GLOBAL – The assessment structure of the UN-backed Principles for Responsible Investment (PRI) must change before asset owners can hold their managers to account, according to Steve Waygood, chief responsible investment officer at Aviva Investors.
He told IPE: "In the current PRI framework, asset owners and managers are assessed in a broadly similar way and at the same time. But, ideally, asset owners should be reading their managers' assessment results and feeding back to their managers against their own agreements with them.
"The vast majority of the interest we have from our PRI signatory clients is for help in filling out their own PRI assessment questionnaire. They are generally not interested in our own assessment results, nor reading our questionnaire submission to the PRI, nor feeding back to us on where and how they would expect our performance to improve.
"If our clients aren't reading our results, then who is? However, with a few modest changes, the PRI could transform the demand environment for responsible investment."
Waygood recommended asset managers fill out their PRI questionnaire first, allowing the asset owners to check the assessment results of their managers and then hold them to account for their performance.
The asset owners' own PRI assessment should then be based on how effectively they have held their managers to account.
The PRI is in the process of developing a new reporting framework in consultation with signatories, and assessment will remain a fundamental component of this.
All signatories are expected to pilot the new PRI assessment methodology during the 2013-14 reporting cycle, with the final version going live in 2014-15.
James Gifford, executive director of PRI, said: "The new assessment methodology is designed to provide signatories with independent feedback on progress and help them identify future areas for improvement.
"It can also be used as a tool to support structured dialogue between asset owners and their investment managers about their responsible investment activities and capabilities."
Under the new framework, there will also be new supplements for asset owners and investment managers, with the former being asked to disclose information about how they select and monitor their managers, and the latter having to demonstrate how they are incorporating environmental, social and governance (ESG) issues in their investment activities.
Asset owners will be able to compare these answers with their manager agreements, and this should enable them to monitor their activities and performance more closely.
Some of this information will be mandatory to complete and will be published on the PRI website for the first time, although the results of the assessment process will remain confidential.
However, signatories will still be encouraged to share these reports with their clients and beneficiaries.
Gifford added: "The PRI is also considering developing a new online tool in 2014-15 to allow signatories to review and analyse information reported by other signatories in a more interactive way, and this will include the ability for them to develop and apply their own assessment methodologies.
"This will allow asset owners to review and assess the capabilities of their investment managers – where the managers have given their permission for their information to be used in this way – against their peers each year and over time."
Waygood also said the UK's Kay review was too "supply-side orientated" – for example, that asset managers were expected to increase their supply of stewardship.
He said the review would not change the demand side and that any change would therefore not be sustained by the market structure.