From PRI Chair Martin Skancke and PRI CEO Fiona Reynolds
We have been tackling some major new projects this year to address some of the biggest challenges facing the world today.
On climate change, our Inevitable Policy Response programme will model – for investors, corporates and regulators – the abrupt, forceful and disruptive policy response that will come from governments around the world as they are forced to take action by climate change’s effects on everything from food production to migration and national security. Momentum behind the FSB’s Task Force on Climate-related Financial Disclosures (TCFD) continues to build, with the number of supporting organisations and volume of disclosure both growing. As PRI Chair, I have been pleased to sit on the task force as part of the PRI’s contribution to the TCFD.
We have also been working with The Liechtenstein Initiative for a Financial Sector Commission on Modern Slavery and Human Trafficking. Over 40 million people were enslaved in 2016, and modern slavery and human trafficking touch the financial sector in a number of ways: through their transnational supply chains, through laundering illicit profits and through investments to businesses that engage in this form of exploitation. As PRI CEO, I have been honoured to chair the commission, which aims to put the financial sector at the heart of global efforts to end these practices.
As we continue to work across the areas identified in our 10-year Blueprint for responsible investment, much of our thinking this year has been underpinned by a particular focus on Action 7: “Drive meaningful data throughout markets”. Reliable, timely information is needed for beneficiaries to understand and influence their investments, for asset owners to monitor their managers and for investment managers to accurately price assets and assess risk. We have been considering what makes data “meaningful”, how we can work towards a system of global, comparable and integrated corporate sustainability data and how to standardise investment manager reporting to asset owners.
Just as with climate change and modern slavery, these data challenges are complex, market-spanning problems that will require collaborative, global solutions. National and regional partnerships of investors and policy makers are the best approach to exploring a more sustainable financial system, so we have worked with the European Commission’s high-level and technical expert groups on sustainable finance, as well as equivalent groups in Canada and Australia.
We are proud to be part of bringing the investor voice to these important global developmental efforts.
Quality and consistency breed usefulness
One of the most prominent results from our consultation with asset owners last year was the desire for the PRI to do more to drive better ESG data, including through convergence of reporting standards. Sustainability reporting is a very crowded field, but we feel that over the past year we are starting to make progress in what will be a long process.
The main objective is to ensure that corporate ESG data allow investors to make informed investment and ownership decisions. There are many existing reporting standards (GRI, SASB, TCFD, CDP, ISO, IIRC and many others), which cover a number of investors’ needs, but the market is calling for greater coherence and consistency between frameworks.
To make the data that’s in markets more useful to investors, investors themselves need to be engaged in discussions around corporate reporting. To engage signatories in the topic, we have set up the Corporate Reporting Reference Group, and are working in collaboration with six other investor groups (CERES, CFA, GIIN, GSIA, ICGN and UNEP FI) to feed an investor perspective into the Corporate Reporting Dialogue.
Beyond corporate reporting, we need to consider how data is used throughout the investment chain – and how the PRI can most effectively contribute to progress. To make ESG reporting mainstream across the financial industry, should we focus on producing PRI guides – spreading informal standards, should we develop the PRI Reporting Framework towards being a formalised reporting standard or should we work to incorporate ESG considerations into existing mainstream financial reporting? These are important questions. They are not mutually exclusive, and as always signatories will be key to answering them. We have already been consulting with signatories on a review of the Reporting Framework – the first wholesale review of the framework since its launch in 2012.
Beneficiaries/savers/clients also want to know how their money is being invested, and with increasing individual choice due to market changes such as the rise of direct contribution schemes, many will need tools to help them make informed decisions. We must consider if the PRI also has a role to play here – in exploring how asset owners should report back to beneficiaries and clients on where their money is going.
Impact in the real world
Beyond the need to improve how the financial relevance of ESG issues is captured throughout the market, asset owners and investment managers increasingly need to better demonstrate the impact that their investment decisions have in the real world.
A key part of our work here is our involvement in the Impact Management Project, which is working to build global consensus on how to measure, report, compare and improve impact performance. It seeks to define impact by looking at: what kind of impact is being achieved, who benefits, what is the scale and additionality of the impact and what risks/trade-offs does the impact come with. Including information on real-world impact has to be an important part of making sustainability data “meaningful”
The Sustainable Development Goals (SDGs) provide a globally agreed framework for considering these real-world impacts. While the majority of our work across ESG incorporation, active ownership and a sustainable financial system flows through to impact these issues, there has also been demand from signatories for the PRI to provide support on what the SDGs as an explicit framework mean for them. One part of our work to do this, following a successful trial in Brazil this year, will be a series of SDG investment forums, bringing together the private and public sector to better understand the investment opportunities that the SDGs present, and the wider developmental role investors can play by being a part of them.
A growing, global network
It has been another year of healthy growth for the signatory base as a whole – indeed with a more than 20% rise in signatory numbers, 2018/19 saw the greatest increase in the signatory base since 2010/11. This included 69 new asset owner signatories, with growth particularly strong in the UK (12 new asset owners), the US (11), the Netherlands (eight) and across Southern Europe (eight).
There is also growing diversity in the signatory base, encompassing variety in location, size and type of investor – new areas of asset owner growth this year include increasing numbers of corporate pension funds, insurance providers, public treasuries and central banks.
Building our capacity to support this growing, divergent signatory base has been a priority this year. We have continued to expand the number of signatory relations staff that we have around the world, including establishing a presence in Southern Europe and Latin America (having expanded our coverage into China, Benelux and Australia the year before). We also continue to expand the range of languages in which our resources are available.
Growth in signatory numbers must be met with increasing focus on what it means to be a signatory. We have been pleased to see that in the first year since introducing minimum requirements for our investor signatories, 69% of the signatories that we engaged with for not meeting the new standards have met the minimum requirements this year. (As well as being crucial to our own accountability work, this is a promising example of a broader theme: engagement works. In the realm of investor-company engagement, an important part of our work next year will be moving beyond measuring quantity of engagement to examine its effectiveness in achieving real-world change.)
The PRI will continue to guide, support and represent signatories to the six Principles, but as ever the real work is done by our signatories themselves. Through direct contributions to PRI projects, as well as in their own responsible investment work, this international community of forward-thinking investors continues to drive responsible investment forwards, and for that we thank you sincerely.
We look forward to making more progress together in the years ahead.
Martin Skancke, Chair
Fiona Reynolds, CEO