The Principles for Responsible Investment (PRI) has today unveiled proposals for a new labelling system for its 4,829 investor signatories, ushering in an end to its unpopular and cumbersome reporting framework.

The investor body will pare back its mandatory reporting requirements, which have been criticised for inviting unhelpful comparisons between widely varied types of investors, and contributing to the industry’s ballooning list of disclosure duties.

In 2021, the PRI updated and streamlined the framework, but signatories still complained about the structure and content, prompting it to pause the programme. It was relaunched earlier this year.

Now, its planning to completely change the information that asset managers and owners are asked to provide, and has put forward two approaches.

The first would ask investors to identify which approach to sustainable finance they pursue, and why.

In today’s document, which marks the start of what PRI calls “a co-design process” with its members, it outlines three possible approaches:

  1. embedding ESG factors into portfolio-level risk/return analysis;
  2. seeking to influence sustainability outcomes in the wider world as a means of mitigating portfolio-level risks; or
  3. contributing to environmental and social objectives for non-financial reasons.

“Some investors can set sustainability outcomes as part of their investment process. Others serve the sustainability preferences of their clients and respond to policy, regulation and trends that are driving economic transition,” the document noted.

In an interview with IPE, the PRI’s chief sustainable systems officer, Nathan Fabian, said all three approaches are “legitimate parts of the responsible investment spectrum”, and that offering them up as labels was also about “lowering expectations where they were too high”.

Alternative focus on issue rather than purpose

After adopting one of the three labels, a signatory would have to demonstrate how advanced it was on that ‘pathway’, using the relevant signposts decided by the PRI. This could include reporting on relevant activities, initiatives and disclosures, and demonstrating progress.

The second approach outlined in the proposals could go some way towards tackling the common conflation of ‘sustainability’ with ‘net zero’ among PRI’s members and the wider industry, by arranging the progression pathways by issue instead of purpose.

Specifically, signatories would be encouraged to explain their sustainability priorities and what progress they’ve made on different topics.

Both options – which could be combined in the final design – would be voluntary, meaning signatories could ignore them and simply enjoy the reduced reporting burden.

PRI will now undertake around four months of workshops, surveys and written consultation, followed by a further two months to evaluate the responses. Substantial changes are not slated to be introduced until 2025.

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