Creating long-term value requires a sustainable global financial system
The financial system, with its focus on short-term gains, is not fit for purpose. Our aim is to re-engineer the financial system and generate the conditions for a more sustainable global economy – one that supports long-term value creation and benefits the environment and society.
We provide tools and insight to international standard setters, signatories and policy makers to advance progress towards a regulatory and investment environment consistent with the six Principles.
Financing sustainable growth
We were an international observer in the European Commission’s High-Level Expert Group (HLEG) on Sustainable Finance.
The group has made a series of recommendations to improve the financial system’s contribution to sustainable and inclusive growth. Priority recommendations include clarifying investor duties to better embrace long-term horizons and sustainability practices, and upgrading disclosure rules to make sustainability risks fully transparent.
The recommendations set the backdrop for realigning Europe’s capital markets with sustainable development, echoing much of the PRI’s work.
Following this, the commission released its Action plan for financing sustainable growth, its roadmap for implementing the HLEG’s final recommendations. It includes a comprehensive list of supportive tools and resources, such as: proposals for a taxonomy on climate change, and environmentally and socially sustainable activities - the PRI is part of the EU Technical Expert Group on Sustainable Finance. We believe this will bring sustainability into the heart of Europe’s capital markets.
With UNEP FI and the Generation Fondation, we published a number of country-specific roadmaps that make recommendations to national policy makers, regulators and other stakeholders on how to ensure that institutional investors understand that their fiduciary duties require them to consider material ESG issues in their investment processes and decision making. These follow on from the success of our UK, US, Brazil, Canada and Australia roadmaps.
Failing to consider long-term investment value drivers, which include environmental, social and governance issues, in investment practice is a failure of fiduciary duty
Fiduciary duty in the 21st century
Investment consultants: a catalyst for change
Despite growing evidence showing the financial materiality of ESG issues to portfolio value, the investment consultants advising on how trillions of dollars are invested are failing to consider ESG issues in investment practice.
We believe that ESG factors must be a core part of investment advice, because it is a core part of investors’ fiduciary duties. Addressing the reasons why this isn’t the case is a necessary step for a more sustainable financial system – so we published the report Working towards a sustainable financial system: investment consultants services review. It identifies barriers relating to market structure, industry practice, policy and regulation in the consulting market, and suggests actions that could be taken to overcome them.
Spotlight on the US
We released Responsible investment policy in the US to highlight recent policy developments – particularly around fiduciary responsibilities, stewardship and financial disclosures – that could impact ESG integration in the world’s largest capital market (and the PRI’s largest market, with more than 345 signatories managing US$36 trillion), where investors are increasingly focused on long-term investment approaches that require the inclusion of ESG factors.
We also summarised the findings of three studies on ESG materiality, providing the guidance, and ultimately the confidence, for US investors who are still doing their due diligence on ESG integration, to fully recognise its value and capitalise on opportunities in the US.
Responding to the trends transforming the global economy
The world in which we operate is rapidly changing. Globalisation and connectivity, technological change, emerging market growth and dynamism, and changes in society could all affect and influence the economy, society and environment.
We engaged with PRI signatories and other stakeholders to gauge investor strategies for dealing with current and future volatility caused by these megatrends. Using these insights, we launched, in partnership with Willis Towers Watson, Responding to megatrends: investment institutions trend index 2017. It explores how these advances will impact the financial system, capital allocation and environmental and social conditions, including the ability to deliver the UN’s Sustainable Development Goals.
Throughout the year we have also fed into more than 20 policy consultations on issues such as sustainability reporting in South Africa and the revision of Japan’s corporate governance code.
Contributed to 22 policy consultations (PRI target: 20)
Challenging short termism
Short termism, a deeply entrenched corporate behaviour, is one of the key challenges to creating a sustainable financial system. Investors can, and should, do more to challenge short-term practices – so with the UN Global Compact we launched Coping, shifting, changing 2.0: corporate and investor strategies for managing short termism.
Following the first version of the report, launched in 2014, it presents three main strategies, each including recommendations focused on measures that companies can adopt to address the problems caused by market short-termism, and actions that investors can take to support companies in those efforts.