Lourenco Miranda Elaborates on the Importance of Becoming a Signatory of the Principles of Responsible Investing of the UNPRI
- Jan 16, 2023
What does an investment manager need to do to become a signatory of the principles of responsible investment (PRI)?
To become a signatory of the principles of responsible investment (“PRI”), an investment manager must follow a rigorous but attainable protocol:
First, the manager must review the six principles the PRI outlines that investment managers must adhere to become signatories. These principles cover issues such as environmental, social, and governance (“ESG”) risks and opportunities and the integration of ESG factors into investment decision-making.
Then, they need to complete an online self-assessment to demonstrate their commitment to the PRI's principles. This assessment covers areas such as governance, strategy and implementation of ESG considerations.
It is also mandatory for investment managers to sign the PRI's Statement of Commitment, which confirms their commitment to the PRI's principles and their intention to implement them in their investment activities.
A fundamental part of being a signatory is to report on progress. Signatories must report on their progress in implementing the PRI's principles on an annual basis. This reporting is intended to demonstrate how the principles are being integrated into investment decision-making and how they are impacting investment outcomes.
And finally, investment managers must pay an annual membership fee to cover the cost of the PRI's activities.
Once these steps have been completed, the investment manager will be officially recognized as a signatory of the principles of responsible investment.
What does an investment manager need to do to complete an annual PRI reporting process?
The annual reporting process is a logically organized extension of the signatory process. To complete the annual reporting process, an investment manager will need to complete four steps.
Before beginning, the manager must complete an online assessment using PRI's reporting platform, which covers six areas: governance, strategy, processes, people, active ownership and implementation.
Further substantiation is then necessary. This is simply evidence to support the answers given in the assessment, such as policies, procedures, and performance data.
Once the process is in place, the investment manager must report on progress in implementing the PRI's six principles and any relevant additional activities.
Finally, submit the report by the deadline set by PRI.
It's worth noting that the PRI's reporting process is intended to be a continuous improvement process. Signatories are expected to provide a realistic and honest assessment of their current level of implementation of the principles and to set out a plan for how they intend to improve in the future.
What does it take to complete the PRI online self-assessment?
To complete the PRI online self-assessment, an investment manager must provide information and evidence on how they are implementing the PRI's six principles in their investment activities. Specifically, the self-assessment covers the following areas:
- Governance: Investment managers must demonstrate how they have established governance structures and processes to ensure that the PRI's principles are integrated into their investment decision-making.
- Strategy: Investment managers need to provide information on how they have developed and implemented strategies for integrating ESG considerations into their investment activities.
- Implementation: Investment managers are required to demonstrate how they are integrating ESG considerations into their investment decision-making, including their approach to risk management, active ownership and engagement with companies in which they invest.
- Performance: Investment managers must report on their performance in integrating ESG considerations into their investment activities, including the impact that these considerations have had on investment outcomes.
Signatories will be asked to disclose their policy, practice and performance on the PRI’s six principles.
The self-assessment is intended to be transparent, and signatories are required to disclose their performance and progress on the PRI website. This process is designed to help investment managers to identify areas where they need to improve, and to demonstrate to stakeholders that they are taking responsible investment seriously.
What do you mean by integrating ESG into the investment decision-making?
Integrating ESG factors into investment decision-making refers to the process of considering the potential impact of a company's environmental, social, and governance practices on its long-term financial performance when making investment decisions. This process helps investors to identify and manage risks and opportunities associated with these practices, and to make more informed investment decisions.
I’ll give you some examples of these issues can be integrated into the decision-making process.
Environmental factors. This would be evaluating a company's environmental performance, such as its carbon emissions, energy efficiency and water usage.
Social factors would include assessing a company's labor practices, human rights record and community engagement.
Governance factorsentail evaluating a company's corporate governance structure, risk management effectiveness, board composition and executive compensation practices.
Integrating these components into investment decision-making can help investment managers to identify companies that are better equipped to manage risks and capitalize on opportunities in the long term and avoid those companies that may have severe ESG risks which could affect their performance in the future.
What are the six principles of responsible investing according to the PRI?
The Principles for Responsible Investment (PRI) are a set of six principles that provide guidance for investors on how to incorporate ESG considerations into their investment decision-making and ownership practices. The six principles are:
- Principle 1: signatories will incorporate ESG issues into investment analysis and decision-making processes.
- Principle 2: signatories will be active owners and incorporate ESG issues into ownership policies and practices.
- Principle 3: signatories will seek appropriate disclosure on ESG issues by the entities in which they invest.
- Principle 4: signatories will promote acceptance and implementation of the Principles within the investment industry.
- Principle 5: signatories will work together to enhance their effectiveness in implementing the Principles.
- Principle 6: signatories will each report on their activities and progress towards implementing the Principles.
It's worth noting that the PRI encourages signatories to go beyond the minimum requirements of the principles and to strive for best practices in responsible investment. Signatories are expected to continuously improve their implementation of the principles over time.
Why is it important to become signatory of the PRI?
Becoming a signatory of the Principles for Responsible Investment is important for several reasons.
First, it signifies commitment to responsible investment. By becoming a signatory, an investment manager is publicly demonstrating their commitment to responsible investment and their intention to integrate ESG considerations into their investment activities.
Signatories have access to a range of resources and support from the PRI, including training, research and networking opportunities. This helps investment managers to improve their understanding of responsible investment and to develop their own responsible investment practices.
Another benefit is related to integrity. Being a signatory of the PRI can enhance an investment manager's reputation and credibility, particularly with clients and investors who are increasingly interested in responsible investment.
Being a signatory allows benchmarking. Signatories are required to report on their progress in implementing the PRI's principles, which allows them to benchmark their performance against their peers and identify areas for improvement.
And finally, the investment manager will be aligned with an industry standard. The PRI is an industry standard for responsible investment, so becoming a signatory demonstrates that an investment manager is adhering to best practices in the field.
By becoming a signatory of the PRI, an investment manager can demonstrate a commitment to responsible investment and access resources and support that can help them to improve their investment practices, which can in turn enhance their reputation, credibility, and performance.
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Lourenco Miranda is Managing Director of ESG and Sustainability Solutions. He has experience in the financial industry covering various segments, industries, geographies, including small, middle, and large companies.
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