UN PRI to kick out six signatories?

The United Nations Principles of Responsible Investments (“UN PRI”) recently published the results of its annual survey showing a number of positive developments. However, some signatories have failed to live up to their reporting duties and might be de-listed.

Is this a one-off event or is the PRI getting tougher? The UN PRI, which is an investor partnership between the United Nations Environment Programme Finance Initiative and the UN Global Impact, has certainly received a fair bit of criticism in the past, for instance in regards to the fact that signatories are committed but not legally bound by the principles and that signatories are given very little guidance on how to implement the principles. Some critics have also pointed out that it would take a lot to be dropped from the list.

A quick review of the six principles
In a nutshell, the principles of the UN PRI stipulate that signatories are committed to incorporate environmental, social and governance (“ESG”) issues in their investment analysis and decision-making processes, be active owners and incorporate ESG, seek appropriate disclosure on ESG issues in target companies, promote acceptance and implementation of the principles, work together to enhance the effectiveness of the principles and finally, the sixth principles stipulates that signatories need to report on their activities and progress.

The reporting requirement suggests as possible actions that signatories report on how ESG issues are integrated within their investment practices and active ownership activities. In addition, signatories are encouraged to communicate with beneficiaries about ESG issues and the principles as well as raise awareness among a broader group of stakeholders. Importantly, signatories are required to report on progress and / or achievements relating to the principles using a “comply or explain” approach. The UN PRI surveys the signatories on an annual basis.

Some encouraging signs in the annual assessment
Last week PRI reported its annual assessment of its signatories (the full report is available on www.unpri.org). Some 300 signatories (mainly global pension funds and fund managers) were surveyed using a questionnaire with some 100 questions seeking to establish signatories’ progress in implementing the principles. This time the validity and consistency of responses were improved by one-hour verification calls where 100 signatories were given an opportunity to review, discuss and elaborate on responses to key questions.

There were a number of positive developments to report, such as the fact that the number of signatories has now reached over 560, a 25% increase in asset owners putting responsible investment elements into contracts for external investment managers and 95% of the respondents have been active owners and undertaken a large number of shareholder engagements on ESG issues. Also, it was very encouraging to see that a large number of respondents said that the financial market turmoil has had no impact on their approach.

Australian signatories have more work to do
Overall, respondents scored relatively higher on the principles of integration, active ownership and working together. As mentioned in previous blog posts, Australia has the largest number of UN PRI signatories of any country. The report which groups together signatories from Australian and New Zealand, shows that the bottom quartile score for each principle was lower than the bottom quartile in any other developed country. In other words, a relatively high proportion of signatories from Australia and / or New Zealand have more work to do in terms of implementation of the principles. Having said that, it should be pointed out that scores covered a wide range.

Six signatories to be de-listed?
According to the report some signatories failed to respond to the mandatory questionnaire and while the UN PRI has an ongoing dialogue with these, they do risk being removed from the list. This has also been confirmed by various media articles that highlight that six signatories are at risk. More information about is expected at the end of August.