Principles for Responsible Investment (PRI)
Encyclopedia
Principles of Responsible Investment (PRI) is an initiative and a set of aspirational and voluntary guidelines for investment entities wishing to address environmental
, social, and corporate governance
(ESG) issues. Over 850 companies have signed up to the principles.
and human rights
, can affect the performance of investment portfolios and should therefore be considered alongside more traditional financial factors if investors are to properly fulfill their fiduciary duty.
The six principles provide a global framework for mainstream investors to consider these ESG issues. The PRI Initiative has also been created alongside the Principles to help put the framework into practice.
Over 650 investment
institutions, and 200 service providers have signed up to the Principles, with an increased sign up arising from the global financial crisis of 2008-2009, according to a report in the Financial Times.
The Principles are ‘voluntary and aspirational’ and they do not have minimum entry requirements or absolute performance standards for responsible investment. However, signatories have an obligation to report on the extent to which they implement the Principles. In 2009, five signatories were delisted for not fulfilling this obligation.
The PRI Initiative has a Secretariat of around 30 staff based mostly in London
, with staff based in New York
, as well regional offices in Seoul
, Sao Paulo
, Amsterdam
, Tokyo
and Cape Town
. An Australian office is to be set up in late 2011.
As institutional investor
s, we have a duty to act in the best long-term interests of our beneficiaries. In this fiduciary role, we believe that environmental, social, and corporate governance (ESG) issues can affect the performance of investment portfolios (to varying degrees across companies, sectors, regions, asset classes and through time). We also recognise that applying these Principles may better align investors with broader objectives of society. Therefore, where consistent with our fiduciary responsibilities, we commit to the following:
1. We will incorporate ESG issues into investment analysis and decision-making processes.
2. We will be active owners and incorporate ESG issues into our ownership policies and practices.
3. We will seek appropriate disclosure on ESG issues by the entities in which we invest.
4. We will promote acceptance and implementation of the Principles within the investment industry.
5. We will work together to enhance our effectiveness in implementing the Principles.
6. We will each report on our activities and progress towards implementing the Principles.
, in coordination with the United Nations Environment Program Finance Initiative
and the UN Global Compact
, invited a group of the world’s largest institutional investors to join a process in developing the Principles.
Individuals representing 20 institutional investors from 12 countries participated in this process supported by a 70-person multi-stakeholder group of experts from the investment industry, intergovernmental and governmental organizations, civil society
and academia
. The process was conducted between April 2005 and January 2006 and the Principles themselves were launched by Kofi Annan
at the New York Stock Exchange
in April 2006.
helps investors to pool their resources and influence in order to achieve greater impact when engaging with investee companies. It has resulted in over 177 collaborative shareholder engagements on ESG issues such as water sustainability and slave labour in Brazil
.
s, and 87% of investment managers now have an overall investment policy that addresses ESG issues. The document is published alongside the Annual Report of the PRI Initiative.
s) and advisors, to raise awareness and support implementation of responsible investment in this particular asset class. In July 2009 PRI published two documents developed by the Private Equity Steering Committee.
Environmental governance
Environmental governance is a concept in political ecology or environmental policy related to defining the elements needed to achieve sustainability. All human activities -- political, social and economic — should be understood and managed as subsets of the environment and ecosystems...
, social, and corporate governance
Corporate governance
Corporate governance is a number of processes, customs, policies, laws, and institutions which have impact on the way a company is controlled...
(ESG) issues. Over 850 companies have signed up to the principles.
About PRI
PRI is based on the notion that ESG issues, such as climate changeClimate change
Climate change is a significant and lasting change in the statistical distribution of weather patterns over periods ranging from decades to millions of years. It may be a change in average weather conditions or the distribution of events around that average...
and human rights
Human rights
Human rights are "commonly understood as inalienable fundamental rights to which a person is inherently entitled simply because she or he is a human being." Human rights are thus conceived as universal and egalitarian . These rights may exist as natural rights or as legal rights, in both national...
, can affect the performance of investment portfolios and should therefore be considered alongside more traditional financial factors if investors are to properly fulfill their fiduciary duty.
The six principles provide a global framework for mainstream investors to consider these ESG issues. The PRI Initiative has also been created alongside the Principles to help put the framework into practice.
Over 650 investment
Investment
Investment has different meanings in finance and economics. Finance investment is putting money into something with the expectation of gain, that upon thorough analysis, has a high degree of security for the principal amount, as well as security of return, within an expected period of time...
institutions, and 200 service providers have signed up to the Principles, with an increased sign up arising from the global financial crisis of 2008-2009, according to a report in the Financial Times.
The Principles are ‘voluntary and aspirational’ and they do not have minimum entry requirements or absolute performance standards for responsible investment. However, signatories have an obligation to report on the extent to which they implement the Principles. In 2009, five signatories were delisted for not fulfilling this obligation.
The PRI Initiative has a Secretariat of around 30 staff based mostly in London
London
London is the capital city of :England and the :United Kingdom, the largest metropolitan area in the United Kingdom, and the largest urban zone in the European Union by most measures. Located on the River Thames, London has been a major settlement for two millennia, its history going back to its...
, with staff based in New York
New York
New York is a state in the Northeastern region of the United States. It is the nation's third most populous state. New York is bordered by New Jersey and Pennsylvania to the south, and by Connecticut, Massachusetts and Vermont to the east...
, as well regional offices in Seoul
Seoul
Seoul , officially the Seoul Special City, is the capital and largest metropolis of South Korea. A megacity with a population of over 10 million, it is the largest city proper in the OECD developed world...
, Sao Paulo
São Paulo
São Paulo is the largest city in Brazil, the largest city in the southern hemisphere and South America, and the world's seventh largest city by population. The metropolis is anchor to the São Paulo metropolitan area, ranked as the second-most populous metropolitan area in the Americas and among...
, Amsterdam
Amsterdam
Amsterdam is the largest city and the capital of the Netherlands. The current position of Amsterdam as capital city of the Kingdom of the Netherlands is governed by the constitution of August 24, 1815 and its successors. Amsterdam has a population of 783,364 within city limits, an urban population...
, Tokyo
Tokyo
, ; officially , is one of the 47 prefectures of Japan. Tokyo is the capital of Japan, the center of the Greater Tokyo Area, and the largest metropolitan area of Japan. It is the seat of the Japanese government and the Imperial Palace, and the home of the Japanese Imperial Family...
and Cape Town
Cape Town
Cape Town is the second-most populous city in South Africa, and the provincial capital and primate city of the Western Cape. As the seat of the National Parliament, it is also the legislative capital of the country. It forms part of the City of Cape Town metropolitan municipality...
. An Australian office is to be set up in late 2011.
The Principles
The Principles as listed on the official website are as follows:As institutional investor
Institutional investor
Institutional investors are organizations which pool large sums of money and invest those sums in securities, real property and other investment assets...
s, we have a duty to act in the best long-term interests of our beneficiaries. In this fiduciary role, we believe that environmental, social, and corporate governance (ESG) issues can affect the performance of investment portfolios (to varying degrees across companies, sectors, regions, asset classes and through time). We also recognise that applying these Principles may better align investors with broader objectives of society. Therefore, where consistent with our fiduciary responsibilities, we commit to the following:
1. We will incorporate ESG issues into investment analysis and decision-making processes.
2. We will be active owners and incorporate ESG issues into our ownership policies and practices.
3. We will seek appropriate disclosure on ESG issues by the entities in which we invest.
4. We will promote acceptance and implementation of the Principles within the investment industry.
5. We will work together to enhance our effectiveness in implementing the Principles.
6. We will each report on our activities and progress towards implementing the Principles.
History
In 2005 the United Nations Secretary-GeneralUnited Nations Secretary-General
The Secretary-General of the United Nations is the head of the Secretariat of the United Nations, one of the principal organs of the United Nations. The Secretary-General also acts as the de facto spokesperson and leader of the United Nations....
, in coordination with the United Nations Environment Program Finance Initiative
United Nations Environment Program Finance Initiative
The United Nations Environment Programme Finance Initiative is a public-private partnership established between the United Nations Environment Program and the financial sector...
and the UN Global Compact
UN Global Compact
The United Nations Global Compact, also known as Compact or UNGC, is a United Nations initiative to encourage businesses worldwide to adopt sustainable and socially responsible policies, and to report on their implementation...
, invited a group of the world’s largest institutional investors to join a process in developing the Principles.
Individuals representing 20 institutional investors from 12 countries participated in this process supported by a 70-person multi-stakeholder group of experts from the investment industry, intergovernmental and governmental organizations, civil society
Civil society
Civil society is composed of the totality of many voluntary social relationships, civic and social organizations, and institutions that form the basis of a functioning society, as distinct from the force-backed structures of a state , the commercial institutions of the market, and private criminal...
and academia
Academia
Academia is the community of students and scholars engaged in higher education and research.-Etymology:The word comes from the akademeia in ancient Greece. Outside the city walls of Athens, the gymnasium was made famous by Plato as a center of learning...
. The process was conducted between April 2005 and January 2006 and the Principles themselves were launched by Kofi Annan
Kofi Annan
Kofi Atta Annan is a Ghanaian diplomat who served as the seventh Secretary-General of the UN from 1 January 1997 to 31 December 2006...
at the New York Stock Exchange
New York Stock Exchange
The New York Stock Exchange is a stock exchange located at 11 Wall Street in Lower Manhattan, New York City, USA. It is by far the world's largest stock exchange by market capitalization of its listed companies at 13.39 trillion as of Dec 2010...
in April 2006.
Work streams of the initiative
The PRI Initiative has a range of activities to support signatories' implementation of the Principles. These include the Engagement Clearinghouse online forum, an annual reporting and process, the Private Equity Work Stream, and the Academic Network. Other work streams include the ‘Emerging Markets Project’, ‘Small Funds Initiative’, ‘PRI in Practice’ blog and ‘PRI in Property’ work stream. More information can be found at the initiative's Web site.Engagement Clearinghouse
The PRI’s Engagement Clearinghouse is an online forum that enables PRI signatories to work together to seek changes in company behaviour, public policies or systemic conditions. Such collaborationCollaboration
Collaboration is working together to achieve a goal. It is a recursive process where two or more people or organizations work together to realize shared goals, — for example, an intriguing endeavor that is creative in nature—by sharing...
helps investors to pool their resources and influence in order to achieve greater impact when engaging with investee companies. It has resulted in over 177 collaborative shareholder engagements on ESG issues such as water sustainability and slave labour in Brazil
Brazil
Brazil , officially the Federative Republic of Brazil , is the largest country in South America. It is the world's fifth largest country, both by geographical area and by population with over 192 million people...
.
Annual Reporting and Assessment Process
This is an annual online questionnaire for PRI asset owner and investment manager signatories. The aggregated results are published in the yearly Report on Progress document and show the extent to which the signatory base is putting the Principles into practice. The 2010 report revealed 95% of asset owners, such as pension fundPension fund
A pension fund is any plan, fund, or scheme which provides retirement income.Pension funds are important shareholders of listed and private companies. They are especially important to the stock market where large institutional investors dominate. The largest 300 pension funds collectively hold...
s, and 87% of investment managers now have an overall investment policy that addresses ESG issues. The document is published alongside the Annual Report of the PRI Initiative.
Private Equity
PRI's ‘Private Equity Work Stream’ brings together Limited Partners (investors), General Partners (private equity firmPrivate equity firm
A private equity firm is an investment manager that makes investments in the private equity of operating companies through a variety of loosely affiliated investment strategies including leveraged buyout, venture capital, and growth capital...
s) and advisors, to raise awareness and support implementation of responsible investment in this particular asset class. In July 2009 PRI published two documents developed by the Private Equity Steering Committee.
Academic Network
The PRI Academic Network is a web-based network for knowledge exchange between practitioners of responsible investment and relevant parts of the academic community. It provides freely accessible avenues for research, education and network-building on critical responsible investment issues.See also
- UK company law and US corporate law
- Corporate Social ResponsibilityCorporate social responsibilityCorporate social responsibility is a form of corporate self-regulation integrated into a business model...
- Institutional investorInstitutional investorInstitutional investors are organizations which pool large sums of money and invest those sums in securities, real property and other investment assets...
and Stewardship CodeStewardship CodeThe Stewardship Code is a set of principles or guidelines released in 2010 by the Financial Reporting Council directed at institutional investors who hold voting rights in United Kingdom companies... - Sustainable Asset Management (SAM)Sustainable Asset Management (SAM)Sustainable Asset Management is an international investment company with a specific focus on sustainability investments . The company is based in Zurich, Switzerland and considers economic, environmental and social criteria in its investment strategies. In addition to asset management, the company...