The PRI’s priorities as it prepares to enter its second decade include:
- delisting signatories that do not demonstrate a minimum standard of responsible investment activity;
- showcasing leadership of the signatories doing most to advance responsible investment;
- introducing a new category of membership aimed at potential signatories looking to learn.
This was the message delivered by PRI Chair Martin Skancke at the PRI’s 2016 Signatory General Meeting (SGM) in Singapore.
Addressing more than 400 signatories as the organisation wrapped up an extensive year-long consultation with signatories and stakeholders, Mr. Skancke said that the PRI had used its 10-year anniversary to look at its past and to its future to identify where more work must be done to fulfil the PRI’s mission.
Having addressed in recent years the accountability of the Board to signatories and the accountability of the Executive to the Board, he said that mechanisms must now be introduced to ensure each individual signatory is accountable – to the PRI, and to one another collectively – if the PRI is to remain relevant to investors.
“Being a signatory is not a badge to be bought but a public commitment to act, and therefore we need to set a minimum standard for our signatories. Our external environment expects this from us and I think each individual signatory expects this from their fellow signatories.”
Over the next year, the PRI will develop an objective, criteria-based approach to delisting signatories that do not achieve a minimum standard of progress each year, as measured by its Reporting and Assessment process. Signatories at risk of delisting will be placed on a confidential watch list and provided further support and development by the PRI. If the signatory does not improve within two years, they will be publicly identified and delisted. There will be an appeals process, further details of which will be announced next year.
Managing Director Fiona Reynolds said that the criteria will not be designed as a hurdle to entry for beginners, or to deter those that are committed to responsible investment but slow to progress for valid reasons.
“It is designed to delist the worst offenders, who have signed the Principles primarily for marketing purposes or to secure mandates, but have no intention to progress.”
The PRI will also introduce measures to increase confidence in the data that signatories submit. Submissions will need to be signed off by the CEO, CIO or Board of the signatory organisation, and it will become mandatory for signatories to disclose whether they have had their submissions audited. The PRI will introduce random audits of its own, to ensure that the information submitted is a true and accurate reflection of their practices.
Ms. Reynolds said that the PRI will also explore whether it can develop additional criteria to delist organisations that contravene the spirit of the Principles.
“This would cover acts knowingly undertaken by the signatory, that are within their control and where material fines or regulatory sanctions have been levied. It would not cover acts carried out by their investee companies”.
No changes to the Principles
Feedback to the PRI’s consultation with signatories about whether to introduce a 7th Principle linked to its Mission to promote a sustainable financial system suggested that a majority of signatories did not believe this was necessary and would cause undue distraction and inconvenience. The Mission itself was described as already widely-endorsed and understood by signatories. “This did not seem to be a priority for our signatories and we will respect that,” Mr. Skancke said.
The PRI already has established work programmes to address market-wide, systemic issues relating to the investment chain, such as fiduciary duty, long-term mandates and corporate ESG disclosures (via the Sustainable Stock Exchanges initiative). There was strong support for this work to be expanded following the consultation, Ms. Reynolds said, alongside greater support for working towards the Sustainable Development Goals (SDGs).
Over the coming year, the PRI will prioritise the SDGs that it believes are most relevant to investors and are aligned with its work programme. A new Advisory Committee will be formed to develop guidance and case studies to share with other signatories (in close collaboration with the UN Global Compact and UNEP Finance Initiative).
While no changes will be made to the existing six Principles, Ms. Reynolds said that the PRI will publish more detailed guidance for each one, starting with Principle 2 on active ownership, to clarify the PRI’s expectations of signatories in each area.
“We will also update the ‘suggested actions’ that sit beneath each Principle to reflect latest best practices.”
The PRI should be both aspirational and inspirational, and will place greater emphasis on showcasing best practices and sharing these with signatories, Mr. Skancke said. This could take place via an annual awards programme or a Leaders Board based on the PRI’s assessment data, with independent assurance of reporting submissions required for those signatories wishing to be included in these new initiatives.
A Data Query Tool (currently under development) will allow asset owners to view the assessment reports and scores of investment managers, and give managers the ability to benchmark their performance against peers. All of these measures are designed to increase the supply and demand of signatory Reporting and Assessment data in the market and ensure that it is prominent in discussions and decision-making between owners and managers. The PRI will not publish full signatory assessment reports at this stage, but Ms. Reynolds said that this policy will be reviewed in two years.
The PRI will also introduce a new “Provisional” membership category to allow potential signatories to learn from existing leaders and access other learning and development opportunities to enable them to get started. While this will not confer the full benefits of being a signatory, these members will have access to the PRI Academy and will need to report privately each year to enable the PRI to provide feedback and to help them develop their responsible investment strategy.
The Reporting Framework will evolve over time to allow signatories: to report activities that help promote a sustainable financial system and that contribute to the SDGs; and to measure the impact and outcomes of their responsible activity, so that guidance and case studies can be collected and shared. Reflecting the diversity of approaches currently undertaken across the signatory base, any additional reporting indicators in these areas would be voluntary to complete.
Service provider reporting will be introduced in the next reporting cycle (January-March 2017) on a voluntary basis, before becoming mandatory in 2018. An associated assessment methodology will be developed at later date. The PRI will also forge closer partnerships with other established reporting frameworks, to align investor reporting supplements as much as possible and minimise the reporting burden for signatories.
Blueprint for responsible investment
Ms. Reynolds said that the recommendations released today were agreed following extensive input from signatories and stakeholders. There were nearly 700 written submissions to the PRI’s two consultations and nearly 2,000 attendees at regional consultation workshops and events, representing around one quarter of the signatory base. In March 2016, the PRI will publish a Blueprint for Responsible Investment that will outline how it will begin to implement each of the recommendations, in 2017 and beyond. The Blueprint will signpost when each change will be introduced and where signatories will have an opportunity to provide further input.
“Proper resourcing and sequencing of these projects is essential to ensure we are delivering tangible benefits for our signatories and this will be our focus over the next three months.”
Striking a balance between growing the signatory base and delivering value to an increasingly diverse group of organisations presented an ongoing challenge for the Board, Mr. Skancke added.
“Today, the PRI is a truly global organisation with more than 1,500 signatories in 50 countries, and it must deliver different things to different signatories. As the signatory base becomes more diverse, one has to accept that not everything the PRI does will be relevant to every signatory. We need to ensure we have a meaningful offering for signatories just beginning in responsible investment, as well as those who are most advanced.”