Powerful fund manager signatories criticise PRI in letter to Chair, as annual conference kicks-off

Investment houses want more input into organisation’s strategic direction.

A group of some of the world’s most powerful asset managers has written a joint letter to Martin Skancke, Chairman of the United Nations-supported Principles for Responsible Investment (PRI), criticising aspects of the PRI’s strategy and saying they want far more involvement in its direction.
The PRI’s signatory base has grown to a mammoth $59trn in assets held by almost 1400 signatories, making it one of the world’s largest investor collaborations. Its flagship annual conference, PRI-in-Person conference starts tomorrow (September 8) in London where about 1000 signatories will gather, just after its Signatory General Meeting, its annual governance review. Sources have told RI that the discontent has been brewing for months and become serious enough to formalise via the joint letter, which they say was sent in May. The letter has become a point of back-room discussion among industry professionals. The group of fund managers is understood to include BlackRock, the world’s largest fund manager, Axa Investment Managers, Colonial First State Global Asset Management, Newton Investment Management, Allianz Global Investors, Capital International, Standard Life Investments and T. Rowe Price. The sources – speaking off-the-record – said the fund managers still firmly back the PRI, but are deeply concerned about how the initiative proposes moving signatories from sign-up to action to drive responsible investment and improve financial markets.
One source said the managers had called for a PRI “statement of purpose” to outline what it wants to achieve, ensure all signatories are working towards it, and challenge any signatory practices that undermine its purpose.
The sources say the fund managers are concerned PRI membership has become a “box-ticking exercise”.They want asset owners to hold fund managers to account on responsible investment, otherwise, they say, the Principles lack credibility. They believe there has been too much talk about the initiative’s asset ‘size’, but not backed up by output. As a result they are calling for organisation ‘milestones’ and the creation of an ‘asset managers leaders group’ to help set them. The sources said the managers were also concerned about the PRI’s retention of senior staff with investment experience. They said the group had proposed that the PRI hire an additional CEO or CIO to deepen relationships with fund houses. The managers, they said, had also criticised the PRI’s working groups and external collaborations as broadly ineffective, and said it needed to work more closely with other sustainable finance initiatives.
In August, the PRI announced via its annual report, subtitled ‘From Awareness to Impact’ that it would consult on ways to improve signatories’ accountability, including new levels of membership to reflect levels of commitment to responsible investment. It said a revision of the PRI’s six Principles could be warranted. The sources said the fund managers felt the ‘Awareness to Impact’ strategic report was weak. One said: “There’s no real incentive at the moment for PRI signatories to do anything. That needs to change quickly. The report says it seeks to ‘reward’ long-term investment, but what does that mean? It doesn’t say.”
Fiona Reynolds, Managing Director of the PRI, confirmed that the PRI had received the letter and said it was “disappointing to have unhappy signatories”. She said she believed the organisation was already doing the things that the fund managers were calling for: “As part of our 3-year consultation of signatories we have been working on issues such as the grading of asset managers so that asset owners can be more selective in working with signatory investment houses. We’re also
bringing in new senior staff with investment experience, diversifying our signatory base into Asia and emerging markets, and looking at how we work with organisations who may not be ready to be full signatories, but who can benefit from working with us. More than 400 signatories fed into the consultation for the ‘Awareness to Impact’ report and the board and executive are aligned on the strategic direction. We’re looking forward to welcoming 1000 attendees to London this week to further that important work.”
In May, the PRI hired Nathan Fabian, former CEO of the Investor Group on Climate Change (IGCC), the institutional investor association covering Australia and
New Zealand, as its new director of policy. He replaced former BT Pension Scheme executive Helene Winch who left the role in February after two years.The PRI has an asset owner bias to its board structure because of its history as an asset owner driven body. Seven of its ten Directors are elected by asset owner signatories, two by investment managers and one by service providers. The Chair, Martin Skancke, is independent and there are two Permanent UN Advisors to the Board, representatives from the PRI’s founding UN partners: UN Global Compact and UNEP Finance Initiative.
In 2013, 8 Danish pension fund signatories quit the PRI over concerns about the initiative’s governance structure, and have not returned. The PRI subsequently carried out a significant governance review and overhaul that was approved by its signatories.