On the 10-year anniversary of the official launch of the PRI, Fiona Reynolds reflects that much has been achieved – but much remains to be done
Today marks 10 years since the Principles for Responsible Investment's (PRI) official launch by former UN Secretary-General, Kofi Annan at the New York Stock Exchange.
Turning 10 provides an opportunity to both look back and celebrate how far responsible investment has come over what is really a very short space of time, and also to look forward and set our sights on new horizons.
The 20 pension funds, investment managers, UN representatives, foundations and other institutions that drafted the original Principles in 2006 were definitely visionaries of their time – they were clear in their aims of incorporating environmental, social and governance (ESG) factors into the investment process and their desire to move away from the short-term thinking that was driving investment markets, to investing for longer time horizons.
The PRI has grown to more than 1,500 signatories, managing $59 trillion of assets
There is no doubt that the PRI and its mission of promoting responsible investment, has come a long way in the last 10 years and there is much to be proud of. I feel immensely privileged to work at the PRI and I would like to take this opportunity to acknowledge the many wonderful people who have made the PRI what it is today – beginning with those visionaries involved in drafting the principles and our board members, both past and present.
I'd also like to recognise James Gifford who was the pioneering first Executive Director of the PRI; our signatories, without whom we wouldn't be here; the many hundreds of organisations and individuals who have participated in our working groups and advisory committees for their time and expertise over the past 10 years; and, finally, there is our staff, both past and present, who come from the four corners of the globe to work at the PRI initiative. The organisation is very fortunate to have such a committed team.
I also must acknowledge our UN partners, who remind us that investing has to be connected with the real world; that capital needs to be productive, and that it needs to benefit society and incorporate sustainable development.
In terms of its organisational objectives, the PRI has, by and large, been extremely successful over its first 10 years.
From those first 20 investors, managing $2 trillion, the PRI has grown to more than 1,500 signatories, managing $59 trillion of assets.
We've encountered scepticism along the way. When the PRI was first launched, some investors thought of us as well-meaning but naïve in our calls for ESG integration. However, as the global financial crisis struck, investors started to realise that looking at financial data in isolation can mask a host of internal problems and that looking at environmental, social and governance considerations was actually a smarter way to approach their investments.
Over the last decade, the idea that sustainability equated to diminished returns has been steadily eroded with numerous studies, including ones from Arabesque Asset Management, Harvard, MSCI and others showing that looking at ESG over the long-term equates to outperformance of market benchmarks. Part of this development is the realisation that investors across all asset classes have seen the benefits of using ESG in order to manage the emerging definitions of risk, thereby laying the groundwork for more robust returns.
Investors started to realise that looking at financial data in isolation can mask a host of internal problems
It's fair to say that there have been a lot of positive developments over the last 10 years. However, as far as we have come, we still have a very long way to go before responsible investment becomes second nature across the finance community and embedded throughout the chain of asset owners, consultants and managers. Indeed we have a long way to go until all of those $59 trillion dollars are invested in a sustainable way.
As the managing director at the PRI, I can't help at times be overwhelmed by the enormity of the task still ahead of us. Indeed, many would argue that, in terms of impacts and outcome, responsible investment has really only just started to prove its mettle. The challenges we still face are many and as far as we have come, it's just not enough.
In order to gain some objective perspective on our first 10 years, we asked consultancy firm Steward Redqueen to undertake an independent assessment of the contribution the PRI has made to increasing awareness of responsible investment globally, its effectiveness in disseminating knowledge and best practice, and our impact on the investment world and in the 'real economy' beyond.
The report recognised that the PRI has achieved much over the last 10 years. Specifically, it has united a large proportion of investors across the world around the goal of incorporating ESG issues into the investment process. The PRI is recognised as the global voice for responsible investment, a thought leader on ESG integration; and the leading platform for learning, engagement and sharing of best practices around responsible investment.
However, the report also recognised the challenges facing the PRI: the diversity of our signatory base, and the different views about where the PRI's views should be focused; the varying needs that they have; and the mixed progress in terms of actual implementation by many PRI signatories.
The challenges we still face are many and as far as we have come, it's just not enough
One of the biggest issues that the report raised is that of accountability, saying that the PRI should demonstrate – and require from our signatories – a deep commitment to a financial system that fully integrates ESG issues.
Finally, the report recommended that we prioritise more effectively, and identify where the PRI can best add value. It suggests a focus on the US and Europe, while also developing more structured engagement and dialogue in select new markets. It also recommends that the PRI Clearinghouse can be better utilized to help deliver impact in the real economy.
Much of this was, of course, not news to the PRI, we recognised these issues in building our current three-year strategy and in our decision to use the PRI's 10th year to embark on a year-long consultation with our signatories to produce a blueprint for responsible investment for the next decade that will set a clear direction and focus for the next decade.
The consultation will look at the issues of accountability to the principles, systemic risks in investment markets, the PRI's role in addressing these risks, how we move to real ESG integration. It will also look at how we incorporate the Sustainable Development Goals into our work and into investments more broadly, and, importantly, how we measure the success and impact of the PRI initiative over the next decade.
Our ultimate goal is to reach a time when we don't talk about "responsible" investing but focus instead on just investing in a way that provides positive returns and ensures the long-term health and viability of financial markets that work for the good of beneficiaries and society as a whole.
At the end of the day, an economy and the investment markets that operate within it are only part of a society and should work for the good of society as a whole. Why would any of us want to see our money invested in a way that harms us? That just makes no logical sense.
So, happy 10 years to the PRI – a work still in progress.
Fiona Reynolds is managing director of the Principles for Responsible Investment (PRI)