By Toby Belsom, Director, Investment Practices, PRI
One of the primary factors that makes the PRI unique is the wealth of data collected during the annual signatory reporting process. I cannot think of any other single repository of information on asset managers and asset owners integrating ESG factors into stewardship practices and the investment process. In fact, the PRI reporting process is the largest reporting project on responsible investment (RI) in the world.
A signatory’s starting point of this RI process is often the development of an RI policy—and the PRI has just updated its public bank of them.
An RI policy plays a critical role in outlining an organisation’s expectations and aspirations to both internal and external stakeholders. It is encouraging to see these policies increasingly making explicit reference to climate change, human rights, shareholder resolutions and targets. They also offer a chance to be bold in responding to new and developing issues.
This list of policies provides a wealth of examples which signatories can adapt and develop as they are developing their own approaches.
Fiona Reynolds, CEO, PRI
In 2020, this database includes policies from over 1,500 global signatories and includes many more separate policy documents—probably the largest single global database of such documents.
This blog summarises some key features which we have noticed when reviewing the database. The wealth of data means our analysis just scratches the surface, but asset owners and investment managers looking to review their RI policy could find inspiration in their peers’ varied approaches. How these policies fit into—and influence—the selection and appointment of managers will be discussed by several leading asset owners at an upcoming PRI webinar.
What is covered by the largest asset managers?
Polices from the largest global investment managers—such as State Street Global Advisors, Vanguard, Amundi and BlackRock—now cover an increasing range of topics and approaches. No longer do they just cover proxy voting. Most now provide a series of documents outlining approaches on stewardship, collaboration and reflecting local approaches on proxy voting. Some have extensive detail on specific issues—climate change, human rights, diversity and remuneration. How ESG issues are incorporated into investment decisions and internal governance processes are also widely covered. Some may feel a little glossy and process based—others reflect clear ambitions in key areas.
At State Street Global Advisors, we view our ESG investment policy statement as an integral tool in our firm’s overall mission, which is to invest responsibly to enable economic prosperity and social progress. We have a responsibility to systematically and explicitly include material ESG metrics in our decision-making processes, making the identification and incorporation of material ESG issues a unifying thread across all asset classes.
Suzanne Smetana, Head of ESG Investment Integration, State Street Global Advisors
What is covered by smaller asset owners?
Inevitably, most policies within the database are provided by smaller asset owners and managers and reflect the wealth of innovation and change across the asset management industry. These organisations often have a specific focus, mandate, or area of expertise, so their policies reflect this. Policies provided by real asset specialists versus listed equity boutiques and endowments versus corporate pension schemes inevitably have different content and focus.
When reviewing some of these policies and statements, we found lots of innovation. Many of these organisations had clearly started to think about how to use frameworks such as the Sustainable Development Goals, the UN Global Compact or the PRI’s six Principles. Many outline how they are responding to the needs of stakeholders, including their beneficiaries and suppliers, and provide detail on responses to issues that are critical to their area of operation.
Policies also differ dependent on any asset class specialism, with leading private equity investors covering exit strategies and real asset specialists focusing on relationships with third-party suppliers.
The key area of innovation is among boutique managers—those focused solely on ESG funds. Sustainability is usually at the core of building portfolios at this increasing number of managers. These leading managers often commit to reporting on the impact of investments and clearly outline how they reflect investor values and stakeholder concerns in asset selection or stewardship.
Innovation among leading asset owners
Policy documents from the largest global asset owners have a different tone. Usually—but not exclusively—they emphasise statements of intent rather than process. A small number provide expectations of investee companies on issues such as children’s rights, ocean sustainability, climate change and governance. They are more likely to outline approaches on collaborative engagement—something that is also reflected in our recently published listed equity snapshot.
Most leading asset owners outline clear expectations of third-party managers and how these expectations are included within manager relationships. Some then go on to describe how these policies influence asset class allocation and link this to the Sustainable Development Goals and the Paris Agreement.
We applaud the PRI’s efforts to gather and share RI policies from asset owners and asset managers around the world, and we are pleased to include our policy in the database.
Our RI policy covers all aspects of our responsible investing approach, including how we integrate ESG considerations into investment decision making, our active ownership activities (proxy voting, engagement and advocacy), our commitment to transparency and regular stakeholder reporting, and how RI is governed at UTAM. Our policy also covers activities specific to climate change. This policy is the single most important document guiding our RI approach.
Daren M. Smith, President and CIO, University of Toronto Asset Management Corporation
So, what is missing? What is still to do? COVID-19, the US election results, EU regulatory change and the growth of ESG funds has changed the operating landscape for investors and asset owners. Many policies and strategies were written before these seismic events and do not reflect the new normal—where the expectations from regulators and beneficiaries has evolved rapidly. Reviewing a policy just might be time well spent.
Policies from leading managers and owners have also evolved. Many now cover impact reporting, interaction with consumers, commitments to greater levels of transparency and meeting challenges such as net zero commitments or Paris-aligned portfolios.
With COP26, Joe Biden and the Convention on Biological Diversity, in 2021 things will change again. Dusting off a policy should be a priority.
Signatory responsible investment policy examples
The examples below have been selected from the PRI database as they reflect a wide range of practices across the PRI signatory base. They do not necessarily represent leading policies and the database provides hundreds of further examples.
This blog is written by PRI staff members and guest contributors. Our goal is to contribute to the broader debate around topical issues and to help showcase some of our research and other work that we undertake in support of our signatories.
Please note that although you can expect to find some posts here that broadly accord with the PRI’s official views, the blog authors write in their individual capacity and there is no “house view”. Nor do the views and opinions expressed on this blog constitute financial or other professional advice.
If you have any questions, please contact us at [email protected].
