Organisational Overview

How do we know which modules to report on?

All signatories report on the Organisational Overview, Strategy and Governance and Closing modules.

The Organisational Overview module is the main gateway that will determine the other modules that you will complete in the Reporting Framework. You are asked to breakdown your investments in specific asset classes by the percentage of your AUM, and to split those into indirectly and directly managed. Based on this response, the relevant asset-class specific modules will unlock. The 10% threshold rule means that any assets that represent >10% of your total AUM are voluntary to report on in the asset-class specific modules.

Why do we automatically get an 'E' score for some of our reported asset classes?

In the Organisational Overview module, we ask whether you incorporate ESG issues into your investment decision making for the asset classes that you hold. If you report that you do not incorporate them, then the automatic score will be an ‘E’ for those asset classes. To read more about the PRI’s assessment scoring methodology, please click here.

This assessment happens regardless of how much of your AUM is in that asset class (i.e., the “E” score is not affected by the rule that asset classes below 10% are voluntary to report).

Strategy and Governance

What do you mean by an 'investment policy'?

An overall statement that outlines how an organisation will achieve its mission and investment objectives, build on its investment strategy, and guide investment processes and standards for measuring their success.. Responsible investment policies can take many forms, including high-level statements on an organisation’s webpage, a code, communications on a separate responsible investment policy, a range of policies that cover different areas, or can be incorporated into an organisation’s Investment Policy Statement.

Read our asset owner guide on how to write an integrated investment policy.

Can we report that our investment policy covers our responsible investment approach if we are in the process of developing one?

You should report on the practices in place at the end of the reporting period you have chosen to report on in the Organisational Overview module. If you did not have an investment policy that covered your approach to responsible investment at the time, we suggest you report ‘No’ and add that you are developing one in the additional information sub-indicator. This will help stakeholders understand what stage you are at.

Why does the PRI prioritise climate change and related issues in the scoring methodology of long-term trends?

The importance of investors considering climate change is emphasised by the PRI’s Blueprint for responsible investment and is a reason why in 2018 the PRI introduced climate change related indicators aligned with the TCFD recommendations. The PRI has guidance and research on this trend, whereas there is not yet enough information about signatories’ practices related to other long-term trends for us to include relevant follow-up questions.

How can we 'proactively disclose detailed asset class-specific information', as asked for in the communications section?

With ‘proactively’ we mean beyond the publication of your responses on the PRI’s website. We consider it proactive disclosure if you publish your Transparency Report on your own website. An example of detailed information for Listed Equity Incorporation may include information about each type of incorporation strategy used, the process by which ESG factors are incorporated, any relevant policy documents and case studies/examples. The mandatory indicators in each asset class-specific module is considered detailed information of your RI activities.

Selection, Appointment and Monitoring (SAM) of External Managers

Why does the PRI use the term 'review and agree' in SAM? It doesn't apply to us as we don't formally agree on some things with our investment managers or put them in contracts.

The ‘review and agree’ wording signifies reviewing certain aspects of your investment manager’s (IM) approach and raising a conversation about it to ensure that you are comfortable enough with the IM’s approach.

How do we report on selection and appointment if we did not select or appoint any new managers during the reporting year?

Because asset owners (AOs) do not necessarily select and appoint new managers every year, the SAM module is set up differently to other modules. It instead asks signatories to report on their ‘typical’ processes and activities in SAM.

How does selection differ from appointment?

‘Selection’ refers to all actions that lead up to choosing one manager (shortlisting, questionnaires, meetings, etc.) and ‘appointment’ is when the relationship is formalised through specific goals and objectives via agreements, side letters, etc. To read more about the manager selection process, please see the Asset owner guide: enhancing manager selection with ESG insight.

What do you mean by 'ESG weight'?

In discussions with asset owners, the PRI has found that they use ESG scoring of investment managers, but the degree to which this ESG score plays into the overall manager selection process varies. Some do not put importance on it, and others consider it only in certain cases in the selection process. Some asset owners weight the ESG score to correspond to organisational ESG priorities. To find out more, read Asset owner guide: enhancing manager selection with ESG insight.

Listed Equity Incorporation

What are the definitions of screening, thematic and integration?

Screening: as it is referred to in the Listed Equity - Incorporation module:

  • Negative/exclusionary screening: the exclusion from a fund or portfolio of certain sectors, companies or practices based on specific ESG criteria.
  • Positive/best-in-class screening: investment in sectors, companies or projects selected for positive ESG performance relative to industry peers.
  • Norms-based screening: screening of investments against minimum standards of business practice based on international norms. Norms-based screening involves either defining the investment universe based on investees' performance on international norms related to responsible investment/ESG factors; or excluding investees from portfolios after investment if found to contravene norms. Such norms include, but are not limited to; UN Global Compact Principles, Universal Declaration of Human Rights, International Labour Organization standards, the United Nations Convention Against Corruption and the OECD Guidelines for Multinational Enterprises.

Thematic: Investment in themes or assets specifically related to sustainability (for example, clean energy, green technology or sustainable agriculture).

Integration: The systematic and explicit inclusion by investment managers of ESG factors into traditional financial analysis. For guidance and case studies for ESG integration refer to the PRI's ESG integration publication.

What is the difference between 'listed equity - active ownership' and 'listed equity - incorporation' modules?

Listed Equity Incorporation, or LEI, is the module that considers the incorporation of ESG issues into organisations’ strategies. These strategies, include fundamental, quantitative (quant), and passive strategies.

Meanwhile, Listed Equity Active Ownership, or LEA, deals with the active ownership factors that relate to listed equity, including both engagement and proxy voting.

Why are thematic incorporation strategies not assessed?

There are not enough assessable indicators included in the module that can fairly and adequately make a judgement on whether a signatory’s incorporation of thematic strategies is representative of good practice. This will also avoid unfairly awarding or penalising signatories.

Where a signatory uses only a thematic incorporation strategy for their listed equity assets, they will not receive a score for the LEI module as there will have been zero assessable indicators.

Why are passive strategies not assessed?

There are not enough assessable indicators included in the module that can fairly and adequately make a judgement on whether a signatory’s passive strategy is representative of good practice. This will also avoid unfairly awarding or penalising signatories.

Where a signatory uses a passive strategy for 100% of their listed equity assets, they will not receive a score for the LEI module as there will have been zero assessable indicators.

Why are quantitative strategies considered active strategies?

As a quantitative strategy involves actively constructing the model, with the intention of outperforming an index/benchmark, without having to hold all the constituents of the index/benchmark, the PRI consider this strategy to be active.

Should the 'proportion impacted by analysis' be a representation of all actively managed listed equity or the actively managed listed equity that is subject to an ESG incorporation strategy

The proportion impacted by analysis should be a representation of all actively managed listed equity.

Listed Equity - Active Ownership

What is the PRI's view on types of engagements?

Active ownership may be conducted in-house, externally through investment managers or service providers, or a combination. When active ownership is conducted in-house, investors are responsible for defining their engagement and proxy voting programmes, setting objectives and conducting dialogue and voting directly. In cases where these practices are outsourced, investors must define and consider criteria to assess the capacity and performance of external providers during the selection, appointment and monitoring processes of these external parties.

While these types of engagement interactions may utilise a different form of approach, in terms of practices adopted throughout the engagement process, these remain very similar, varying mostly in who the practice applies to as opposed to the practices themselves.

The PRI’s underpinning belief is that, whether conducted individually, jointly with other investors, or through a service provider, engagement activities preserve and enhance long-term value creation, which benefits shareholders and their beneficiaries and/or clients.

This is reflected in the PRI Reporting Framework and its assessment of signatory responses to indicators on engagement activity. Regardless of whether the engagement was conducted individually, collaboratively or through a service provider, is based on:

  • having a formal engagement policy;
  • several engagement practices, i.e. objective setting, result tracking;
  • total number of engagements
  • degree of involvement
  • level of comprehensiveness

With regard to the PRI Reporting Framework, these activities, whether engagement is individual, collaborative or through a service provider, are assessed based on equal value.

Why is it important to have a formal engagement policy?

It is useful for organisations to define their active ownership approach directly in their investment policy. In doing so, the organisation signals that active ownership is not a standalone practice but rather a means to enhance investment decision making and executing investment objectives. Alternatively, investors could outline their approach and the relationship of active ownership with the overall investment policy in a separate responsible investment policy or engagement/proxy voting policies.

Why should we define milestones, objectives and track results of our engagement activity?

Understanding the overall impact of an engagement can be difficult to determine. However, in an attempt to improve the ability to measure and assess the degree of impact, the PRI has identified that setting goals and objectives, and tracking the results of engagement activity are necessary steps to assess achievements and next steps. Measuring performance of specific ESG KPIs and scores could be another way to assess success. Examples of objectives include developing a human rights policy, creating whistleblowing monitoring systems and defining emissions reduction targets.

Case studies of PRI signatories signalled several benefits of these processes, such as:

  • allowing investors to capture the narrative around materiality;
  • enabling investors to better understand the impact of the progress made by a company;
  • assisting in identifying new trends and target companies on an ongoing basis;
  • informing future engagements based on past recorded engagement experiences;
  • assisting in the preparation of progress reports for clients and the public;
  • enabling investors to continually monitor progress against specified goals and objectives.

Furthermore, investors may find it useful to define milestones and timelines at the start of engagement. They would need to be continuously reviewed to reflect internal and external developments.

While applying these practices may be intuitive when engaging individually or collaboratively, the same practices may be applied when engaging through a service provider. This can mean reviewing the service provider’s engagement process, discussing which situations they would engage in, requesting examples and outcomes, and reviewing how the engagement outcomes feed back into the investment decision-making process. Further, monitoring processes could include ensuring alignment of the service provider’s objectives and results of engagement practices with internal engagement activities.

What is the benefit of publicly disclosing our ESG engagement approach?

Disclosing your ESG engagement approach to beneficiaries, clients and the public is an important signal of your commitment to active ownership. Specifically, it can help with developing expectations of companies that can then be communicated alongside the company’s internal policies. The consequence of this is that companies can understand which ESG practices are highly valued by investors, the type of disclosure that can meet investors’ needs, the areas to focus on in preparation for the dialogue with shareholders, and what to expect of long-term active owners.

How do you assess the quantity and quality of our engagements?

Responses are assessed based on the number of engagements a signatory has approached, the degree of involvement and the level of comprehensiveness. Where an engagement interaction was conducted by means of collaborative engagement or through a service provider, the degree of involvement is indicated by the responder, given this can vary significantly depending on the role adopted by the responder. To note, individual engagement is deemed to require 100% involvement. The algorithm used to find a final score for this indicator does not discriminate between the type of engagement interaction.

Where can I find guidance on active ownership in listed equity?

A practical guide to active ownership in listed equity provides guidance that specifically relates to this topic and the PRI’s Principle 2.

Fixed Income

What is the difference between how we measure whether incorporating ESG issues impacts financial returns and whether it impacts funds' ESG performance?

With ‘impact on financial returns’ we mean whether the incorporation of ESG issues has positively or negatively affected the financial performance of your funds. With ‘impact on the funds’ ESG performance’, we ask whether the ESG financial performance of the funds have been impacted positively or negatively by incorporating ESG factors. Here we ask specifically about the ESG financial performance. ESG performance can be the whole or part of the overall financial performance of the funds.

How do we differentiate/identify high-yield from investment-grade bonds?

Generally speaking, BBB- is the threshold between high-yield (HY) and investment grade (IG). Any rating below can be considered HY and above is IG.

If a bond has been rated by more than one rating agency, a good approach is to look at the average/median of the ratings (for instance if a particular bond is rated AAA, BBB- and BB, then the average is more around BB, which counts as a high-yield bond). You should use all ratings available (this also include ratings from smaller credit rating agencies).

If no rating is available, you can use the credit spreads to determine whether the bond is HY or IG by taking a country/group of countries as a reference. Again, there is no particular basis points threshold to consider, but the higher the credit spreads between two bonds, the more likely one of these will be a HY bond.

Why are FI SSA engagements not assessed?

Engagements with sovereign, supranational and agency bond issuers are not a common practice but some signatories have shown that engagement within these asset classes is possible. The PRI would like to capture this information to gain insights and monitor the developments in this space. Once there is a better understanding within the industry of the constraints, opportunities and best practices of engaging on these bond types, scoring might be introduced.

ESG engagement remains less common among fixed income investors. This is understandable when considering the unique challenges they face, such as their different legal standing point compared with equity investors, and the inherent complexity of bond markets given the variety of instrument types, maturities and issuing entities. However, the fact is that ESG issues can and do impact fixed income investment returns, and ESG risks need to be managed and addressed via integrated research and engagement programmes. Read the PRI’s guidance on ESG engagement for fixed income investors here.

Can you give an example of what qualifies as 'other' when you ask how we ensure that our ESG research process is robust?

Your response to the ‘Other, specify’ option should be within context and involve processes that you have in place to ensure the quality of ESG data in your ESG analysis. This could, for instance, be internal control mechanisms and internal review processes by teams such as the compliance team, or sign-off by senior staff levels. Other signatories have previously included the following responses to this indicator:

  • social partners with expertise review and challenge our research;
  • mandatory ESG checklists;
  • committee review of ESG research;
  • external audits;
  • quality check by head of research.

Are we allowed to include enagements where we are both shareholders and debtholders of a company?

We aim to capture bondholder engagements, which is why any engagements carried out solely as shareholders do not fit the criteria. You are welcome to include engagements where you are both shareholders and debtholders of a company – this is a common strategy among PRI signatories – as long as you make it clear to the company that you are engaging in your capacity as both shareholders and bondholders.

Why does the PRI make a distinction between financial/non-fnancial issuers in your definitions?

The corporate financial market is considerably larger than the non-financial, with distinct risk and ESG considerations.

In non-financial corporate issuers, the ESG impact can be accessed directly, whereas that of financial issuers is made up cumulatively of the companies they’re working with. A bank may be exposed to multiple sectors, whereas non-financial corporate issuers are more likely to sit within one. Some investors have a clear policy not to invest in specific sectors, and so exclude banks with such exposures from their portfolios.

Where do I report on my private debt assets?

Private debt should be classified as fixed income corporate non-financial and should be reported in the fixed income module.

Private Equity

How will the module be changed in the future?

Any changes to the module are reviewed by the PRI Private Equity Advisory Committee (PEAC) to make sure they are appropriate. Minor changes are made to either tighten the wording for the purposes of data collection, or to align the reporting module with the PRI private equity publications to ensure consistency. However, we expect the module to remain largely consistent in the coming years.

Should I report my fund-of-fund investments in this module?

Fund-of-fund investments should be reported as externally managed assets in the Organisational Overview module and reported on within the Selection, Appointment and Monitoring module.

My investments were listed during the reporting year/last year. Do I need to report this in listed equity?

We would recommend that if this listing is part of your exit strategy for private equity investments, to report these assets under private equity. We recommend that you still report these assets as private equity.

Should I report my co-investments in the direct private equity module?

Generally, we recommend that LPs report on their co-investments in the Direct- Private Equity module if they have a more detailed strategy for understanding ESG issues in their co-investments. However, if your approach to co-investments is indistinguishable from your standard approach to ESG with fund managers, we recommend that you report these assets as “indirect” (externally managed assets in the Organisational Overview module) and report on alongside all fund investments them in the manager Selection, Appointment and Monitoring (SAM) module and use the free text to clarify your reporting scope.

Property

Should our listed REITs AUM be classified as 'property' or 'listed equity'?

When reporting, REITs can be listed as either property or listed equity. The main defining factor for which asset class to report on with REITs, is whether or not you have voting rights. It is possible to voluntarily complete both the property and listed equity modules. You will be able to complete the property module for your private real estate that represents under 10% AUM by voluntarily choosing to report on it in section in the Organisation Overview module. We recommend when reporting that you clearly specify the scope of what you are reporting on by using the free text sections provided in the Organisational Overview module and at the start of the property and listed equity modules. This will give you the opportunity to explain and contextualise your investments.

How does the PRI align with GRESB and other initiatives?

Each year the PRI reviews the property module and updates indicators and definitions to ensure alignment when possible. The PRI references the GRESB survey number in the explanatory notes of all aligned indicators.

Infrastructure

Is the infrastructure module mandatory to report on?

The infrastructure module is voluntary to report on, regardless of the percentage of your total AUM invested in infrastructure, while the PRI gathers additional information about approaches to responsible investment in this asset class.

Closing Module

What is the difference between 'sign-off' and 'review of responses'?

‘Sign-off’ implies a degree of responsibility from senior management such as the board or C-level staff that the reported information is correct whereas. ’Review of responses’ is less formal and can be a simple check of what is being reported.

What do you mena with 'link to original data source if public'?

This would be a link to the original data/report that was subject to third party assurance. Providing a link to this data/report is voluntary.

Where can I read more about assurance?

You can find more information about the PRI’s assurance work here. To find out what other signatories are doing to assure their reported data is credible, login to the Data Portal and go to the ‘Explore Data’ function.

In the section on confidence-building measures, does the PRI give higher scores to signatories that reported that a third party assured their reports?

No, the PRI does not weight third-party assurance differently from other confidence-building measures like internal audit, internal verification or similar. Scoring is currently based on the number of confidence-building measures that a signatory implements.

Why can't I opt out of publishing my public report online? The Word version of the closing module shows the option to not permit publication

PRI signatories are required to report publicly on their responsible investment activities each year. Only signatories reporting on a voluntary basis in their preparatory year will see the option ‘I do not give the PRI permissions to publish it’.