APG and Canadian funds critical of PRI governance “conflicts of interest”

Initial response from major institutional investors to governance review

Dutch pension manager APG and three major Canadian institutional investors, British Colombia Investment Management Corporation, the Caisse de Dépôt et Placement du Québec and the Ontario Teachers’ Pension Plan, have jointly called for the United Nations-supported Principles for Responsible Investment (PRI) to address a range of “inherent conflicts of interests”.

They want them to be addressed to not only prevent commercial interests from influencing decisions and policy development at the initiative but also to tackle what they call a “lack of democratic process” in the running of the PRI.
The investors were responding to a scoping document that will frame a planned independent review of the PRI’s own governance. Eight Danish pension funds quit the PRI late last year, unhappy at how the membership body is run.

The review comes as the PRI is shortly set to name a new chairman of its Advisory Council, which RI understands will be a figure from outside the sector.

At the core of the Dutch and Canadian investors’ concerns is the way members of the PRI’s Advisory Council (PRIAC) and the PRI Association Board (PRIAB) are selected. They say it is “opaque to members and inconsistent with best practice of electing board members”.

PRIAB is the body responsible for oversight and direction of the PRI Secretariat, while PRIAC, which meets twice a year, decides the PRI’s overall strategy and policies.

The investors say the appointment of the Chair to PRIAC also does not follow best practice at other bodies and companies where the Chair is usually selected from the group of elected directors.

And they point to what they say are flaws in the appointment of the PRIAB by the members of the PRIAC: “In this structure, members [signatories] have no influence as to the members of PRIAC and there is aninherent lack of direct accountability of PRIAC members to PRI members.”

There are also conflicts, the institutions say, in the structure of cross membership of the PRIAC and PRIAB: “Asset owners of the PRIAC evaluate the PRIAB and there are four individuals who are members of both bodies (three of which are identified as asset owners) so in effect members of the PRIAC are placed in the position of evaluating their own performance.”

“We find it difficult to reconcile requesting best governance practices of our investees while the PRI governance structure does not have all these best practices in place,” the letter adds.

It also goes on to query the role of the UN’s representatives, Achim Steiner (Executive Director of the UN Environment Programme) and Georg Kell (Executive Director of the UN Global Compact), noting that they attended no meetings in 2013. “For us this raises questions about how engaged the UN is in the PRI.”

The letter concludes that the investors remain committed to the PRI and that a strong governance structure is “fundamental” to its success. There is no suggestion that they plan to exit the PRI like the Danish funds. In total, the PRI had 19 responses to the review document.

PRI Managing Director Fiona Reynolds told RI: “The disclosure and management of conflicts of interest, including those inherent within the three categories of signatory, will form part of the scope of the governance review.

“The number of governing bodies, the process for appointing, nominating, electing and removing individuals to and from them, and the role of signatories in decision-making in these processes, will also form part of the review.” An independent reviewer is expected to be appointed in early April to begin the governance review, with an initial report due in July.