Principles for Responsible Investment scopes out review of its own governance

Initiative launches review in responses to governance concerns

The Principles for Responsible Investment (PRI) has scoped out a review of its own governance arrangements in a response to concerns that eventually led to the exit of eight Danish pension funds from the membership organisation last year.

The funds – including major institutions such as ATP, Industriens Pension, PensionDanmark, PFA, PKA and Sampension – quit over what they said was poor governance at the body over a over a sustained period of time. Now the PRI has identified six principles to guide a review to fix the perceived problems: mission, simplicity, transparency, accountability, practicality and representation (see below).

The plan is for an external individual or organisation to conduct the review, with a request for proposal likely to be issued next month. Signatories are being invited to comment on the draft plan by February 28.

The PRI says it is committed to ensuring the review – announced to signatories in October last year after concerns were raised – is consultative and is carried out to the highest standards of “independence, impartiality, transparency and accountability”.

“The aim of this review is to assess what governance structure the PRI should adopt to fulfil its mission,” say Priya Mathur, the CalPERS Board Member who chairs the PRI’s Governance Committee and the PRI’s Managing Director Fiona Reynolds in a letter to signatories.

The PRI says the issues stem from changes to its legal structure in 2010 when the not-for-profit PRI Association was incorporated in the UK. The PRI says the ultimate result of this process was “a complex governance structure made up of an asset owner-majority Advisory Council (the Council) directly elected by signatories, an Association composed of the asset owner members of the Council, and an Association-appointed fiduciary Board of Directors (the Board).” It acknowledges that certain signatory rights and responsibilities were also moved from the signatory body as a whole to the Council.It argues the changes were made in good faith and following legal advice to improve the operations of the PRI as its signatory base grew.

The governance review is expected to include, but will not be limited to, an evaluation of the rights of each category of signatory, the roles and responsibilities of the governing bodies and their committees.

But it will not consider whether asset owners should remain predominant in the PRI’s governance structure, nor whether non-asset owner signatories such as fund firms and service providers should be excluded from being signatories or from being involved in the PRI’s governance.

However, it will review the extent to which asset owners should “predominate” and how this predominance is best “enshrined and exercised” to ensure broad representation for other types of signatory.

It’s envisaged that any recommendations will go to the PRI’s Advisory Council by the end of June. Then the Council will consult signatories on any specific recommendations/proposals in August/September, ahead of the next Signatory General Meeting in Montreal in September.

The six principles of the review:

  • Mission. The governance structure should facilitate the engagement of all signatories in the PRI’s mission to advance a more sustainable financial system.
  • Simplicity. The governance structure must be straightforward to administer and easy to describe, with clearly articulated roles and responsibilities.
  • Transparency. The requirements and process for communicating governing body decisions to signatories and stakeholders must be transparent.
  • Accountability. Lines of responsibility must be clear and answerable to signatories.
  • Practicality. Must meet the practical requirements of the organisation.
  • Representation. The governance structure must retain an asset owner-majority and must include all categories of signatory.