The Principles for Responsible Investment (PRI) has said that future accountability for its signatories “should involve significantly reduced mandatory reporting” relative to its current framework, as it launches plans for voluntary “progression pathways”.
The pathways are a response to signatory feedback gathered during the PRI in a Changing World consultation, where the network polled members on the future of responsible investment and on its own “vision, mission and purpose”.
A large majority of respondents to the consultation said they both expected to progress in their responsible investment activities and wanted to be able to demonstrate this progress in a way that was not currently possible. While the PRI has minimum requirements for members, it acknowledged that intermediate milestones or opportunities to demonstrate advanced progress were “often absent”.
The launch document for the pathways also discussed the future of mandatory PRI reporting requirements under its current reporting and assessment framework.
It suggested that future mandatory reporting could be complemented by a recognition of reporting obligations against other relevant regulatory standards or voluntary initiatives, to be decided with members.
The PRI acknowledged concerns that the volume of voluntary standards, initiatives and frameworks has “increased exponentially” alongside regulatory developments, resulting in increasing time and resources being spent meeting them.
The end result of this, it said, can be a fragmented picture of an investor’s overall approach. Understanding the entire picture could require inspecting stewardship code reports, TCFD and net zero initiative reporting, SFDR disclosures and PRI reporting.
This can weaken the ability of investors to benchmark themselves, or for other stakeholders and clients to assess them, the PRI said. “It also disperses effort and can make it more challenging for investors to keep on top of the most important developments in the responsible investment community, potentially slowing the achievement of a sustainable financial system.”
The goal of the pathways should be to “paint a holistic picture” of overall progress in responsible investment practices and enable investors to understand how existing commitments fit together, the document said.
A spokesperson for the PRI said it was aiming to shorten the mandatory elements of the framework but that reporting will continue to be an obligation for signatories. Similarly, it will be decided during the consultation process whether signatories who choose to join progression pathways will have to report on progression and what this reporting may look like.
The PRI has put forward two concepts for the pathways, which will be voluntary for signatories.
The first is purpose-based, with investors progressing to certain levels on a framework for incorporating ESG factors, addressing drivers of sustainability-related financial risk, or pursuing positive outcomes.
The second would map investors’ progress on individual issues across E, S and G, for instance on biodiversity or DE&I. Progression against levels would be measured based on the objectives and sophistication of investment activities, the PRI said, including capital allocation, stewardship, and setting and progressing against metrics and targets.
The PRI stressed that it is not proposing an either-or approach, noting that there may be benefits to combining the two concepts.
It is also looking to explore the balance between criteria at entity and sub-entity level, suggesting in one example for the issue-based pathways that an investor might look to align with “level one” criteria across the business and “level three” for a specific impact fund. However, a PRI spokesperson said it would not be a fund-labelling system.
The network plans to host in-person and online workshops for members to discuss the proposals before launching an all-signatory survey next year. After the pilot iteration of the pathways, intended for mid-2024, there will be a further opportunity for feedback.