UN Principles of Responsible Investment 2013 Update – Progress so Far

The UN Principles for Responsible Investment Initiative (UNPRI), representing in excess of US$8 trillion in assets under management, this week published two new reports to help investors further develop their incorporation of environmental, social and governance (ESG) factors into investment decision making.

The UNPRI is the main international framework for promoting the value of environmental, social and governance issues as part of investment processes.

The European launch of PRI took place in 2006 led by James Plaskitt, Under Secretary for the UK Department for Work and Pensions in Paris. There are now 1169 signatories to the UNPRI, representing a broad base of asset owners (fund managers, advisers, insurance companies etc).

During the first four months of 2007 more than 40 investors signed up including AP1, AGF Asset Management, JPMorgan Asset Management, HSBC Investments and Scottish Widows Investment Management.

The two new reports are in relation to ‘Integrated Analysis’ and the topic of ‘Aligning Expectations’ regarding how investors are addressing ESG factors in fundamental equity valuation and to provide guidance for asset owners on incorporating ESG factors into their manager selection, appointment and monitoring.

The reports provide an overview of the breadth and quality of analysis being undertaken by institutional investors today and will help future asset owners determine whether their managers are addressing them in line with their expectations.

According to Neil Brown, Chair of the PRI’s ESG Integration Working Group and SRI Fund Manager at Alliance Trust: “Successful investment requires a thorough analysis of risk and reward and ESG issues are critical to the assessment of both,” “This report shows unequivocally that integrated analysis can be done and is being done by some of the world’s largest financial institutions.”

According to James Gifford, Executive Director of the PRI Initiative: “Asset owners’ beliefs and expectations about how ESG issues should be managed and disclosed to best contribute to portfolio returns vary across asset classes and over time. The incentives and behaviour of investment managers are often not fully in line with these,” . “Ensuring these interests are better aligned is a fundamental requirement for the delivery of a sustainable financial system, and is central to

Preparation of the Integrated Analysis Report included interviews held with 17 brokers, research providers and investment managers in order to draw out best practice examples. Case studies include economic analysis, industry analysis, company strategy, financial reports and valuation tools. Quantitative case studies included financial reports and valuation tools. UBS research findings included used 2010 examples taken from a range of Industries including Aerospace, Airlines, Alternative Energy, Autos, Banks and Beverage.

John Ditchfield with Jessica Yorke, writing in a personal capacity

More information on the UNPRI initiative can be found at: http://www.unpri.org/