It’s been a busy year for the reporting and assessment team at the Principles for Responsible Investment, as we’ve looked to build on the services we provide to signatories.
Last year, at our annual conference, PRI in Person, the PRI made a public commitment to strengthening accountability measures.
Through our reporting and assessment process, we are able to see the progress – or lack thereof – that signatories are making towards implementing the PRI’s Six Principles.
Next, we will seek feedback on a basic set of criteria that have been developed with input from the reporting and assessment advisory committee, the signatory stakeholder engagement committee and the board. The finalised criteria will be made public at the end of 2017 and signatories that fail to meet this basic standard, based on 2018 reporting data, will be placed on a private watchlist. Our intention is not to punish signatories but to help them meet the criteria through collaboration. For those placed on the watchlist, our engagement and support will be key. However, those that fail to demonstrate progress over two years will be delisted.
At the other end of the spectrum, the PRI will also recognise responsible investment leaders by developing a leadership board. This will highlight and share good practices being carried out across our diverse signatory base.
New data portal
As part of our accountability measures and commitment to empower asset owners, we have also recently introduced a web-based platform, the Data Portal. For the first time, asset owners and investment managers will have access to a wealth of data on responsible investment across regions, types of asset owners, size of signatories and many other characteristics – all in one place. The portal will enable asset owners to collect and easily review information on investment managers. Our hope is that by giving signatories easy access to one another’s data, we will support the sharing of best practices and also encourage signatories to work together more closely.
Climate prominent on the agenda
In the last year, PRI’s data from 1200 reporting investors has shown that climate is firmly on the radar of our members. Asset owners identified climate change as the most important long-term risk, with 74 per cent of those reporting citing this issue as a long-term trend that could affect their investments. A majority of investment managers also identified the risks around climate change as a material concern.
Looking across the globe, investors in Australia and New Zealand were most likely to see climate change as a material risk, followed by those in Europe. Investors in emerging markets were less forthcoming on this issue, clearly demonstrating how not only climate change but also ESG issues in general need to gain more traction with these investors.
Beginning next year, the PRI will be aligning its reporting framework to the Financial Stability Board Task Force on Climate-Related Financial Disclosures’ (TCFD) recommendations, providing an easy way for signatories to comply voluntarily. We think the TCFD recommendations form a valuable framework for investors to disclose information on how they plan to transition to a 2-degree world.
For PRI signatories, the TCFD brings a sharp focus to the financial impacts of climate-related risks and opportunities, providing asset owners and managers with a lens for assessing the material financial impacts of climate change in their investment processes. In addition to providing guidelines for companies, the recommendations also offer guidance for asset owners and managers on their own disclosures. This supports further evolution in good practice investor disclosure to beneficiaries, clients and other stakeholders on climate change and builds on existing good practice investor reporting, such as through the PRI Reporting Framework and the PRI’s Montreal Carbon Pledge.
Voting and stewardship activity will continue to be essential for the stability of the financial services sector. By continuing to enhance and improve our reporting framework, the PRI believes it can play a valuable role in improving the dialogue between companies and investors about the real drivers of long-term performance, risk and return.
Mandy Kirby is director, reporting and assessment, at the Principles for Responsible Investment (PRI).
It is good that the PRI are lending their support to TCFD project. However, data disclosure is only really effective if combined with data discipline. Each individual data attribute needs a date / time stamp to be created for effective and meaningful analysis to be undertaken. Without this key component, it will remain an uphill battle to convince investors of the efficacy of the ESG/Climate data models. Whilst there is a strong desire for ESG data to be correct in its signals value, it will continue to be challenged without such discipline being evidenced. This is before there has even been a detailed debate of the true value of the signal & its actual correlation to performance and/or risk. Unless published data is audited this is unlikely to be forthcoming except for a relatively small group of public companies who understand the needs of investors. It would be helpful for the PRI to initiate the data discipline debate with the quant teams at their client members. They may well be surprised at how simple it is to vastly improve the value of the data they wish companies to disclose.