What difference will the UN Principles on Responsible Investment make?

The Principles for Responsible Investment were launched at the end of April 2006 and there has been considerable take-up since then. The Initiative is now approaching US$10 trillion in assets under management, with no sign of slowing up. Our most recent signatories include Swiss Re and Baillie Gifford & Co. It is not only catching on in Europe and North America. Fifteen Brazilian and nine Korean organisations have recently signed.

But as the PRI is a voluntary set of aspirational principles, the question is always going to be asked: what difference will they make and how can you be sure that organisations who sign up are taking their commitments seriously? This is certainly a challenge, and with any voluntary initiative, winning hearts and minds and encouraging progress in a positive spirit is more effective than being prescriptive. Having said that, the credibility of the initiative is important, and we must ensure that signatories are taking their commitments seriously.

We have established a number of activities to support signatories in their implementation, and ensure that the PRI initiative fulfils its potential. They are based on four themes: networking, learning, collaboration, andreporting and assessment. Networking and learning are common activities within voluntary initiatives. Our first PRI in Person event held on July 3/4 in Geneva brought together signatories to listen, learn and contribute to discussions on implementation.

In addition, we have set up an online implementation blog to highlight and discuss best practices.

“We have set up an online implementation blog to highlight and discuss best practices.”

Facilitating collaboration is one of the most innovative activities the initiative is undertaking. The reality is that shareholder and policy engagement can be very resource intensive for investors. To lower the costs and increase the effectiveness of these activities, we have set up an Engagement Clearinghouse which allows investors to post items on which they would like to collaborate with other signatories. There have been dozens of posts to the clearinghouse and a number of new collaborations have emerged.

It is also important that the PRI is a credible initiative and
that signatories are progressing with their implementation. We have just completed the first reporting and assessment process for signatories, which involved a 150-question survey of their responsible investment activities.

The purpose of the reporting assessment process was not only to evaluate where signatories are in their implementation journey, but also to identify the best practices from the leading organizations so they can be reflected back to the signatory body as part of the learning process. It also provides an off-the-shelf reporting tool that signatories can use to communicate their activities to their beneficiaries.

The key outcomes are presented in PRI Report on Progress 2007. There are many encouraging results, such as the more than 80 per cent of signatories that are undertaking engagement activities on ESG issues (to some extent), either directly with companies, through their investment managers, or through an unbundled engagement service. In addition, most signatories intend to expand their responsible investment activities further in 2007.However, there is also plenty of room for improvement. Less than half of asset owners have assessed their external investment managers on the extent to which they are integrating RI/ESG issue analysis into investment decision making. Forty-three per cent of asset owners indicated that their consultants do not factor in responsible investment or ESG issues when short listing fund managers.

But we need to recognize that this is the first year of this initiative, and responsible investment in the mainstream investment industry is still very much in its infancy.

“There is also plenty of room for improvement.”

We believe that through a positive, learning-by-doing process of supporting signatories, providing collaborative opportunities, and evaluating progress, the PRI will contribute considerably to a more sustainable and prosperous global economy.

James Gifford is executive director at the UN Principles for Responsible Investment