The body behind the UN-backed Principles for Responsible Investment (PRI) needs to step up its efforts to ensure it has “real world-impact”, with responsible investment practices by signatories so far being “the exception rather than the rule”, a consultancy charged with conducting an independent review of the PRI has found.
The review was carried out by Steward Redqueen, whose report was released at a recent PRI anniversary event in New York.
The Dutch consultancy was asked to evaluate the PRI’s impact on making responsible investment mainstream over the first decade of its existence.
The Principles for Responsible Investment were launched in April 2006, the result of an initiative of then UN secretary general Kofi Annan.
Today it counts some 1,500 signatories, two-thirds of which are investment managers, 20% asset owners and 13% service providers.
The focus of its research, according to the consultancy, was on how the PRI’s interventions impact the investment industry and, where possible, “to verify PRI’s ‘real-world impact’”.
“[G]iven that the PRI itself acknowledges its signatories’ RI implementation still lacks depth, we assume there has been little attributable impact in this respect,” it said, noting that political context, macro-economic circumstances and global sustainability developments were more likely to have trumped the PRI’s impact.
This assessment comes alongside a positive evaluation of the PRI’s role in raising awareness of RI and providing a platform for learning and sharing best practice.
However, despite significant awareness of RI, implementation is still lagging – “even the PRI signatories seem to be struggling to put the Principles into practice”.
The PRI must do more to help signatories strengthen their RI practices, according to Steward Redqueen.
Across the board, these “are the exception rather than the rule, as confirmed not least by internal signatory scores”.
Its evaluation report identified three main recommendations “for the PRI to progress RI practices and support ‘real-world change’”, under the headings of clarity and consensus of purpose and ambition, enhanced focus and value added, and better accountability.
Contributing to the first recommendation was the consultancy’s conclusion that differences among signatory views on the purpose and scope of the PRI “seem increasingly to hamper the effectiveness of the organisation”.
The PRI should therefore make clear to signatories that “progressing RI integration is not optional” – “there should be no place for free riding”, the report states.
More specifically in relation to the second recommendation, the consultancy said the PRI should focus on the US and Europe as “the sweet spot for going from principles to practice”.
When it comes to new markets, the PRI should focus on a select number of countries.
It should also make better use of the Clearinghouse, the PRI’s platform for engagement initiatives.
In relation to accountability, the consultancy said it was “a precondition of RI integration” but that “the current process is complex and time-consuming, there are concerns about a compliance drive, and it is open to abuse through gaming and gold-plating”.
Its main recommendation is for the PRI to team up with a recognised global standard for reporting, such as the Global Reporting Initiative (GRI) or the International Integrated Reporting Council (IIRC).
At the moment, the only reason why a signatory could be delisted is if it does not report on its activities and progress towards implementing the principles, as per the sixth principle.
Speaking to IPE shortly before the release of the Steward Redqueen report, Fiona Reynolds, chief executive at the PRI, explained that it had received feedback revealing disgruntlement among some signatories that others are not doing enough to live up to the principles and that there is a lack of differentiation.
As a result, the PRI consulted on accountability, receiving 550 written submissions and 350 responses to a survey.
It is now carrying out workshops around the world to follow up on this.
Accountability is not a new concern for the PRI. Last year, its chairman, Martin Skancke, flagged the possible introduction of a tiered membership system to differentiate between members that enforce its code and those that fail to do so.
As concerns the Steward Redqueen report, Reynolds said the recommendations were very much in line with what the PRI had already identified as challenges for the future and one of the reasons for its decision to produce a blueprint for its next 10 years.
There were “no real surprises”, she said.
“If we don’t know what people think given the amount of consulting we do … that would have been surprising,” she said.
The consultancy’s report gives the PRI confidence it is on the right track, she added.
The blueprint Reynolds referred to will define the PRI’s strategic objectives and direction for the next 10 years, with a timeline.
The aim, she said, is for it to be ready to be presented to the PRI board by the end if this year, for publication in the first quarter of 2017.
It will address accountability, adherence with the PRI principles and any changes to the principles themselves.
Some of the questions under discussion are whether the PRI will add a seventh principle – setting out expectations of what makes a good financial system – amend the sixth (about reporting on activities and implementation progress), and/or incorporate the Sustainable Development Goals (SDGs).
Any changes/additions to the principles would require approval from the UN and have to be put to a formal vote by the signatories, Reynolds noted.