This week the PRI launched its new three-year strategy which enables continued delivery of its 10-year Blueprint for Responsible Investment. Martin Skancke and Fiona Reynolds discuss the strategy which comes at a significant moment for the organisation and its global signatories as well as for the wider responsible investment movement.
The evolution of responsible investment and the PRI
Over the past decade, and particularly in the past few years, we’ve seen a shift, with a tangible acceleration in the uptake of ESG investing and both a mainstreaming and maturing of responsible investment philosophies and practices. Today, we’re facing inter-related crises: the COVID-19 pandemic, environmental challenges and deepening social inequalities.
In the wake of the pandemic, the private sector along with many governments and regulators are maintaining a focus on sustainability issues and commitments to ESG activities are only continuing to grow. At the same time, there is increasing recognition that issues such as climate change, human rights abuses and inequitable social structures seriously threaten the long-term performance of economies, investors’ portfolios and the world in which clients and beneficiaries live.
Even with this increased focus on sustainability, there is still much more to be done. In this period of momentum, it’s clear our Blueprint has never been more important. It provides a meaningful framework, through which we can continue to drive progress and deliver value to our signatories around the world.
In line with the evolution of responsible investment, as an organisation, the PRI has also come a long way. Starting with a small but dedicated group of signatories in 2006, we’ve grown to a diverse membership of nearly 4,000 global signatories representing more than half of the world’s institutionally managed funds.
Over the past year, we’ve worked closely with our signatories to develop our new strategy ensuring that as an organisation of, by and for signatories that it is first and foremostly underpinned by the perspective of the investor in the market economy. It draws on the distinctive strengths of the PRI to respond to the external environment we operate in and determine where we are best placed to deploy our efforts.
Maintaining inclusivity and increasing accountability
Importantly, the new strategy maintains an inclusive approach; the PRI will remain a ‘big tent’ organisation at its heart, open to all potential signatories. As responsible investment continues to grow, encouraging all investors to become responsible investors is critical to achieving momentum. Of course, we recognise that in welcoming a diverse signatory base, not every resource or programme that we produce will be relevant to every signatory. There will be no one-size-fits-all approach, but instead we’re aiming to provide value for everyone and to drive forward responsible investment as a whole.
In remaining a ‘big tent’ organisation, increasing the accountability of our signatory base will be key to tackling risks of greenwashing. We will continue to move the needle on what it means to be a signatory, celebrating leadership and raising the bar both at the bottom and the top. We will strengthen our minimum requirements and complete the reform of the reporting and assessment framework, aiming to improve practice over time. This year we’re piloting the new reporting framework and are encouraging signatory feedback. This will be reviewed by the board, who will formally report back to signatories on the outcomes of the pilot review before the 2022 reporting period.
Driving ESG incorporation and outcomes
The theme of our new strategy is ‘building a bridge between financial risk, opportunities and real-world outcomes.’ At its core, it will focus on ESG incorporation and we will continue to develop resources for those new to responsible investment as well as to respond to industry developments with work on asset classes and strategies where incorporation continues to progress. Empowering asset owners in their position at the top of the investment chain also remains critical to our success and we will work closely with them to increase the ambition of stewardship activities.
To complement our work on practices and frameworks, we will support the evolution of the industry. Increasingly we see investors recognising feedback loops between the real economy and financial markets, where the outcomes they shape directly impact the risks and opportunities they face. So, in this strategy, we will help those signatories seeking understand what this looks like in practice, how to integrate and measure outcomes, while remaining firmly grounded in fiduciary duty and the broader role of investors in society.
ESG issues and priority areas
This strategy begins against the backdrop of the COVID-19 pandemic as well as longer-term environmental emergencies and social equality failures. To help signatories navigate the next three years, we will prioritise two areas within our ESG incorporation work. Firstly, climate mitigation, as the most urgent existential challenge facing society, including focus on net-zero as well as biodiversity. And secondly, human rights, as both an immediate source of protection for individuals from harm and discrimination and as a necessary foundation for lasting social equality, stability and productivity.
We’re also experiencing significant tailwinds with sustainability high on the agenda in several important markets, providing the best opportunity for global co-operation we’ve seen in some time as well as an increasing role for responsible investment in global financial regulation. As such, our policy programme will play an important role in the new strategy, contributing to the inclusion of sustainability factors being imbedded in financial policy and regulation around the world. We’ll also leverage this opportunity to increase harmonisation, supporting the development of standardised and comparable sustainability reporting for investors and corporations.
Strengthening a shared vision
In the creation of this strategy, it was clear to us that the external environmental has evolved significantly since the PRI’s purpose and mission were originally conceived. Since then, we’ve seen the adoption of the Paris Agreement and the Sustainable Development Goals, as well as an evolution in terminology, investor expectations and practices. So, to ensure our mission and purpose remain relevant, during this strategy period we will take the opportunity to consult with signatories on these cornerstones. Any possible changes will be put to signatory vote in 2022.
Our ultimate aim is to enable a sustainable global financial system and delivering this three-year strategy will be a major stepping stone to achieving our mission. It is an ambitious vision – and one we are well placed to achieve together.
Martin Skancke is chair and Fiona Reynolds is CEO of the PRI.