Many fund managers have recently chosen to adhere to the Principles of Responsible Investment (PRI) sponsored by the United Nations. The PRIs were originally created in 2006 and only 18 managers joined the initiative at the time of inception, demonstrating their firm belief in the importance of socially responsible investment.
PRI is the leading advocate for responsible investment in the world. Its objective is to identify the investment implications of environmental, social and governance (ESG) factors; and to support its international network of signatory investors in incorporating these factors into their investment and ownership decisions. The six Principles of Responsible Investment are:
- Principle 1: We will incorporate ESG issues into investment analysis and decision-making processes.
- Principle 2: We will be active owners and incorporate ESG issues into our ownership policies and practices.
- Principle 3: We will seek appropriate disclosure on ESG issues by the entities in which we invest.
- Principle 4: We will promote acceptance and implementation of the Principles within the investment industry.
- Principle 5: We will work together to enhance our effectiveness in implementing the Principles.
- Principle 6: We will each report on our activities and progress towards implementing the Principles.
Who are the 18 asset managers who signed the Principles for Responsible Investment in 2006?
In early 2005, the then Secretary-General of the United Nations, Kofi Annan, invited a group of the world’s largest institutional investors to participate in a project to develop the Principles of Responsible Investment. A group of 20 investors from various institutions in 12 countries was supported by a group of 70 experts from the investment industry, intergovernmental organizations and civil society. Specifically, the signatories included 18 fund managers: ABN AMRO AM, Aviva Investors, BC Investment Management, BNP Paribas AM, Candriam, Crédit Agricole AM, Daiwa AM, Domini Social Investments, F&C AM, Generation IM, Groupama AM, Henderson Global Investors, Hermes Pensions Management, Insight Investment, Mercer Investment Consulting, PGGM Investments, Threadneedle AM, and Wespath Investment Management.
In April 2006 the Principles were presented on the New York Stock Exchange and since then the number of signatories has grown from 100 to more than 3,000 in 2020, as can be seen in the following graph.
David Czupryna Head of ESG Development at Candriam
The UN PRI created in 2006 regroups 6 principles that encapsulate the essence of what sustainable investing is: it is about integrating sustainability in investments, being an active securities owner, and providing transparency to investors about the process and the results. The success of the UN PRI has gone hand in hand with the growth of investors’ demand for sustainable investment solutions.
For asset managers, signing the PRI is often just the first step of a long journey towards full integration of sustainability dimensions in investments and active ownership. Signing the PRI is a way to signal to clients and market participants the intend to become a sustainable investors. At the same time, it can create an impetus within the signing organization to mobilize energies towards implementing these goals. Indeed for a classic asset manager with little explicit integration of ESG considerations, the transformation towards becoming a sustainable investors often require a comprehensive review of how its business is conducted. This transformation touches many areas, such as securities analysis, portfolio construction, reporting, exercise of voting rights, dialog with securities issuers, etc. In all these areas, fulfilling the objectives under the UN PRI requires the deep involvement of front office people. It can create for them new constrains, but also help them spot new investment opportunities, for instance by paying closer attention to companies’ positioning towards UN SDGs or fulfilling the Paris Agreement 2 degrees target.
In all these areas, it is essential for the asset manager to select the right partners to assist it on this journey. From crafting its first sustainable investment policy to selecting ESG data sources and defining a voting policy, it’s easy to get lost. But it is definitely worth it and help uncover new investment opportunities along the way.
Maya Montes-Jovellar, Marketing Manager Iberia and Latin America at Groupama Asset Management
Groupama AM is one of the founding signatories of the Principles for Responsible Investment (PRI), a key initiative for responsible investment launched in 2006 in partnership with the UN. This initiative brings together the world’s leading asset owners and investors in support of six shared principles that aim to promote long-term responsible investment and the incorporation of ESG.
The asset managers are committed to respecting these 6 principles, including implementing the integration of ESG criteria in all our investment policies. Every year, the asset managers complete a report on the progress of this implementation, which is rated by the PRIs. This allows us to position ourselves in relation to international practices and show our strengths or weaknesses. This latest 2020 report has several reasons for satisfaction for Groupama AM, as it attests the collective work carried out by the teams since the launch of the ESG Strategy in spring 2018, such as robustness of the process, creation of thematic and impact funds, ESG profitability measurement, etc.
Furthermore, it is important for the asset managers to sign these PRIs because this way investors can also be sure that we are applying the best practices.
Finally, PRIs allow us to participate in collaborative engagement actions, that is, to join with other investors to encourage companies to improve their practices in ESG matters and thus increase our influence capacity.
Antony Marsden, Head of Governance and Responsible Investment at Janus Henderson
Janus Henderson is a founding signatory of the UN Principles of Responsible Investment (UN PRI), via its predecessor firm Henderson Global Investors. We have a long history of responsible investment, including specialist sustainable and responsible investment funds launched almost three decades ago, ESG integration and engagement across many of our mainstream investment strategies, and a track record of active involvement in initiatives promoting responsible investing.
The UNPRI initiative has been extremely successful in raising the prominence of RI across the world of finance and in promoting change in the asset management industry. Today, Janus Henderson retains a strong commitment to responsible investing as set out in our ESG Corporate Statement and Investment Principles. ESG is important to what we stand for as a company, and how we aim to create and preserve value for all of our stakeholders. As an active manager, we have integrated ESG factors into our company analysis and relevant investment processes, helping us identify opportunities and risks, and influence positive change when engaging with companies. We believe there is a strong link between sustainability issues and the companies that will grow and succeed going forward. This applies to us as an organisation and to the companies our investment teams actively engage with in their pursuit of long-term returns for our clients.
Sol Hurtado de Mendoza, Country Head of Spain and Portugal at BNP Paribas AM
BNP Paribas Asset Management was one of the forerunners of the Principles of Responsible Investment (PRI) when they launched in 2006. Back then we were already convinced of the importance of investing responsibly and how that was the way forward. At the time there were 63 signatories vs the 3000 that are in place today.
The relevance of sustainability, accentuated during the COVID-19 pandemic; as well as the growth of demand, makes being a signaturee of the PRI not an option, but practically an obligation. A sustainable economic future depends on sustainable investment practices.
The PRI has given BNP Paribas Asset Management its highest rating in the last four years: A+ (since they started awarding such rating). This evidences our willingness to integrate ESG criteria and our high commitment to establish a dialogue with companies and markets where we invest in sustainability issues. In our case it has helped to continue to promote the adoption and integration of sustainability within the company and beyond. The launch in March 2019 of our Global Sustainability Strategy is testament to this.
We are convinced that the integration of ESG criteria helps investors achieve better risk-adjusted returns. In addition, we believe that long-term investors should use their vote at general shareholders’ meetings, promote an active dialogue with companies and engage in policy advocacy to influence companies and the world for the better. This is also what drives the PRI. This is no “no turning back” trend, conversely it has the whole future ahead of it.