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June 01, 2007
Principles For Responsible Investment Quadruples Assets in First Year
    by Anne Moore Odell

The United Nations sponsored Principles for Responsible Investment is only one year old, but have already reached $8 trillion plus in assets and expect to keeping on growing.


Just over a year ago, the United Nations Environment Program Finance Initiative and the UN Global Compact launched the Principles for Responsible Investment (PRI). The Principles were created to offer institutional investors a framework to incorporate environmental, social, and governance (ESG) issues into their investment decision-making processes to realize better long-term returns.

Investors from all over the world have responded to PRI with great enthusiasm. With twenty mainstream institutional investors worth US$2 trillion as initial signatories, PRI has grown to183 signatories with US$8 trillion in assets under the management. This growth in the number of signatories highlights how investors from around the world have realized the importance of considering ESG issues in the investment process.

“We didn’t expect this level of growth in the first year. We are just thrilled with the number of investors, both asset owners and asset managers, who have embraced the PRI,” Gavin Power, Head of Financial Markets for the UN Global Compact, told Socialfunds.com.

“From our vantage point, the PRI is important for three main reasons. First, the PRI provides a guide for integrating ESG into investment decision-making. Secondly, the initiative is a forum for collaboration so that signatories can work together. Lastly, PRI’s important because of its convergence with the Global Compact’s stance on corporation responsibility,” Power added.

The six Principles for Responsible Investment include the incorporation of ESG issues into investment analysis, decision-making, ownership policies, and practices. The Principles also require signatories to disclose their ESG practices and for signatories to work together to improve effectiveness in implementing the PRI.

“In order to act as responsible investors, portfolio managers will have to learn to act as a stakeholder with wider concerns beyond the single minded focus on short term performance,” said Floris Lambrechtsen MBA, director of Amsterdam-based Double Dividend, a PRI signatory.

Signatories pledge to act in the long-term best interest of their beneficiaries, acknowledging that acting for the best long-term interest includes the consideration of ESG issues. The Principles state, “We also recognize that applying these Principles may better align investors with broader objectives of society.”

“By subscribing to the Principles, we are sending a strong signal to our investor base, as well as to companies in our investment universe, that we acknowledge that ESG issues impact share prices in the long-term. We will take these issues into consideration in our investment decisions and we will to work with companies in our portfolio to improve ESG performance - and, as a result, generate higher returns for our investors,” said Bruno Erbisti, Associate at BDF Management, manager of Bioenergy Development Fund based in the Cayman Islands.

Jean-Pierre Hellebuyck, Vice-Chairman, AXA Investment Managers, with head offices in Paris, explained how joining the PRI supports AXA’s commitment to a strategy of mainstreaming responsible investing both within the company and in the wider investment community: “Our responsible investment strategy focuses on the integration of relevant extra-financial factors into our research and fund management process. We believe PRI provides a framework and a benchmark for assessing how well we have achieved this objective. To this end, we are in the process of developing a Central Research Service, which would make it easier for the various investment expertises within AXA IM to access high quality information on extra-financial issues.”

“It appears that the mainstream is switching to support corporate sustainability, understanding that environmental and social issues are material to corporate performance, that they can affect investment returns,” Power said. ”We think this is a fundamental shift from the old school negative screening to a proactive approach,”

In March 2007, Colonial First State Global Asset Management (CFSGM), Australia’s largest investor, signed onto the PRI. With a global focus, CFSGM already had a long record of sustainability practices and governance issues. “Since becoming a signatory to the PRI, Colonial First State Global Asset Management has established a rigorous framework through which to implement the PRI,” said Neil Cochrane, Deputy CEO, Colonial First State Global Asset Management.

Signatories include investment managers, asset owners and professional services partners. A full list of signatories can be found at http://www.unpri.org/signatories/.

Public pension funds have embraced PRI. Both CalSTRS and CalPERS helped with the drafting of PRI and were some of the first signers. The report “Responsible Investment in Focus: How leading public pension funds are meeting the challenge,” jointly prepared by the UNEP FI Asset Management Working Group and UKSIF was released April 2007. The report includes 15 case studies of pension funds, most of which are PRI signatories, and describes how pension funds are using strategies and activities from PRI.

Signatories can take advantage of the PRI Engagement Clearinghouse, a global forum for members to share information and resources on how to take action on ESG issues. This is the first time there was been a global arena for collaboration on company and industry-specific ESG issues. Signatories can also take part in the “PRI in Practice” implementation blog, an intranet that offers interviews on best practices and practical implementation advice.

Looking toward the future, PRI is working to support more signatories using the Clearinghouse. They are also encouraging more corporate pension funds and foundations to sign onto the Principles. Power indicated that the PRI Initiative is establishing a secretariat that will focus on signing up more investors from emerging markets.

The Principles may be voluntary, but by signing on, the PRI expects a true commitment to the Principles at every level of the investment company. The second year of PRI looks just as bright as its first. In July, the results of the first PRI Reporting and Assessment questionnaire will be available, another tool for investors to see the impact PRI has on their bottom line and the world at large

 

 
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