Global pension funds and institutional investors should accept part of the blame and also take responsibility for fixing the credit crisis as the owner shareholders of the banks that created it, according to the world’s biggest investor coalition, the $17 trillion United Nations Principles for Responsible Investment (UNPRI). In its first major statement on the crisis, the board of the PRI said the world faced the largest financial crisis in a generation and said institutional investors needed to push governments and regulators to reshape financial markets responsibly in a way that would match their long-term investment goals. To this end, it released an eight-point action plan for institutional investors to rally around. Donald MacDonald, chair of the PRI and a trustee of the BT pension scheme said: “As clients and part owners of the financial institutions at the core of this crisis, institutional investors should accept some shared responsibility for the behaviours that led to the crisis.” MacDonald said that to protect pension fund/institutional assets over the long-term, investors needed to greatly improve due diligence of fund managers and companies they invest in and practice and incentivise much smarter risk management.He said investors should also factor into financial decisions the full spectrum of environmental, social and corporate governance (ESG) issues that can impact asset values: “We believe this current crisis could have a catalytic effect of shifting the mainstream investment sector towards more responsible investment practices.” Alongside urging investors to join the initiative, the PRI’s eight-point action plan calls on investors to lobby governments and market authorities at a national and international level to promote investor responsibility through support of strong shareholder rights rules and improved company reporting requirements. In addition, it asks investors to say clearly how they will pay fund managers, consultants, brokers and research providers for better ESG research. Market observers say such a price signal could unplug the current market blockage for broader investment research seen as key to the development of responsible investment. The action plan also prompts investors to become more ‘active’ owners: monitoring investments closely, lobbying companies where risks are not being managed appropriately and conscientiously voting shares. Investors, it says, should also publicly disclose their responsible investment
activities, and in particular, the measures being taken to respond to the credit crisis. The board members of the PRI represent some of the world’s largest pension funds from five different continents including France’s Fonds de Réserve pour les Retraites, PREVI in Brazil and the BT Pension Scheme – Britain’s largest pension scheme. The PRI network now extends to 500 financial institutions worldwide.
The PRI Board calls on institutional investors to:
- See responsible investment, and the PRI framework, as an important part of the response to the current crisis and a tool to help build the structures to prevent the next one.
- Invest more in responsible investment activities. Now is the time to enhance the capacity to research, understand and address ESG issues, in all parts of the investment chain.
- Become signatories to the PRI and join a global network of peers working to address ESG risks and opportunities, both on the company and systemic levels.
- Incentivise – in a concrete way – fund managers, asset consultants, brokers and research providers to ensure that they further enhance their capacity to research, understand and address ESG issues.* Invest in active ownership capability, monitor investments closely, and engage in dialogue with companies where risks are not being managed appropriately. Ensure shares are being voted in an informed and robust way.
- Engage actively with governments and market authorities at a national and international level to ensure that responsible investment is seen as part of the solution, and any regulation supports the mechanisms through which investors exercise their responsibility (such as strong shareholder rights and corporate disclosure requirements).
- Publicly disclose their responsible investment activities, and in particular, the measures being taken to respond to the crisis.
- Promote the view within the entire investment chain that the long-term value and success of business are inextricably linked to the integration of environmental, social and governance issues into corporate management and operations, and that corporate responsibility will help restore the trust that is required for markets to function.