Overview of the Principles For Responsible Investment
Overview of the PRI1
The Principles for Responsible Investment (the “PRI”) (formerly known as the United Nations Principles for Responsible Investment or “UN PRI”) is an initiative developed in partnership with the United Nations Environment Program Finance Initiative and the United Nations Global Compact. The PRI recognizes that responsible investing can and should be pursued by investors whose sole purpose is to achieve financial return. This overarching philosophy is reflected in the affirmation required to be made by each PRI signatory:
As institutional investors, we have a duty to act in the best long-term interests of our beneficiaries. In this fiduciary role, we believe that environmental, social, and corporate governance (“ESG”) issues can affect the performance of investment portfolios (to varying degrees across companies, sectors, regions, asset classes and through time). We also recognise that applying these Principles may better align investors with broader objectives of society.
Taking into consideration this affirmation, the PRI set forth six principles that call for signatories to integrate responsible investment into their investment decisions. The six principles are to:
- Principle 1: Incorporate ESG issues into investment analysis and decision-making processes.
- Principle 2: Be active owners and incorporate ESG issues into ownership policies and practices.
- Principle 3: Seek appropriate disclosure on ESG issues by the entities in which a signatory invests.
- Principle 4: Promote acceptance and implementation of the Principles within the investment industry.
- Principle 5: Collaborate to enhance effectiveness in implementing the Principles.
- Principle 6: Report on our activities and progress towards implementing the Principles.
PRI Membership – Overview of Requirements2
In addition to being expected to integrate some or all of the PRI principles, PRI signatories are subject to certain additional minimum requirements. The failure to comply with these requirements after an initial phase-in period can result in the signatory being de-listed as a PRI signatory – an event which could have negative public relations implications for the former signatory. In relevant part, PRI signatories are required to:
- Membership Fee – Pay a membership fee based on assets under management (“AUM”).
- Annual Report – Prepare an annual report on the signatory’s responsible investing activities based on a “framework” provided by the PRI.3 The framework consists of certain mandatory sections for all signatories4 as well as asset class-specific modules required to be completed if applicable. Each question is intended to identify relevant indicators, establish a peer group, and asses the signatory’s ESG policies and procedures.5
- Responsible Investment Policy – Adopt a responsible investment policy outlining the signatory’s approach to responsible investing. This policy must apply to more than fifty (50) percent of the signatory’s AUM.6
- Responsible Staff – Designate one or more individuals with responsibility for implementing the principles at the signatory. This individual may have other responsibilities within the organization.
- Senior-level Commitment and Accountability – Establish mechanisms to implement the responsible investment policy and related procedures, which incorporates senior-level oversight and accountability roles. Many investment managers accomplish this by forming a formal committee responsible for oversight of the responsible investment policy.
It is important to remember that the PRI requirements are intended to foster collaboration and ongoing enhancement of best practices by investment managers committed to responsible investing. They are not regulatory requirements.
1) Additional information can be found on the PRI’s website.
2) For additional information on the minimum PRI membership requirements see Minimum requirements
for membership and PRI Minimum Requirements.
3) New signatories have a one year grace period in which the first reporting cycle is voluntary. However, the PRI recommends that new signatories prepare an annual report in their first year. The annual report is prepared and submitted via a reporting tool available on the PRI website.
4) These include discussions of (i) organizational overview, (ii) strategy and governance and (iii) climate change reporting.
5) The PRI reviews each signatory’s credentials (both on an individual and a peer-relative basis) before awarding them an official PRI rating for the year. The PRI rating is not publicly available but can be requested by certain entities.
6) For PRI guidance on developing a responsible investing policy, see Investment Policy: Process & Practice.