UN body considers dropping ESG free riders

Power station chimneys spewing smoke


The UN-backed PRI is weighing measures to eject members that do not back up their commitment to ESG investment principles

The Principles for Responsible Investment initiative, which was set up a decade ago, is investigating how it can strip signatories of membership if it becomes clear that their signing up to its investment code was no more than a branding exercise.

It also wants to differentiate between members that are more successful than others at integrating environmental, social and governance investment processes. This focus on accountability forms part of a broader consultation looking at how the organisation should position itself over the next decade.

The PRI has swelled to around 1,500 members spanning asset owners and managers representing a combined $ 60 trillion in assets but, despite the numbers, the organisation has increasingly been looking to hold its members to account over ESG.

In March, its policy advisory chair Bryan Thompson criticised its asset-owning members for failing to demonstrate their commitment to ESG investment in practice.

Fiona Reynolds, managing director of the PRI, has cranked up the pressure by publicly stating that patience is wearing thin with members that sign up but sit back when it comes to integrating responsible investment.

Speaking at a PRI conference in June, Reynolds said: “Just saying that you are a PRI signatory is not enough any more. If you have got people who don’t want to do anything [apart from] just use your brand and in the process diminish your brand, we have to act on it.

“We have to have some mechanism to remove those signatories and that’s what we are looking to do.”

The move comes after a PRI survey of more than 90% of its signatories found that 71% of its members wanted some form of differentiation between those at an advanced stage of ESG integration and those that are lagging.

Reynolds said there have been incidents of asset managers adopting the PRI’s code purely to meet criteria demanded by pension funds for specific mandate pitches. However, she said the aim would not be to punish smaller asset managers that are slower to adopt ESG into their investment processes due to a lack of resources.

She also said the PRI was looking at introducing a mechanism to remove signatories if they have been involved with “financial frauds or catastrophes”.

The consultation – which began in June and will end in August – will be used to set the PRI’s objectives for the next decade. The results are expected to be published in the first quarter of 2017.

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