The UN Principles for Responsible Investment (PRI) is an international initiative championing the integration of environmental, social, and corporate governance (ESG) factors into investing practices. Launched in April 2006 with support from the United Nations, as of March 31, 2021, the PRI boasts over 4,900 participating financial institutions. These participants, known as signatories, commit to six foundational principles and regularly report their progress.
Key Takeaways
- The PRI encourages investors globally to embrace environmental and social responsibility in their investment strategies.
- Signatories voluntarily disclose their activities and progress, fostering transparency and accountability.
- PRI signatories manage assets over $121 trillion worldwide, including some of the most significant investors globally.
Embracing Responsible Investment Philosophy
The PRI centers on the belief that considering environmental and social impacts is essential in investment decision-making. For instance, PRI advocates argue that neglecting the environmental footprint of a company when evaluating it as an investment is both financially and ethically misguided. Traditionally, many investors viewed environmental and social impacts as negative externalities, sidelining them from investment considerations.
To challenge this outdated perspective, the PRI established six core principles for signatories:
- Principle 1: Integrate ESG issues into investment analysis and decision-making.
- Principle 2: Be active owners and incorporate ESG issues into ownership policies and practices.
- Principle 3: Seek appropriate ESG disclosure from entities in which they invest.
- Principle 4: Promote acceptance and implementation of the Principles within the investment industry.
- Principle 5: Collaborate to improve PRI effectiveness.
- Principle 6: Report on activities and progress toward PRI implementation.
Signatories to these principles collectively hold over $121 trillion in assets under management, featuring prominent institutions such as the Norwegian Government Pension Fund, the Government Pension Fund of Thailand, the Canada Pension Plan Investment Board, and the California Public Employees’ Retirement System (CalPERS).
Empowering Investment Through Real-World Examples
Consider the financial services company Standard Life, now part of Manulife. As a PRI signatory, Standard Life leverages ESG factors to evaluate risks and opportunities in the automobile supply chain. For example, in light of upcoming anti-pollution legislation by the European Union, they reassessed their investments in the automobile sector.
After thorough analysis, Standard Life adjusted their investment strategy, positively revising the valuation of the lithium-ion battery producer LG Chem. This decision stemmed from the conviction that stringent emission standards would accelerate the shift to electric vehicles, boosting global demand for batteries.
Experience how the UN Principles for Responsible Investment (PRI) can elevate your investment strategies, align them with ethical standards, and pave the path toward a more sustainable future.
Related Terms: Environmental, Social, and Governance Factors, Assets Under Management, Negative Externalities.
References
- Principles for Responsible Investment. “Signatory Update Jan to March 2022”, Page 30.
- Principles for Responsible Investment. “Signatory Update Jan to March 2022”, Page 31.
- Principles for Responsible Investment. “What Are the Principles for Responsible Investment?”
- Principles for Responsible Investment. “Signatory Directory”.
- Principles for Responsible Investment. “RI Transparency Report 2020: Manulife Investment Management”, Page 31.
- Principles for Responsible Investment. “A Practical Guide to ESG Integration for Equity Investing”, Page 18.
