The United Nations-supported Principles for Responsible Investment (or PRI) – launched in New York in 2006 – is the knowledge partner for the SIP. As the world’s leading proponent of responsible investment, the PRI provides the SIP with resources and expert speakers on sustainable investment. The PRI prides itself on being genuinely independent. Although it encourages investors to use responsible investment to enhance returns and better manage risks, it does not operate for its own profit. The PRI engages with global policymakers, but is not associated with any government. It is supported by, but is not a part of, the United Nations. The PRI is chiefly funded by annual membership fees payable by all its signatories. Additional funding is derived from grants from governments, foundations and other international organisations, along with corporate sponsorships and in-kind support for stand-alone projects and events.
Historically, the PRI had been developed by an international group of institutional investors, reflecting the increasing relevance of environmental, social and governance (ESG) issues to investment practices. The PRI works to understand the investment implications of ESG factors, and supports its international network of investor signatories in incorporating these aspects into their investment and ownership decisions. The PRI essentially acts in the long-term interests of its signatories, the financial markets and economies in which they operate and, ultimately, the environment and society as a whole.
Delving deeper, the PRI provides research and education and also facilitates collaboration, to help investors align their responsible investment practices with society’s broader sustainable objectives – as defined by the United Nations’ Sustainable Development Goals (SDGs). The SDGS were adopted by the United Nations in 2015 . They represent a universal call to action to end poverty, protect the planet, and ensure that everyone enjoys peace and prosperity by 2030 (as part of the 2030 Agenda for Sustainable Development , which outlines a 15-year plan to achieve the 17 SDGs). As the financial system is not operating sustainably, the PRI is cooperating with investors, policymakers, regulators and other industry participants to reinstate sustainable and equitable economies. As such, investors have a pivotal role to play in going beyond ESG integration towards attaining a sustainable financial ecosystem.
SIX PRI PRINCIPLES
In April 2006, the PRI launched its six principles at the New York Stock Exchange. As at end-August 2021, its membership base had augmented to 4,288 signatories, managing over USD103 trillion of assets. The vast majority (74%) of these signatories comprised investment managers, with another 15% being asset owners and 11%, service providers. The PRI’s six principles are as follows:
We will incorporate ESG issues into investment analysis and decision-making processes.
The aforesaid principles offer a gamut of possible actions vis-à-vis incorporating ESG factors into investment practices. Through these, PRI signatories strive to contribute towards a more sustainable global financial ecosystem.
PRI reporting is the biggest global reporting project on responsible investment. It had been developed with the participation of investors, for the benefit of investors. PRI signatories are assessed based on their annual reporting; they must report on their responsible investment activities every year . This stands among the explicit commitments that signatories make when signing on.
Meanwhile, climate change is the trending buzz phrase that has taken the corporate world by storm. Given the severity of the potential repercussions of climate change, it has become a global emergency that recognises no borders. In fact, it requires international cooperation and coordinated solutions at all levels, which is where the Paris Agreement comes in. On its part, the PRI – as a leading advocate of responsible investment – endeavours to understand the investment implications of ESG factors and helps its signatories incorporate them into their business decisions. The PRI also strives to support the environment and society as a whole, thereby championing global efforts and the urgency in addressing climate change.
Since 2020, PRI signatories have been required to report on several indicators pertaining to their management of climate-change-related risks and opportunities. These indicators are modelled on the disclosure framework of the Financial Stability Board’s Task Force on Climate-Related Disclosures (TCFD). The TCFD and its recommendations have been endorsed by over 1,000 organisations in 55 countries, including financial firms managing over USD138 trillion of assets. Public disclosure of PRI signatories’ reporting on these indicators became mandatory in 2021 and signatories’ responses will be scored, although the TCFD’s recommendations are voluntary.