Once the provenance of equities, ESG considerations have been moving slowly but steadily into fixed income.
With the global bond market totalling over USD 120 trillion, fixed income investors have a critical role to play in putting a price on risk drivers to protect the value of their clients’ and beneficiaries’ investments. We discussed the latest developments in assessing ESG incorporation in fixed income at our Responsible Investment in Fixed Income event in San Francisco – view the highlights here. We’ve also just launched practical guidance on ESG engagement in fixed income – read more here.
As many of you will know, our 2018 reporting period has just finished. As part of our climate commitments, we introduced voluntary climate related-indicators. Out of the 1,514 reporting signatories this year, 459 opted into submit information. This underscores that many of our signatories are keen to disclose how they are tackling the transition to a low-carbon environment.
Significant activities on the ESG front
At the end of January, during the Investor Summit on Climate Risk, we were delighted to launch The Investor Agenda, an initiative, which will track investor information across four areas: low-carbon investment; corporate engagement; disclosure; and policy advocacy. You will hear more about the Investor Agenda at PRI in Person.
We also continued our fiduciary duty work by launching, along with UNEP FI and Generation Foundation, our new China roadmap to look at investor duties in that country. Investor duties – another term for fiduciary duty, although the latter term is not a well-established concept in Chinese law – cover many of the same principles that underpin fiduciary duties – for example, duties of loyalty and prudence, requirements to act with care, skill and diligence, and requirements to act in good faith in the interest of beneficiaries and clients – all of which are familiar to Chinese investors.
We were very pleased to see the Action Plan by the European Commission, which confirmed the need for investors to consider ESG factors as part of their fiduciary duty. We welcomed the commission’s support and think that this represents a real opportunity for Europe to take the lead on responsible investing.
One of our main area of focus over the first quarter of this year has been to support asset owners. In recent weeks, we have released guidance for asset owners on strategies to cope with emerging issues such as climate change and geo political conflict, as well as a guide on manager selection, to ensure that managers and asset owners are aligned on ESG objectives.
Supporting asset owners
Along with our guidance for asset owners noted above, we have launched a survey on how the PRI can best support asset owners in their ESG integration. Given their long-term investment horizon, asset owners are well placed to use ESG factors to build value for their beneficiaries. But in order for this to happen, it is vital that asset owners develop clear ESG investment goals and ensure those goals are supported throughout their organization. While progress on ESG-focused investing is not materializing as quickly as we would like, the signals that we are seeing in the market tell us that things are moving in the right direction. Tell us how to help you. If you haven’t already done so, please complete our online survey.
In a similar vein, investors need to be aware of risks in corporate supply chains in terms of portfolio exposure. Working with the WWF, the PRI produced a guide on managing water risks in the agriculture supply chain. Companies that rely on a variety of raw material inputs from agricultural commodities such as cotton, wheat and sugar are subject to different water risks depending on local context and crop production practices. Investors should pay closer attention to companies that do not have robust water stewardship approaches.
In March, we were pleased to announce that the LatinSIF was joining forces with the PRI as a way to further enhance and support responsible investing strategies across Latin America. Since 2013, the LatinSIF has played a significant role in developing a responsible investment community in Latin America and has worked closely with the PRI on a number of initiatives such as co-hosting events and providing education and training through workshops and the PRI Academy.
Update on signatory growth
Over the first quarter of 2018, we welcomed 65 new signatories, including 17 in North America (US and Canada). We also saw continued strong growth in Asia and southern Europe.
To meet this growing demand, we are continuing to strengthen our network of signatory managers. For the first time, we will be hiring a Spanish-speaking network manager, to be based in Colombia. We will also add a new manager to service southern Europe, with a particular focus on Spain and Italy.
A quick look ahead
Over the next several weeks, we have organised events focusing on critical issues such as cybersecurity and infrastructure investing. We will be releasing documents on ESG issues around cobalt mining as well as work on corporate tax engagement for investors and part two of our ongoing work on credit rating agencies and ESG.
We are also looking forward to the next G7 meeting as Canada takes the reins of the G7 presidency. Climate change and gender equality will be prominent on the agenda.
As always, we are excited about working with our signatory base on these very critical issues.
