James Gifford, PRI: robust reporting is key to enhancing the credibility of responsible investment

A mandatory public disclosure element is part of the accountability and transparency the PRI is pushing.

PRI signatories, through the secretariat, are working to create the world’s first global standard for reporting and assessment of responsible investment activity and capability. We are one step closer to achieving this following the completion of this year’s pilot of the new Reporting Framework. It is important to take stock of how it was received by signatories and consider what needs to happen next to ensure it becomes an effective tool, and ultimately the global standard. We couldn’t agree more with the main sentiment expressed in Responsible Investor’s recent editorial. Signing up to the Principles for Responsible Investment is only the first step to becoming a responsible investor. Without meaningful reporting and transparency, it is impossible for the investment community and those whose money it manages to gauge the extent to which signatories, and the PRI Initiative as a whole, is progressing in implementing the Principles and responsible investment in general. Responsible Investor is not alone in calling for higher levels of accountability and transparency. PRI signatories have also expressed demand for it, recognising that the Initiative is uniquely placed to gather this information and support the industry in moving forward. Since 2007, the PRI’s reporting and assessment process has been the key mechanism through which signatories report on progress and demonstrate to their clients, beneficiaries and other stakeholders how they take ESG issues into account in their investment and ownership processes. After five years, it became clear that significant changes were needed if it was to become the industry standard and deliver the additional accountability and transparency that we all agree are required.One of the key changes in the new framework is a mandatory transparency element. While many signatories voluntarily disclosed their responses to the previous survey, the process had no disclosure requirements, and given Principle 6: “We will each report on our activities and progress towards implementing the Principles”, the PRI Board felt that this was untenable. It first proposed in 2009 at PRI in Person in Sydney that disclosure by signatories of their activities under the Principles should become a condition of being a signatory. This required a rethink of what signatories should report, and how the indicators should be structured. In an open consultation in 2011, signatories and other stakeholders also expressed a clear preference to move away from an assessment-focused framework towards a reporting-focused framework (the responses to which could be assessed). Part of this new framework would be designed for public reporting, and deliver multiple outputs, such as an individual ‘RI Report’ for each signatory, the aggregate ‘Report on Progress’ and a private assessment report for learning purposes and dialogue between client and manager. Drawing on experience over the last five years, and with a mandate from the PRI Advisory Council, a group of signatory representatives, facilitated by the secretariat, embarked on a major rebuild. We conducted the most extensive consultation we have ever undertaken, culminating in the online pilot earlier this year. More than 350 signatories participated and gave detailed feedback. The process was guided by two key signatory committees: the Reporting Technical Committee (focusing on the technical aspects) and the Reporting and Assessment Advisory Committee (focusing on the policy aspects). More than
one hundred one-on-one calls with signatories took place and a dozen members of the PRI team were embedded within signatory organisations to shadow them through the pilot to gain a much deeper understanding of the challenges of reporting against the indicators. While there are some signatories who continue to have concerns about the new framework – in particular, the reporting effort required – we are delighted that around 70% of those that participated in the pilot found it to be an improvement on the previous surveys. While a similar percentage said that it took more time than previous years, we are working to reduce the reporting effort through IT enhancements and by removing indicators and supplements that signatories found not useful, or unnecessarily time consuming to report on. We believe we can significantly reduce the time required while retaining the key elements of a robust framework. In making the improvements that we outlined to signatories last month, we are not ‘going back to the drawing board’ as Responsible Investor’s editorial suggested. We are simply doing what we expected to do after a pilot – learning from the experience, gathering feedback and making necessary adjustments. The majority of the framework will remain in place, though there will be important improvements. We have pushed back the launch of the next iteration of the framework until October 2013, and will keep it open for six months rather than two or three (closing in March 2014) to give signatories greater flexibility, particularly those that need to work around proxy voting season. This will allow one year to prepare before reporting and will also give the secretariat and the technical committee more time to incorporate the feedback we received and further improve the online datatools that support the framework. The new assessment methodology is also being developed over the next six months, and will be piloted in 2013/2014. All of the key indicators and features that were introduced to ensure the new framework meets its original transparency and accountability objectives will remain in place, and the revisions that have recently been proposed will serve to make it more robust and meaningful. The shift from voluntary to mandatory disclosure means that from 2013/2014, for the first time, a key set of basic indicators will be made public on the PRI website. And the move from self-assessment to self-reporting will see us move away from asking signatories to assess subjectively the extent to which they believe they are implementing each Principle, to requiring disclosure of what they are actually doing. All of this will not only enhance the credibility of the PRI and its signatories, but it will begin to generate a common dataset across the industry that will allow clients and managers to have structured conversations about responsible investment implementation and capability.
Responsible investment should be at the heart of the investment process for every investment institution, and this is the basis upon which the PRI was established. While some of the metrics for measuring and monitoring progress towards implementation are still open to debate, we’re confident that over the coming decade, many of the indicators in the framework, and the new conversations taking place around them, will become commonplace as part of the inevitable maturing of responsible investment.
James Gifford is Executive Director of the PRI.