It has been an eventful first year for Fiona Reynolds, who in February 2013 joined the UN-backed Principles for Responsible Investment (PRI). Her new role as executive director saw her take over responsibility for the day-to-day management of the organisation from inaugural head James Gifford, who oversaw a decade of steady growth.
Managing director, PRI
• 2007-13: Chief executive, Australian Institute of Superannuation Trustees
• Director, AUSfund
• Director, Industry Funds Credit Control
• Director, National Network of Women in Superannuation
Reynolds clearly plans to build on her predecessor’s success, and not simply by growing its 1,276 signatories. Sitting in the PRI’s London office, located on the fault line between the wealth of the City and some of the UK’s most deprived neighbourhoods in east London, she notes the ample space to recruit: several banks of desks behind her only have one or two of the five seats occupied, allowing her to grow staff as the PRI enters its fourteenth next year.
An Australian, Reynolds left her role as CEO of the Australian Institute of Superannuation Trustees to take up her new post. Since then she has been consulting on a review of the organisation’s governance structure – a contentious issue, especially following the high-profile departure of six Danish pension funds in December 2013 over governance concerns.
ATP, Industriens Pension, PensionDanmark, PFA Pension, PKA and Sampension said at the time they had noted with concern 2011 changes to the constitution being pushed through without member consultation, and said they would depart “until [the PRI] again lives up to basic requirements for good corporate governance – including restoring membership democracy in the organisation”.
Reynolds laughs as she acknowledges she only learned of the Danes’ departure “when I got the letter and the press release”. She nevertheless stresses that she had a “very productive” meeting with all fund CEOs shortly after the event, and has been in regular touch in the intervening eight months.
She acknowledges that some of the PRI’s members – including the six Danish funds – would like it to be exclusively for asset owners, with a number of pension signatories imagining in private what good could be done if asset manager signatories were expelled. However, such a nuclear option was excluded from February’s governance consultation.
“We now have three kinds of signatories and we can’t go back,” she says. “The asset owners and the investment managers are very important parts of the investment chain, and there’s a very good reason to have them working together.”
She says existing problems with the investment management market can only be solved if managers and owners work together. “But having said that, people realise that it’s really the asset owners that will drive change, because they are the ones that can provide the mandates,” she adds.
There will be an emphasis on asset owners – the minority, at 275 signatories – in the next three-year work plan, she says: “I think there are other ways to address some of those [asset owner] concerns [that] there are far too many fund managers.”
PRI mark II
Reynolds says discussions with stakeholders clearly showed a wish to terminate the current PRI board, as members did not want anything to sit between them and the currently directly-elected PRI council. “There were other things around the edges, but that became the major issue,” she notes.
Corporate sustainability consultant Carnstone Partners, later appointed as an independent third party to conduct the review, spent several months talking to current stakeholders, as well as representatives of some of the departed Danish funds. Its recommendations were for the organisation to shrink to a single oversight board, with all positions elected except for the two UN-appointed representatives. The UN appointees would also, legally speaking, only be advisers, as their legal immunity prohibits them from acting as fiduciaries.
More importantly, the board would accommodate a further nine asset owners, compared with two asset manager and service-provider representatives apiece, and an independent chair. Reynolds regards the proposal as a sound “safety mechanism” that should assuage the concerns of asset-manager dominance.
She notes that reaction to Carnstone’s proposals have been largely positive, and says the biggest challenge now facing the organisation is implementing the changes by April 2015, once approved at September’s stakeholder general meeting.
Asked if she sees the current stand-off with the six Danes as a question of when, rather than if, they will return, she replies: “I don’t think that the measure of success of the governance review is about whether the Danish return.
“I obviously hope they do – but I think the measure of success is about if we have a good structure in place that’s going to see us through the next iteration of the PRI’s life.
“The changes that we’ve made may not be everything that they have wanted, but they are sensible reforms.”
The world’s local PRI
The PRI currently has local chapters, but Reynolds acknowledges that while signatories are broadly chasing the same goal, a local touch is required.
“One of the strengths of the PRI is that it’s global, but that’s also one of its weaknesses,” she concedes. “People want us to use the fact that we’re global to talk about best practice around the world, but they very much want us to work on a local basis.”
There are calls for the PRI to be outspoken on local issues affecting local companies – and more reporting on asset classes “important to me”, Reynolds says, recalling demands.
“How do we deliver that? How do we go about being global and acting local?” she considers.
She also says that while the first 10 years of the PRI were about raising awareness, now that the principles have been embraced and ESG more broadly accepted, it could begin focusing on impact its members are having on a day-to-day basis.
With the “mass” of signatories, Reynolds says it is important to mobilise people, leading to greater co-operation with local and topic-specific NGOs, allowing the PRI to access their knowledge base.
The PRI is not a competitive organisation, she says, but rather the hub for ESG, and it will not become focused on campaigns.
Reynolds cites the investor statement on climate change as an example of its new work as an organisation to mobilise assets. It is endorsed by the PRI – “it’s got the PRI’s logo on it” – but it remains for each signatory to endorse it individually if they wish.
Another area of importance is that of long-term mandates, currently the subject of a consultation. It is something where Reynolds hopes the PRI can add to the level of debate, by promoting the idea without dictating its use.
It also remains sufficiently connected with the UN, despite no longer being officially affiliated, to lend it weight when it launches reports. Its recent work on the water risk of investments was launched alongside US President Obama’s policies to reduce carbon.
All the work is a way of justifying the mandatory membership fee that was introduced prior to Reynolds joining, granting the PRI a sustainable funding base. This gives it the confidence to sign office leases as it moves towards its third decade.