Principles for Responsible Investment

Information presented in this profile is for reference only. The Climate Action in Financial Institutions Initiative does not guarantee as to the exhaustiveness of this information and invites you to contact the Secretariat (contact@mainstreamingclimate.org) if you wish to propose any modifications.

By including this profile, the Initiative, its Supporting Institutions and the Secretariat do not endorse the activities described below nor the guidance and information provided in this profile.

Last updated: July 2018

Link: www.unpri.org/

Contact: info@unpri.org    

Summary

 Launched in 2006, the Principles for Responsible Investment (PRI) is an investor initiative, which supports the adoption and the implementation of six Principles articulated around environmental, social and governance (ESG) issues. They notably promote the integration of ESG into investment analysis, decision-making processes, ownership policies and practices, and disclosure – working principally with the institutional investor and asset management community. They also seek to enhance the acceptance of ESG issues in the investment industry as well as knowledge sharing among the signatories of the Principles.

What are the objectives of the Initiative?

The PRI works with its international network of signatories (asset owners, investment managers and service providers) to put the six Principles for Responsible Investment into practice. Its goals are to understand the investment implications of environmental, social and governance issues and to support signatories in integrating these issues into investment and ownership decisions.

The Principles for Responsible Investment are a voluntary and aspirational set of investment principles that offer a menu of possible actions for incorporating ESG issues into investment practice. The objective of the six Principles developed by investors for investors is to contribute to a “sustainable global financial system”[1].

  • Principle 1: We will incorporate ESG issues into investment analysis and decision-making processes.
  • Principle 2: We will be active owners and incorporate ESG issues into our ownership policies and practices.
  • Principle 3: We will seek appropriate disclosure on ESG issues by the entities in which we invest.
  • Principle 4: We will promote acceptance and implementation of the Principles within the investment industry.
  • Principle 5: We will work together to enhance our effectiveness in implementing the Principles.
  • Principle 6: We will each report on our activities and progress towards implementing the Principles.

The six core principles are accompanied by 35 possible actions for institutional investors and asset managers. The PRI also provide general guidance and research on ESG related topics.

Signatories are required to report annually on their responsible investment activities.

[1] https://www.unpri.org/pri/what-are-the-principles-for-responsible-investment .

How is climate change specifically addressed?

For the PRI, “Climate change is the highest priority ESG issue facing investors. The PRI is working to help investors protect portfolios from risks and to expose them to opportunities in the shift to a low-carbon global economy.”

The PRI provide among other things short overviews of the following climate-related issues:

  • – Guidance on the transition risk for oil and gas companies:
  • – Scenario analysis
  • – Calculating carbon supply cost curves in a 2°C scenario
  • – Calculating a 2°C capex pathway for oil and gas companies
  • – NPV sensitivity of oil and gas companies to a 2°C scenario
  • – Guidance on asset owner climate change strategy
  • – Developing a climate strategy
  • – Reducing emissions across the portfolio Climate obligations of enterprises and investors

Who launched it? Who is participating?

The PRI are the result of an initiative of the former UN Secretary-General Kofi Annan. Twenty representatives of investor groups and 70 experts from the investment industry, intergovernmental organizations and the civil society developed the PRI in a joint effort. The PRI has two UN partners, (UNEP FI) and UN Global Compact. Today the initial 100 signatories have grown to over 1,800.

Why has this been put into place?

The underlying idea of the PRI is that environmental, social and governance (ESG) issues can influence the performance of investment portfolios. Taking ESG issues into account and applying them to investment decisions contributes to the sustainability of the financial system.

What are the main work streams/areas of work?

The PRI’s areas of work are mainly organized around ESG issues. The PRI conduct annual assessments of ESG reports submitted by the signatories (including annual questionnaires). Beyond ESG, the PRI also provides a number of useful resources for investors focusing on climate change such as news, public policy briefings, academic research and case studies.

Following the recommendations made by the Task-Force on Climate-related Financial Disclosures (TCFD), the PRI has been conducting country reviews, asking the question of the compatibility of current national disclosure legislations and the TCFD recommendations. The PRI, whose chair Martin Skancke is also a member of the TCFD, has also put in place Guidance on PRI Pilot Climate Reporting: “we are enhancing the PRI reporting framework to integrate new climate-related indicators based on the TCFD recommendations. Specifically, we are providing, in the 2018 reporting and assessment cycle, the opportunity to pilot additional indicators that will produce TCFD-aligned disclosures”.

What are outcomes of the Initiative linked with the 5 Principles?

The PRI principles have been adopted by over 1100 financial institutions and their annual meeting PRI in Person is seen as one of the major sustainable finance annual events. The PRI is recognized as one of the leading proponents on the topic of responsible investment. It has developed resources, engagement programs, investor tools, training courses, recommendations for policy reform.  Transparency Reports and Assessment Reports of PRI signatories are available in the online PRI Data Portal, accessible by signatories and service providers.

Have intermediate or final reports / guidance been issued?

Guidance and reports concerning ESG reporting:

General guidance on ESG related topics:

Asset Owner manager selection guide: Enhancing relationships and investment outcomes with ESG insight (2018) – “provides more detail on what ESG-related issues asset owners need to think about when looking to select an investment manager. It provides overarching guidance on incorporating ESG considerations across all asset classes, products and managers during the manager selection process.”

Reports on Environmental, Social and Governance Issues

Notably: together with UNEP FI: Greening Institutional Investment (input paper to the G20’s Green Finance Study Group) (2016) – “This paper takes stock of institutional investor experience with mobilizing green capital for green investment and mainstreaming green factors across asset classes. It identifies key drivers for action and barriers preventing progress. It reviews investors’ experience within their own organisations as well as with aligning market and policy frameworks with green investment.”

A series of events and webinars (ESG in credit risk analysis; Addressing Systemic Risk: The Sustainable Development Goals; etc.)

General guidance on climate related topics:

Developing an asset owner climate change strategy, pilot framework (2015) – “This framework focuses on investment actions to mitigate climate change – how actions by asset owners can reduce their exposure to climate change risk in their investment portfolios and also support the reduction of emissions in the real economy.”

Reducing emissions across the portfolio, discussion paper (2015) – “The discussion paper […] lays out: a strong case for asset owner action on climate change; the key factors to consider when setting an emissions reduction goal; how measuring a carbon footprint can assist in reducing emissions.”

Guidance on PRI pilot climate reporting (2018) – “This guidance note aims to support signatories in piloting climate reporting based on the recommendations of the FSB Task Force on Climate-related Financial Disclosures.”

Calendar and milestones

Associated Supporting institutions of the Climate Action in Financial Institutions Initiative

The following Supporting Institutions of the Climate Action in Financial Institutions Initiative are “Signatories” of the Principles for Responsible Investment:

Links with the 5 Voluntary Principles for Mainstreaming Climate Action

This section aims to support discussions on the implementation of the 5 voluntary Principles for Mainstreaming Climate Action. Information provided in this section is for reference only; the Climate Action in Financial Institutions Initiative, its Supporting Institutions and the Secretariat do not endorse the activities nor the guidance and information provided in this section.

As stated in the Practical Guide to Active Ownership in Listed Equity: “Principle 2 encourages PRI signatories to be active owners and incorporate ESG issues into their ownership policies and practices, including engagement with companies and exercise of voting rights. Several PRI signatories have mature practices that offer examples of this. These include activities carried out in-house, on an outsourced basis through investment managers/service providers, or by a combination of internal and external practices.”

In 2015, the PRI developed a three steps pilot framework to develop a climate strategy based on the assessment of the portfolio exposure to climate risk and opportunity. The framework provides guidance based on concrete case studies associated to each of the three steps of the process:

As of 2018, PRI developed pilot indicators to help signatories to produce TCFD-aligned disclosure in addition to already existing PRI indicators. The recommendations and questions are available in the document Guidance on PRI Pilot Climate Reporting.

Questions on risks management include:

  • • “Describe how climate-related risks and opportunities are factored into your investment strategies or products.”
  • • “Describe the process used to determine which climate-related short, medium and long-term risks and opportunities could have a material impact on your organisations and its activities.”
  • • “Please describe how you define “short”, “medium“ and “long” term, and describe your material climate-related issues over these time horizons.”

In the pilot framework “Developing an asset owner climate change strategy” PRI recommends to “choose appropriate strategies to reduce exposure to climate risk and encourage the transition to a low carbon economy and execute them – engage, invest, avoid”. The report highlights that most opportunities to contribute towards emissions reduction are applicable to every asset class.

As of 2018, signatories participating in the Guidance on PRI Pilot Climate Reporting are requested to report on questions relative to their climate performance. Questions include:

  • “Describe how your products or investment strategy might be affected by the transition to a lower-carbon economy.”
  • “[Do you] consider scenario analysis that includes factors representing the investment impacts of future climate-related risks and opportunities[?] Is this scenario analysis based on a 2°C or lower scenario?”

The third PRI principle “seek appropriate disclosure on ESG issues by the entities in which they invest” incites investors to improve the accuracy of their climate performance tools by obtaining more detailed information.

Signatories of the principles are required to report yearly on their activities regarding ESG issues. This reporting also includes potential shareholder engagement activities: “As much as investors are engaging with companies to access and encourage better ESG information and practices, they are responsible for reporting to their clients and beneficiaries on their engagement and voting activities and relevant outcomes. Such information should be easy to access and understand, and provided on a regular basis (i.e. quarterly or annually).”