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February 25, 2010
PRI Commits Investors to Consideration of Environmental, Social, and Governance Issues
    by Robert Kropp

A white paper published by the Corporate Library explores the impact and potential of the Principles for Responsible Investment in North America.


The United Nations’ Principles for Responsible Investment (PRI) was launched in 2006, and at present has over 700 signatories. Those who sign on to the Principles believe that environmental, social, and governance (ESG) issues affect the performance of investment portfolios, and commit to incorporating ESG issues into investment analysis and decision-making, practicing active ownership, and seeking corporate disclosure on ESG issues.

In the US, 103 organizations are signatories of the Principles, including 20 institutional investors, 60 investment managers, and 23 professional service partners. A white paper authored by Kimberly Gladman, Director of Research and Risk Analytics at The Corporate Library, surveys the history of the PRI from a North American perspective.

Organized according to the six Principles espoused by the PRI, Gladman’s white paper notes that despite the “voluntary and aspirational” nature of the Principles, signatories do commit to reporting on their progress toward implementing them; in fact, five signatories were delisted in August 2009 for not participating in the PRI’s annual reporting process. The commitment by signatories to transparency is essential, according to Gladman, because it holds them to the same standards of disclosure that they demand of corporations.

ESG considerations have been central to the concerns of North American social investors for many years, evolving from the exclusionary screens that led to such successes as the South African divestment movement to a more nuanced incorporation of ESG factors practiced today, for example, in positive screening for best-in-class companies. According to Gladman, “governance analysis has grown more sophisticated with increasingly detailed levels of corporate disclosure,” as well.

Activism by institutional shareowners in North America has been led by the Interfaith Center on Corporate Responsibility (ICCR), an association of 275 faith-based institutional investors, whose members have initiated thousands of engagements with companies and shareowner resolutions since 1971. In response to the wave of hostile corporate takeovers in the 1980s, an emphasis on corporate governance grew, which led to the formation of the Council of Institutional Investors (CII) in 1985.

That only 20 US-based institutional investors are current signatories to the PRI underscores the ongoing importance of the Principle stating that signatories “will promote acceptance and implementation of the Principles within the investment industry.” With such critically important issues as climate change and the Supreme Court’s recent decision allowing unrestricted political spending by corporations threatening to reshape the social fabric, the responsibility of institutional investors and other shareowners has never been greater.

 

 
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