The case for investor engagement in public policy

Public policy critically affects the ability of long-term investors to generate sustainable returns and create value.

It also affects the sustainability and stability of financial markets, as well as social, environmental and economic systems.

The case for investor engagement in public policy shows why public policy engagement is essential for long-term investors, gives examples of how investors have engaged in public policy and the lessons learned and offers practical recommendations for long-term investors, policymakers and the PRI to better integrate environmental, social and governance factors in the public policymaking process.

Policy engagement by long-term investors is therefore a natural and necessary extension of an investor’s responsibilities and fiduciary duties to the interests of beneficiaries.

The 5C checklist for long-term investor engagement in public policy
COMMIT	CONSTRUCT	CLARIFY	COLLABORATE	COMMUNICATE
Adopt a formal position statement on public policy engagement that explicitly addresses responsible investment issues and aligns with the organisation’s broader commitments to long-term investment. Allocate resources to public policy engagement on responsible investment-related issues.	Establish a structured process that promotes engagement in public policy issues. Allocate responsibility for ensuring that public policy engagement aligns with organisational commitments to long-term investment. Ensure that factors affecting longterm investment performance are part of the criteria used to prioritise public policy engagement.	Identify the key policy issues of concern to the organisation. Recognise the expectations of policymakers. Establish a rolling plan of action for achieving progress with these issues, both individually and collectively with other investors.	Join and actively support relevant collaborative initiatives focusing on public policy. Work with dedicated long-term investment coalitions at the national and international levels to pool resources and to achieve greater impact. Ensure that traditional investor trade bodies incorporate responsible investment factors in their policy engagement, and that long-term investor voices are effectively represented in their governance.	Coordinate messages among responsible investors and wider financial groups. Connect policy engagement with corporate engagement by calling on companies to be transparent in their lobbying positions, and by challenging company management when corporate positions, and those of their trade associations, run counter to long-term investor interests. Report annually on the public policy engagement carried out, and use this as a platform for dialogue with beneficiaries.

The importance of public policy for long-term investors has grown in recent years, due to:

legislative reform of the financial sector in the wake of the global financial crisis;
governmental need for investors as a source of long-term finance;
the increasing impact of environmental, social and governance factors on the ability of investors to deliver long-term returns.

By signing the United Nations-supported Principles for Responsible Investment, 1,300 finance sector institutions, with a total US$45 trillion of assets under management, have committed to identify and removing “obstacles to a sustainable financial system that lie within market practices, structures and regulation”. This commitment is part of a growing global momentum identified by the UNEP Inquiry that links financial reform and sustainability.

The long-term financial consequences of many critical policy issues are just too significant to ignore: engagement is a tool for risk management.”

Jane Ambachtsheer, Partner, Mercer Investments

Despite this commitment, many PRI signatories are not yet actively engaging with policymakers, due to:

scepticism about whether public policy engagement will make a difference;
alack of understanding regarding how to influence policy processes;
concern about the costs and timeframes involved in public policy engagement.

This report challenges these assumptions and concerns, with five examples – from the USA, France, South Africa, Japan and the EU – of how long-term investors have engaged with and influenced public policy.

Based on interviews with an international group of investors and policymakers, this report provides the first analysis of the why, what and how of policy engagement by investors to build a sustainable financial system. It offers practical, effective recommendations, proposing a five-step approach to improve the integration of investor perspectives on environmental, social and governance (ESG) factors in the public policymaking process.

Why should policymakers listen to long-term investors?

Over the past decade, a credible body of long-term investors has emerged, seeking policy change that sets the rules of the game in favour of sustainable value creation.

These investors support policy measures that strengthen ESG integration, strengthen the stability and integrity of the finance sector, and deliver wider economic benefits.

These goals align with the needs and interests of policymakers interested in long-term economic growth, competitiveness, employment, innovation, skills development and education, environmental protection, and social stability.