PRI - What is it and why does it matter?
PRI - What is it and why does it matter?
Supported by the United Nations, the Principles for Responsible Investment (PRI) is the world’s leading proponent of responsible investment. Responsible investment is an investment approach that specifically acknowledges the relevance and impact ESG (Environmental, Social, Governance) factors have on investments and the long-term health and stability of the market as a whole.
PRI supports a network of international investor signatories seeking to incorporate ESG factors into their investment and ownership decisions through a combination of engagement, sharing of best practices, and learning. As an independent organization, PRI encourages investors to use responsible investing as a means to better manage risk and enhance returns while engaging with global policymakers. In October of 2020, shareholder advisory firm SquareWell Partners released data that showed 96% of the top 50 asset managers had signed on to PRI.
PRI started in early 2005 when then United Nations Secretary-General Kofi Annan invited the world’s largest institutional investors to help develop the Principles for Responsible Investment. Twenty institutional investor groups from 12 countries, supported by a group of 70 experts from the investment industry, intergovernmental organizations, and civil society, worked together to create and implement its six aspirational Principles.
Now, 15 years after its establishment, PRI is widely recognized for its leadership role in creating global awareness about responsible investing and helping create a framework for responsible investing to guide investors worldwide.
The six Principles for Responsible Investment
The PRI Principles were launched in April 2006 at the New York Stock Exchange with only 100 signatories. By signing the Principles, institutional investors agree to act in the best long-term interest of their beneficiaries and, as part of this fiduciary role, recognize the importance ESG factors have on investment portfolios.
The six principles signatories agree to are as follows:
- We will incorporate ESG issues into investment analysis and decision-making processes.
- We will be active owners and incorporate ESG issues into our ownership policies and practices.
- We will seek appropriate disclosure on ESG issues by the entities in which we invest.
- We will promote acceptance and implementation of the Principles within the investment industry.
- We will work together to enhance our effectiveness in implementing the Principles.
- We will each report on our activities and progress towards implementing the Principles.
These Principles are designed to be compatible with the investment styles of large, diversified, institutional investors that operate within a traditional fiduciary framework. PRI currently has 7,000 corporate signatories in 135 countries, making it the world's largest voluntary corporate sustainability initiative.
When organizations become PRI signatories, they not only agree to follow the six Principles, but they also agree to mandatory reporting on their responsible investment activities. Reporting and assessments touch all PRI signatories irrespective of how big or small they are, where they’re located, or how advanced they are in their responsible investment journey.
The value of the PRI reporting framework
The PRI reporting framework was created to promote the application of the six Principles and helped PRI grow into the largest global responsible investment reporting initiative. The reporting process has developed from a simple self-assessment survey in 2006 to a full reporting and assessment framework launched in 2012 that captures most ESG practices from its signatories.
Along with providing a strong foundation for investors, the reporting structure also provides a high-level framework for any investors looking to shape real-world outcomes in line with the United Nations Sustainable Development Goals (SDGs). In fact, PRI has become a leading group on how to measure the 17 defined SGDs and helps investors understand how they can make commitments to these goals.
The PRI’s core reporting framework consists of three guiding points. The framework should be:
- Evolved and more challenging to signatories, through questions about investment practices that help drive the mission of PRI, carefully developed to ensure robustness, allow for minimal misrepresentation, and be relevant to the quickly evolving responsible investment industry.
- Simpler, shorter, and more consistent, with a more straightforward structure that has less repetition and fewer and clearer questions.
- Improved and with more flexible outputs that are easier to navigate and use, supporting investors in selecting, appointing, and monitoring external managers, and that clearly indicate the extent to which responsible investment has been implemented in investment processes and decision-making, asset allocation, and outcomes.
Here are some common questions about PRI reporting:
When is the report due?
The 2021 PRI reporting cycle for investors is live as of February 1st, and the reporting deadline is April 29th. The 2021 PRI reporting cycle for service providers began on February 15th, and the reporting deadline to report is May 13th.
What are the benefits?
- Showcase your services
- Summarize your ESG activities
- Utilize the information generated from the PRI reports
- Learn more about other service providers’ business activities
- Contribute to standardizing the reporting service providers activities, knowledge-sharing among signatories, enhancing leading practice in the industry
Who can see the reports?
Reported signatory data is publicly available via the PRI website, where any visitor can access individual Transparency Reports.
Does it matter how large my portfolio is?
No, some of the world’s largest funds, such as BlackRock, are PRI signatories.
Do the reports vary by industry type?
No, the reporting framework is the same regardless of what industry your company is a part of, however, different industries will have different reporting outcomes.
How can I learn more?
In 2020, PRI launched a redesigned Reporting Framework for investors. You can find guidance here. This also includes a 10-year Blueprint for responsible investment to ensure that PRI signatories’ feedback and the mission of PRI were carefully incorporated into the future of Reporting and Assessment.
The new PRI reporting structure & next steps
PRI stated that the organization has worked to develop a framework that has more challenging reporting requirements and also provides a simpler, shorter, and more consistent structure, one that delivers more flexible and meaningful reporting outputs.
“We set an ambitious goal at the beginning of the review journey: to cut the total number of questions by half. I am sure that you will be pleased to know we have done just that,” said Elina Rolfe, PRI’s Reporting and Assessment Director.
To simplify the structure, PRI introduced “core” and “plus” questions. “Core” questions are mandatory to report on and are publicly disclosed and assessed. These “core” questions also seek to capture more responsible investment practices.
“Plus” questions are not assessed and are considered voluntary to report on and disclose. They are often open questions to allow signatories to demonstrate more advanced practices that might not as yet be widely adopted.
In regard to the next steps, Rolfe said, “We will keep welcoming signatories’ feedback throughout the 2021 reporting cycle to ensure that the reporting framework remains fit for purpose. But the journey will not stop in 2021. We’ll look to improve the content, the tool, and the assessment methodology for the 2022 reporting cycle by taking that feedback on board.”
ESG materiality assessments
With investors inquiring more and more frequently about what your company is doing in regard to responsible investment, how you treat employees and vendors, your dedication to sustainability initiatives, and other activities that fall under the ESG umbrella, it’s important to have answers to these questions.
An ESG materiality assessment empowers you to easily report on your current state and outline future initiatives while taking into consideration your business goals and risks. Download our guide to creating and extracting the maximum strategic value from an ESG materiality assessment.