Annual Report 2014

Working to deliver value to signatories

Fiona Reynolds, Managing Director

The last financial year has been a busy time for the PRI, we have seen near record growth in our signatory base. Assets Under Management (AUM) of signatories signed up to the Principles has surpassed US$ 45 trillion. We have also begun our policy work, recently publishing a discussion paper on long-term mandates.

By far the PRI’s biggest achievement however was the official launch of our new signatory Reporting Framework last October. For the first time this year, almost 800 signatories from over 30 countries have publicly disclosed their progress towards implementing responsible investment. Signatories will begin to receive their assessment reports in October. Whilst reporting has not been without its controversy, we are proud of the huge steps that have been taken towards transparency by investors on responsible investment.

In addition to the 14 collaborative engagements currently coordinated by the PRI, we recently launched a new engagement at the White House to align with the launch of the US Climate Data Initiative’s food security project. This PRI-led engagement focuses on improving the disclosure and management of water risks in companies’ agricultural supply chains and will focus on listed companies in the food, beverage, apparel, retail and agricultural product sectors globally.

Paving our path forward

The PRI is in the process of developing a new three-year strategy to guide our work between 2015 and 2018. The theme of our new strategy is moving from awareness to impact. With nearly 1,300 signatories, the PRI has played a significant role in raising awareness of responsible investment. However, signing on to a set of Principles is one thing, seeing impact from our work and assisting signatories to implement responsible investment across their portfolios is another.

There has been – and will continue to be – significant signatory involvement in this process. We have reviewed the feedback from this year’s signatory survey carefully. Not all of our signatories are at the same level of understanding or implementation when it comes to responsible investment, and nor do we expect them to be. The PRI therefore needs to have a far more targeted approach to its work, tailored across regions, signatory types, size and level of sophistication. We also need to expand our presence geographically, in the United States and Asia-Pacific in particular. This will be a key focus over the next 3 years.

In parallel with our work on the new strategy, we must look at the signatory base resourcing and finances required to deliver on our growing programme of work.

I look forward to continuing to gain insights from PRI signatories, ensuring the programme of planned work meets their needs. Additionally, I will ensure that communication channels remain open between signatories and the PRI as we continue our journey toward mainstreaming responsible investment.

I would like to take this opportunity to thank the wonderfully dedicated staff at the PRI for another solid year’s work. It has been a year of change and not without its challenges. I would also like to the thank the PRI Board and Advisory Council for dedicating so much time to the initiative and to taking on the task of reviewing and renewing our governance. Thank you to Wolfgang Engshuber, whose term as Chair of the Advisory Council ended in March this year, and a particular thank you to Glen Saunders, who will stand down as Board Chair in September, his assistance and guidance has been greatly appreciated. I also welcome Martin Skancke aboard and look forward to working with him.

Finally, thank you to all our signatories, particularly those of you who volunteer your time to participate in our collaborative engagements, working groups and steering committees. We have produced some great work this year, including a number of successful collaborative engagements, guidance documents and case studies across a range of topics with significant leadership in both the fixed income and private equity work streams that I encourage all signatories to review.

An ambitious agenda for reform and renewal

Martin Skancke, Advisory Council Chair

Joining in April this year as both Chair of the Advisory Council and member of the Board has given me an opportunity to review and reflect on the PRI’s progress. While the initiative has enjoyed remarkable growth since its inception in 2006, there is still a long journey ahead of us to mainstream responsible investment across the globe.

Many of the challenges we face as investors relate to overcoming various principal-agent problems which exist between asset owners, their managers, and the managers of investee companies. Managers of companies can be incentivised to find a cost-effective, short-term solution to a problem that may not be in the long-term interests of the asset owner, who may care more about the sustainability of a broader set of assets, and the system itself, over a much longer time horizon.

Asset owners are often trying to address such problems through an investment manager and with the assistance of various service providers. This is why I think we will make greater progress towards responsible investing practise if asset owners, investment managers and service providers work together on these issues within the PRI. However, the PRI will not work at all unless its work remains relevant and attractive to asset owners.

Reform and renewal

At last year’s Signatory General Meeting (SGM), the PRI announced plans to review its governance structure. I see this review as an imperative for the initiative – as do our signatories, which can be seen in the results of this year’s satisfaction survey. I would like to thank all signatories who have been involved in the review to date. We will be presenting the recommendations from the Advisory Council, guided by the feedback we have received from signatories, at this years’ SGM in September. I look forward to delivering a fit-for-purpose governance structure for the PRI that is built on the principles of transparency and accountability.

As outlined by Fiona, the PRI is in the process of setting out the strategy to guide our work in the 2015-2018 period. There will be significant signatory involvement in this process. We have also studied the feedback from the signatory survey carefully. In parallel with our work on the new strategy, we must look at the resourcing and finances required to meet the expectations you have. A revised model for funding the PRI will be presented to signatories at the SGM.

By the start of our next financial year on 1 April 2015, our aim is to have in place a new governance structure, a new threeyear strategy and a revised funding model. This is an ambitious agenda for reform and renewal. It will require significant effort from the PRI and its governing bodies as well as input from and interaction with our signatories. I invite you all to contribute to this work.

Forging closer ties with the United Nations

The past year has seen the Board, Advisory Council and Executive working hard to further strengthen ties with our UN partners. Through the collaborative projects, reports and initiatives outlined in this report, we have made considerable progress to building stronger relationships, including a joint Board and Council meeting in July of this year which was held at the UN Headquarters in New York. A continued close relationship with our UN partners has also been one of the guiding principles for the governance review.

Finally, I would like to thank Glen Saunders for serving as Chair of the Board and the value he has added during this time. Glen will be finishing his Board term in September this year, at which point I will step into this role, pending signatory agreement on a new governance model. Wolfgang Engshuber finished his term as Advisory Council Chair in April, and I thank him for his contribution to the PRI during his time. I would also like to thank Else Bos (PGGM), John Oliphant (GEPF), Luciane Ribeiro (Santander Asset Management), Marcel Barros (PREVI, Paul Abberley (Charles Stanley & Co. Limited) and Priya Sara Mathur, Advisory Council (CaIPERS), whose terms of appointment expire this year, for their valuable contribution to the PRI.

Let me also thank Fiona and her team for their hard work in a challenging year for the PRI. As outlined in this report, the PRI has continued to deliver value to its signatories through a high level of activity in parallel with the reform work we are undertaking. This would not be possible without the dedication of our staff members.