Six Danish pension funds have rejected the body behind the UN’s Principles for Responsible Investment (PRI) over governance problems at the organisation, but say they will continue to follow the principles themselves.

ATP, Industriens Pension, PensionDanmark, PFA Pension, PKA and Sampension said they had decided today to leave the private organisation behind the PRI.

In a joint statement, they said: “We have (…) over a sustained period of time observed with concern that the governance of the PRI organisation does not live up to the basic standards we as investors would expect of the companies in which we invest.”

They said they would remain outside the organisation “until it again lives up to basic requirements for good corporate governance – including restoring membership democracy in the organisation.

“We will continue to be dedicated supporters of the six principles on which the organisation was originally founded.”

The PRI organisation had no immediate comment on the move by the Danish pension funds.

In the joint statement, the pension funds said they had tried many times to improve the conditions within PRI, but without success.

ATP said it was mainly dissatisfied with the PRI organisation because of its lack of democracy and transparency.

“The reason for the lack of transparency and democracy is that the management of the organisation in 2010-11 on its own initiative changed the organisation’s original constitution radically without involving its members at the time – including ATP – or obtaining their consent,” the statutory pension fund said.

This change of governance means ATP and all the other affiliated investors are no longer members of PRI, and the organisation’s original annual general meeting has been abolished.

ATP and the other affiliated investors are now no longer able to influence the purpose, accounts, budgets, membership fees or working programme of the organisation – issues that would normally be discussed at such an AGM, it said.

The change also means that only indirect elections are held to the new management body within PRI – the PRI Association Board, it said, adding that there was no transparency in how to achieve election to this board.

“ATP and the other affiliated investors are no longer able to submit proposals of any kind for a binding vote among the affiliated investors, and ATP and the other affiliated investors need a minimum of 10% backing from other investors to achieve any kind of non-binding and consultative vote,” the pension fund said.

On top of this, it said there was no real transparency about what was discussed and decided in PRI’s managing bodies – the PRI Advisory Council and the PRI Association Board.

Niels Erik Petersen, CIO at Unipension and a member of the PRI Advisory Council, said he had strongly advocated improving the governance structures in the organisation since he became a member of the council in 2010.

“I believe this is the best way – and the only way – of making changes,” he said.

The PRI should lead by example concerning good corporate governance within its own organisation by means of transparency, openness and integrity, Petersen said.

“PRI has not reached this goal yet, but we are working collaboratively and determined towards this,” he said.

Raj Thamotheram, an independent strategic adviser, said the governance of PRI had been rather weak and the quantity of growth had been at the expenses of quality of membership commitment and alignment.

But he took issue with today’s action by the Danish pension funds, saying engagement with public policy was critical.

“We can’t stock pick our way out of climate change, corruption or other market-wide systemic issues, however good we individually feel our funds to be,” he said. 

Thamotheram said he believed PRI’s leadership was now on top of the challenge. 

He said attention had to be focused on the real-world impact of the PRI and get the organisation’s internal governance to align with that. 

“That’s something the Danish funds must surely agree with as long-horizon investors – this will be hopefully turn out to be a storm in a tea cup,” he said. 

The six Danish pension funds said that, because they were leaving the PRI organisation, from 2014 onwards, they would be unable to report to the organisation on their implementation of the six principles.

“We will, however, continue to report on how our individual organisations work with responsible investment – including our compliance with the six principles,” they said.

In their joint statement, the Danish funds said they would, as individual investors, “give serious thought to re-entering the organisation if it proved that its governance had improved to a satisfactory level”.