World’s leading proponent of responsible investment defines clear expectations for how institutional investors should approach Selection, Appointment and Monitoring (SAM).
27 October 2020, LONDON - Today, the United Nations-supported Principles for Responsible Investment (PRI) released three new guides for asset owners, outlining how they can ensure Environmental, Social and Governance (ESG) considerations remain at the heart of their relationships with investment managers.
The three new guides from the PRI, a global organization of over 3,000 signatories managing more than $103 trillion in assets, reflect a growing trend among asset owners in demanding investment managers incorporate sustainable investing principles in their investment decisions. In 2019, 68 percent of the PRI’s asset owner signatory base addressed ESG considerations in their requests for proposals from investment managers.
When working with investment managers, asset owners are increasingly expecting minimum standards for shortlisting, incorporating clauses into contractual documentation and threatening to terminate relationships due to materialising ESG issues. The guides are intended to provide the tools for asset owners to more systematically integrate responsible investing into each step of the SAM process.
“Asset owners play a key role in influencing the entire investment management industry, and providing them with tools, support and opportunities for collaboration is fundamental to the PRI’s theory of change,” said PRI CEO Fiona Reynolds. “Asset owners must be empowered to challenge investment managers, uncover greenwashing, and trigger changes in practice across ESG integration and engagement. We hope that these guides support both large and small asset owners and their advisers to incorporate ESG factors into how they relate to, cooperate with and challenge asset managers.”
The selection guide outlines attributes of leading approaches when selecting asset managers. The appointment guide includes 12 clauses that can be used by asset managers when writing and agreeing contractual agreements. And the monitoring guide includes a set of questions or disclosures that can be used by asset owners during the regular monitoring process. The guides draw on practices from the PRI’s 2019 Leaders’ Group, as well as feedback from a series of workshops held during the year, to build a picture of leading practice and initiatives in this area.
“We expect investment managers to provide further transparency in ESG integration such as ESG policies, processes, resources, disclosures, and active ownership practices where relevant,” said Eri Yamaguchi, ESG Investment Officer at New York State Common Retirement Fund.
“We apply a due diligence process explicitly covering ESG aspects, which along with the implementation of ESG benchmarks allows us to have both the right measurement and appropriate incentives for our asset managers in place,” said Claudia Bolli, Head of Responsible Investment at Swiss Re.
“Integrating ESG into contractual relationships between asset owners and investment managers is important, integrating ESG into contracts between investment managers and investee companies even more so,” said Yvonne Bakkum, Managing Director at FMO.
The Principles for Responsible Investment (PRI) is the world’s leading proponent of responsible investment. Supported by the United Nations, it works to understand the investment implications of environmental, social and governance (ESG) factors and to support its international network of investor signatories in incorporating these factors into their investment and ownership decisions. The PRI acts in the long-term interests of its signatories, of the financial markets and economies in which they operate and ultimately of the environment and society as a whole. Launched in New York in 2006, the PRI has grown to more than 3,000 signatories, managing over $103 trillion AUM.