The Principles for Responsible Investment (PRI) will pare down its reporting requirements and ask signatories to explain their sustainability objectives as part of its new strategy.
The UN-backed body, which now has around 5,000 members across 100 countries, has announced the results of a consultation on its goals for the next three years.
Its CEO, David Atkin, told IPE that the PRI needed to update its approach to keep up with changes to its membership and broader developments in sustainable finance.
Atkin said: “Fifty per cent of our signatories have joined in the last four years. That means you’ve got a whole lot of signatories that are on a steep learning curve.”
As a result, the PRI decided not to raise the bar for those seeking to join the body. Instead, it will introduce three ‘progression pathways’, which offer different options for an institution wanting to demonstrate its credibility as a responsible investor.
“Our members have been clear that they like the fact the PRI is global, and addresses all areas of sustainability, and all types of investor,” said Atkin. “But that we need to better recognise the choices available to different entities, and the restrictions they face – not everyone should be pulling the same levers to achieve their status as a responsible investor.”
Distinguishing between investment objectives
Some asset managers have become frustrated recently at being held to the same standards as asset owners when it comes to sustainability.
Last year, the PRI’s head of sustainable systems, Nathan Fabian, acknowledged that this expectation had become one of the key stumbling blocks for the Net Zero Asset Managers’ initiative (NZAM), which has seen a number of big names exit amid accusations that the project undermines anti-trust rules in the US.
Fabian said: “The idea that a manager with a corporate ownership, who serves millions of different individual clients, can set its own 2050 target and faithfully implement that – supposedly on somebody’s behalf – was frankly never going to work.”
The PRI directly supports both NZAM and its counterpart for pension funds: the Net Zero Asset Owner Alliance.
Fabian urged the market to take a “clear-eyed view of the different roles of ultimate investors and those who are managing or advising on their money”.
PRI’s decision to introduce pathways is an attempt to push investors to be more categorical about their institutions’ approach to the topic.The first pathway is for investors that see responsible investment as solely about identifying the risks and opportunities posed by environmental, social and governance issues.
The second also includes the pursuit of sustainability outcomes in the wider world, as a means of mitigating portfolio-level risks.
The third pathway is for those who also want to contribute to environmental and social goals for non-financial reasons.
“Whichever pathway you choose, we will set out what you need to do to be a better responsible investor in that context,” explained Atkin, adding that there will be three stages to each one.
The pathways are voluntary, and the PRI aims to get half of its relevant signatories to choose one over the next three years.
In a preliminary survey, 30% of investor members said they were aligned with each of the first two pathways, with the remaining 40% identifying as aligned with the third.
Information about which pathway an entity chooses, and how it is progressing towards best practice, will remain confidential.
“What [signatories] choose to do with the information is up to them,” said Atkin. “We would imagine that asset owners would ask their managers which pathway they have chosen, and how they are progressing, when awarding a mandate – to make sure there is alignment between their expectations.
“But it’s the role of the marketplace to do that. The PRI isn’t marking anyone’s homework. We’re just providing the information they need.”
Streamlined reporting
The PRI will also pare down its reporting obligations as part of the overhaul. Atkin noted that regulators around the world were introducing ESG disclosure requirements that were beginning to fulfil the same role as PRI’s lengthy annual reports.To avoid duplication, the body will announce a new reporting cycle in coming weeks.
“It’s very clear that signatories want something that’s not annual, and we will enable that going forward,” he told IPE, adding that the number of indicators will also be reduced. Signatories will continue to be delisted if they don’t fulfil the new, reduced reporting requirements, or if the PRI upholds a complaint that a member has breached its six principles.
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