniversary this year (website).

“Too many asset owners are failing to effectively implement their commitments to responsible investing,” says Bryan Thompson, Senior Vice President of Public Equities at Canada’s bcIMC and chair of the PRI’s Policy Advisory Committee in the foreword to ‘How Asset Owners Can Drive Responsible Investment: Beliefs, Strategies and Mandates’ (Link).

The 26-page page study, written by the PRI’s Will Martindale and Nathan Fabian and external consultant Rory Sullivan, is based on a series of interviews with asset owners, fund managers and legal counsel – as well as a deeper analysis of signatory reporting data. The aim is to understand the practicalities of how asset owners can take a proactive approach to responsible investment and how this might affect the wider financial system.

“The central message from this report is that if we, as asset owners, want investment markets to takeresponsible investment seriously, then we must start by demonstrating our commitment to responsible investment,” Thompson adds.

“Signing up to the PRI or adopting a responsible investment policy, while important, is not enough. Responsible investment must be central to our investment beliefs, our investment processes, and to the manner in which we select, appoint, monitor and reward our investment managers and consultants.” He talks of a “multiplier effect” across the investment chain.

“Signing up to the PRI or adopting a responsible investment policy is not enough”

A recurring theme from signatories, says PRI Managing Director Fiona Reynolds, is that mandates aren’t a starting point but an end-point. Before this, investors must develop their beliefs and look to build these into mandates. One problem, she adds, is that the terminology “long-term” is problematic. The PRI has identified three work areas: clarifying asset owners’ fiduciary duties, developing strategy process guidance and clarifying the responsibilities of other actors in the investment chain.

As part of its 10-year review, the PRI opened a consultation to signatories in February, focusing on how to enhance accountability across the signatory base.

Feedback from the PRI’s most recent signatory survey found signatories are supportive of increasing the organisation’s accountability role, with nearly two thirds of respondents saying the PRI should delist signatories who make no real attempt to implement the Principles.