Service providers key to ESG development

There is nothing like a bit of red-hot competition to get the blood pumping – 37 Principle for Responsible Investment (PRI) signatories are running for only six positions on the newly-structured PRI Advisory Council. Let’s hope this has the effect of actually transforming institutional investment portfolios, not just getting these responsible types a little spirited.

There are now more than 800 signatories to the UNPRI, with assets under management of those signatories standing at more than $22 trillion, which is more 10 per cent of the estimated total value of global capital markets.

It is still generally accepted that while ESG issues are here to stay, there is more to learn about integrating these issues into investment strategies, or is that just an excuse?

Those signed to UNPRI are doing a pretty good job, when viewed in aggregate.

In 2010, signatories conducted more than 4,000 engagements with companies to encourage improvements in ESG performance; more than 95 per cent of asset owners and 87 per cent of investment managers had an overall investment policy that addresses ESG issues; and 85 per cent of asset owner signatories were involved in dialogue with regulators on ESG issues.

So many of the themes around responsible investing make sense for asset owners.  Particularly long-term investing and the role that responsible investing can play with regard to financial stability, corporate behaviour and the evolution of emerging markets.

But the role of the service provider can’t be underestimated as well. For the first time the UNPRI will allow non-asset owners on to its advisory council.

The new governance structure for the PRI advisory council will comprise of 16 members: the chair, two UN representatives, nine asset owners and four non-asset owners.

The election will take place later this month (July 25) and will be truly international.

There are six asset owners from Australia, France, Netherlands, Norway, UK and the US competing for two seats; and 31 service providers from Africa, Asia, Australia, Europe, North America and South America, competing for four seats.

The new chair of the advisory council, Wolfgang Engshuber, says while the initiative will remain asset owner driven, it will benefit from the perspective of both investment manager and service partner signatories.

Perhaps one of the best ways to extend ESG into investments is for funds internally, particularly those with fewer staff, to develop a matrix for assessing external managers.

By allowing non-asset owners on to the advisory council, provided collaboration reigns, this process may be accelerated. Arguably, better and faster implementation of ESG considerations in investments will follow if service providers have buy-in to the processes and decisions of the initiative.

Clearly service providers like a bit of competition (these elections prove that). It kind of comes with the territory. But their ability to also accept, integrate and influence investment ideas should not be underestimated.