Looking forward with the PRI

Encouraging investors to integrate impact into their decision making will be a key priority for the PRI over the next three years. The organisation wants its signatories to increasingly shift their thinking to incorporate risk, return and impact, says CEO Fiona Reynolds in an interview with Top1000funds.com.

“This is where sustainability is heading,” she says.

In a bid to explore the legal frameworks that could support investment in impact, the PRI is partnering with law firm Freshfields. The initial study, which Reynolds hopes will be out this year, will analyse how investors across 11 different jurisdictions could begin to integrate sustainable outcomes within the context of existing risk and return priorities. It promises a roadmap for investors to think more about outcomes and will take the concept of fiduciary duty to the next level, she says.

The question of which outcomes investors should target leads her to another enduring PRI priority in the coming years. The UN’s 17 Sustainable Development Goals list the world’s most challenging problems, and signpost investors to where they can allocate capital for most impact. With just 10 years left on the original timeline, she says the urgency for investors to put more capital to work in solving them is pressing.

“If we implemented the SDGs and all the gains that sit underneath them, we would create a world we all want to live in,” she says.

Shockingly small

Looking ahead to other priorities, she wants investors to allocate more capital and use their stewardship to better human rights and social issues. The PRI has put together a program designed for all signatories (for many of whom investing to support human rights is a new issue) to incorporate human rights into their investment processes over the next five years.

Elsewhere she is seeking to incorporate human rights into the PRI’s own reporting framework, making it mandatory for signatories to put greater emphasis on the issue. Although a handful of signatories are leaders in the area, the number that incorporate human rights into their investment processes is, she says, “shockingly small.”

As to whether more of a focus on the S of ESG will reduce investor focus on environmental issues, she believes asset owners can, and should, integrate social and environmental issues in tandem.

The pandemic has highlighted inequality and poor labour rights; the importance of access to healthcare and social inclusion, and shown that healthy people depend on a healthy planet. “We can’t solve climate change if we don’t take people with us,” she says.

Stewardship

The PRI will also seek to boost stewardship practices amongst signatories. It will not longer be enough for investors to “tick the box,” she says. Instead, she wants signatories to focus on the big, systemic issues, and work together. Climate Action 100+, the investor group that puts pressure on the world’s biggest polluters to reduce carbon emissions, has proved the breakthrough power of collaboration.

The push will run alongside the PRI beefing up its own stewardship processes. Over the course of the next year it will change its reporting framework into core and plus components that asks more of signatories. The reporting process will be shorter but the scoring harder, she explains.

“At the moment lots of signatories get quite high scores and it’s time to address this.”

The PRI will also increase the minimum requirements needed to be a signatory, although she warns this needs to balance with the PRI being a big tent organisation, and its need to bring everyone along.

Reynolds also wants asset owners to engage more with policy makers. PRI signatories (who she applauds for their engaged membership and thought leadership) often underestimate the influence they wield on policy change.

They could do more to counter powerful lobby groups visible in the US. For example, the US Department of Labor’s pledge to reform pension fund rules that will make it harder for asset managers to embrace ESG principles under its definition of fiduciary duty, goes against the interests of many investors. “We have leverage and need to use it,” she says, urging investors to use their technical expertise and influence with the media.

Another crucial push for the PRI in the coming years is improving sustainability data, and the organisation recently announced a partnership with the World Business Council to improve data.

“Data has been an ongoing issue for years and needs sorting out,” says Reynolds. “Investors continue to say they don’t have access to good data. It is a roadblock we need to remove.”

Sarah Rundell is a staff writer for Top1000funds.com based out of London. She writes on institutional investment across all asset classes, global trade and corporate treasury.
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