LONDON, 21 May 2012 - The Principles for Responsible Investment Initiative supports the recommendation of the Corporate Sustainability Reporting Coalition (CSRC) which has called on government representatives at the UN Conference on Sustainable Development to commit to
begin discussions on an agreement to require mandatory corporate disclosure on material environmental, social and governance issues in companies’ Annual Reports and Accounts.
The Principles for Responsible Investment are founded on the conviction that environmental, social and governance (ESG) issues can be material to the financial interests of long-term investors. The fundamental purpose of many PRI signatory institutions is to deliver retirement
income security and returns on other long-term savings to their beneficiaries and clients. Collectively these investors act in the financial interest of millions of people around the world. In order to fulfil this purpose, these institutions focus on long-term drivers of return and risk, and the
long-term health and stability of the financial markets on which they depend for financial returns. These institutions are therefore closely aligned with the broader sustainability agenda that forms the backdrop to the 2012 UN Conference on Sustainable Development.
Recent events have amply borne out PRI signatories’ conviction that ESG issues matter. The companies in which PRI signatories invest depend for their future success on their ability to understand and manage drivers of long-term financial risk and return that include climate change,
resource scarcity, global demographic and political changes, human capital, and social issues in increasingly complex global supply chains. Responsible long-term investors cannot make prudent investment decisions unless they have high-quality information on companies’ exposure to these issues and the quality of their responses to them.
This is why Principle 3 of the PRI commits signatories to seek appropriate disclosure on ESG issues by the entities in which they invest. The efforts towards voluntary sustainability reporting that have been made by many companies are valuable and welcome. However, these disclosures
cover only a small fraction of the world’s market capitalisation. The PRI Initiative believes that in order to allow investors to properly give effect to Principle 3 of the PRI, governments need to take steps to require companies to report publicly on how they have taken account of material
sustainability factors. It is important to recognise that this would be on a report-or-explain basis. That is, if a particular company felt it was not able to disclose information about a particular issue, it need only explain why it cannot do so. We believe that a global regulatory push such as this
would send strong signals to the market and would not result in an onerous compliance regime.
The PRI Initiative therefore supports the proposal of the CSRC which calls on governments meeting at the 2012 UN Conference on Sustainable Development to commit to begin discussions on an agreement or convention to require mandatory corporate disclosure on material
environmental, social and governance issues in companies’ Annual Reports and Accounts on a ‘report-or-explain’ basis. We also encourage governments to ensure that investors have effective mechanisms available to them to hold companies to account on the quality of their disclosures.
More details on the Corporate Sustainability Reporting Coalition can be found here.
NOTES TO THE EDITOR:
About the Principles:
Developed by the investment community in a UN-convened process, they reflect the view that environmental, social and corporate governance (ESG) issues can affect the performance of investment portfolios and therefore should be given appropriate consideration by investors. The Principles provide a voluntary framework by which all investors can incorporate ESG issues into their decision-making and ownership practices and so better align their objectives with those of society at large.
The PRI Initiative was established in 2006 after the launch of the Principles to help investors to implement the Principles. Managed by the PRI Secretariat, the Initiative promotes responsible investment and supports investors by sharing best practice and facilitating collaboration. The Initiative is incorporated as a registered charity based in the United Kingdom.