The Principles for Responsible Investment (PRI) has flagged risks to its business from backlash-related litigation in its annual accounts, alongside reputational risk from greenwashing accusations.
The accounts, filed with the UK’s Companies House on Tuesday, warn of a litigation risk “largely due to the political environment in some regions, including ‘ESG pushback’”. To mitigate this, the document says the PRI maintains legal advice, has reviewed guidance documents, and updated sign-off procedures for programmes of works and guidance.
While experts have said that litigation on the grounds of anti-trust, competition and consumer protection is on shaky legal ground, some investors have taken steps to reduce the risk. Allianz’s CFO revealed earlier this month that the German insurer left the Net Zero Insurance Alliance to protect its shareholders from legal and political risk in the US.
Fellow sustainability network Ceres has already been the target of US lawmakers, who have repeatedly tried to subpoena documents.
Responsible Investor understands that the PRI is not expecting any incoming litigation but is still monitoring the issue.
The PRI’s accounts also flag reputational risk as a key threat to its business, warning that “globally agreed goals on climate and nature are at risk, leading to pushback on claims and approaches used by investors, including accusations of ‘greenwashing’”.
To mitigate this risk, the PRI said it had consulted with signatories to get their views on responsible investment and expectations of progression.
It added that enabling signatories to report and demonstrate their progress is “critical”, along with holding them accountable via reporting and assessment. Issues relating to reputational risk are escalated to the board, the PRI continued.
As the group returned to normal operations post-Covid and held its first in-person conference after the pandemic, it saw a significant boost to income. Revenue rose from £28 million ($35 million; €33 million) in the year to end-March 2022 to £35 million in reporting year 2022/23, with the growth driven mainly by a significant boost to event income and increased income from membership fees.
Expenditures also rose significantly, reaching £34 million versus £26 million in 2021/22, due to “continuing investment in the 10-year blueprint”. Areas with large increases in expenditure included events, IT services and equipment, staff costs, and travel, much of which was associated with a return to normal operations post-pandemic.
By the end of the latest reporting year, the PRI had 5,389 members, an increase of 496 from April 2022. That was below the forecast from last year’s accounts, which predicted that signatory numbers would be close to 6,000 by March 2023.
In this year’s accounts, numbers are forecast to grow to 5,700 by March 2024.
A spokesperson for the PRI told RI that the latest accounts show that the organisation “remains well-placed to deliver on its priorities for signatories and the sector, demonstrating healthy signatory retention and growth, and strong financial underpinnings”.
They added: “We look forward to continuing and expanding our efforts to facilitate the industry’s systemic response to issues across the whole spectrum of environmental, social and governance-related themes.”
Staff expansion
The report also shows a significant increase to the PRI’s headcount in the year to end-March, from 177 to 251. The global networks and outreach and ESG teams saw the biggest rise in staff numbers, from 26 to 46 and 18 to 32, respectively. This was accompanied by a £2.8 million increase in expenditure on salaries.
Staffing was also among the key risks flagged to the business.
The PRI warned it was “very dependent” on skills and expertise among staff and that the market for responsible investment expertise has been very competitive. The organisation also mentioned that it has been through a “target operating model exercise”, which has increased short-term people risk but should result in reduced longer-term risk.
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