What is the Principles for Responsible Investment (PRI)?
The Principles for Responsible Investment is an international organisation established with the support of the United Nations (UN) to promote responsible investment practices among its network of investors called signatories and to incorporate these practices into their investment and ownership decisions.
Key Takeaways
PRI is a UN-backed initiative to promote responsible investment by integrating ESG factors into investment and ownership decisions.
PRI's reach is global with over 4,900 members managing over $100 trillion in assets so it is a big deal in shaping the future of sustainable investment.
Signatories agree to six principles that guide the incorporation of ESG into ownership policies and industry practices.
The world is undergoing a major transition post-COVID-19, with environmental and social responsibilities and responsible investment now on the agenda of the boards of the world's largest companies. Investment portfolios are being scrutinised as part of environmental, social and governance (ESG) decision-making.
Even small businesses are now investing responsibly, that's a big sign of PRI's reach and impact.
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What is the concept of responsible investment?
Responsible investment integrates ESG factors into investment decisions to get better returns while doing good for society and the environment. It includes investment analysis, voluntary disclosures, asset classes screening and ownership policies, among other things.
Responsible investment relies on a commitment from signatories to act in the long-term interests of beneficiaries, while collectively managing over $100 trillion in assets globally. It also involves understanding ESG issues, sustainable investing and promoting environmental activities. Investors engage with companies to promote good practices and ensure long-term, sustainable value for all stakeholders.
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Who launched PRI?
When Kofi Annan was the UN Secretary-General in 2005, he invited a group of the world's largest institutional investors to collaborate on developing the PRI. Industry professionals and experts from the investment industry, intergovernmental organisations, and civil society worldwide worked together to establish a sustainable financial system, which today has taken the form of the PRI.
The PRI was officially launched in April 2006, and as of March 31, 2021, it has over 4,900 participating members.
The PRI's mission is to build a sustainable global financial system that promotes good governance, integrity and accountability. The Principles for Responsible Investment helps investors invest responsibly by increasing transparency and accountability through mandatory reporting on ESG. The PRI six principles are founded on the strong belief that such a system will yield long-term benefits for the environment and society as a whole.
Who are PRI signatories?
Responsible investment signatories or participating members are 1) businesses that provide services to investors, such as the New York Stock Exchange, investment advisors, data providers, and brokerage firms, among others; and 2) institutional investors, such as pension funds, wealth, asset and investment managers, who have agreed to the six principles advocated by the PRI, ensuring that they integrate ESG issues in their investment decision making and ownership practices.
Which are the six PRIs?
Following are the six Principles for Responsible Investment:
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.
Investors commit to adopting and implementing these PRI principles after signing them. The PRI signatories contribute to monitoring the effectiveness of the principles and improving their content over time.
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Some Examples of the Six UN PRI Principles
A fund manager, while evaluating potential investment options, considers a firm's climate change risks, carbon footprint, and ESG issues (an example of Principle 1).
When an investor engages with a company to improve its labour policies and safety standards at the workplace (Principle 2).
A pension fund requests its investee companies to disclose information regarding diversity, equity, and inclusion (DEI) policies (Principle 3).
An investment professional collaborates with peers to develop a common ground for ESG guidelines and best practices (Principle 4).
An investor becomes part of a PRI working group to devise tools for implementing the principles (Principle 5).
A company publishes an annual ESG report detailing its active ownership activities, ESG integration and progress towards implementing the principles (Principle 6).
What is the PRI's connection with the UN?
The UN has been playing a larger role in supporting the PRI ever since its launch, as well as in delivering the PRI's strategy. The PRI Association, in partnership with the UNEP Finance Initiative and UN Global Compact, promotes responsible investment and sustainable finance practices through collaborative efforts and global initiatives. The PRI board members include two UN partners who hold a seat each and help signatories learn, collaborate, and take action towards responsible investment.
What is the UN Global Compact (UN GC)?
Located in New York, UN GC is the largest voluntary corporate sustainability initiative with 7,000 corporate signatories from more than 130 countries. It is an international organisation founded on July 26, 2000, as a practical framework and a policy platform for companies that embrace environmental and social responsibility and responsible business practices. It seeks to align investors and their practices with ten principles on human rights, labour, environment and anti-corruption.
How is the PRI being funded?
The signatories will pay an annual membership fee, which is the primary source of funding for the PRI. Apart from that, grants from governments, foundations and other international organisations will also contribute to the fund. Corporate sponsorship and in-kind support are sought for standalone events and projects.
UN Environment Programme Finance Initiative (UNEP FI) is a collaboration between the United Nations Environment Programme (UNEP) and the global financial sector to drive sustainability in finance. UNEP FI works with over 200 financial institutions that have signed the UNEP FI Statement on Sustainable Development and various partners. This partnership bridges the gap between sustainability and financial performance.
UNEP FI integrates sustainability into financial practices through peer-to-peer networks, research and targeted training. Its mission is to identify and promote best environmental and sustainability practices at every level of financial institution, to make finance work for a sustainable future.
PRI Academy
Launched in 2014, the PRI Academy was set up to address the need for a common language around ESG across the industry. The Academy aims to use the most up-to-date responsible investment practices to bridge the skills gap in the industry that is holding back the integration of ESG into investment strategies.
Since its launch, the PRI Academy has trained over 20,000 people from 88 countries, playing an increasingly important role in global ESG literacy. The Academy’s ongoing mission is to support and enhance industry-wide ESG expertise so that professionals can navigate and address the complexities of responsible investment.
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Final Thoughts
The UN Principles for Responsible Investing is driving the world's investors towards sustainable practices by putting ESG into investment decision making processes. Since its start, PRI’s mission has been to create a global financial system that is honest, accountable, transparent and well-governed.
In addition to PRI's advocacy work, it also addresses the educational needs of the industry through its Academy. The Academy trains professionals on the latest responsible investment practices. As PRI grows and expands its reach, it remains at the heart of the ESG movement towards a more sustainable and equitable global economy.
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