The Principles for Responsible Investment, or PRI for short, is a subsidiary of the UN established to ensure financial sustainability and responsibility globally. The primary aims of the PRI are to:
● Comprehend the consequences of environmental, social, and governance (ESG) investments
● Support the large international network of its many signatories on how to adopt such practices into their organizational and decision-making systems
The PRI was established in 2005 and has since accumulated numerous signatories worldwide. Some notable examples include TimesSquare Capital Management LLC, Hearthstone Investment Ltd, and Quinbrook Infrastructure Partners, to name a few. The UN PRI is the largest voluntary corporate sustainability initiative globally with no less than 7000 signatories spanning 135 countries, from powerhouses such as the UK, US, Australia, Canada to smaller countries like the Cayman Islands, Malta, and Namibia.
The top 5 countries that have the most registered firms affiliated with the UN PRI are:
1. US – 777
2. UK – 656
3. France – 322
4. Canada and Germany (tie) – 194
5. Australia -193
The PRI is an independent organization that encourages its investors to use responsible investment to manage their risks better and enhance their results. The PRI does not operate based on profit-gain but rather interacts with policymakers worldwide without being affiliated or biased to any one political authority. The PRI is also only supported by the UN but is not a part of the UN itself.
Many signatories have already become pioneers in ESG-related conquests, such as the Quinbrook Infrastructure partners, which have paved the way towards setting better examples for smaller and newer firms to catch up and seamlessly adopt the PRI policies.
The PRI, as aforementioned, acts as a guide for companies to align with a specific set of expectations to favor responsible and sustainable financial systems. These guidelines are known as the 6 Principles of Responsible Investment and are briefly discussed below.
Principle #1:
Including ESG-related problems into investment analysis and decision-making agendas.
This can be done by encouraging the development of ESG related tools and benchmarks, supporting academic research into this area, and calling for an improvement in training and education for investment specialists.
Principle #2:
Becoming active owners and integrating ESG complications into ownership policies and practices.
This requires transparency in the hierarchy of responsibility in firms to ensure that voting, engagement, participation, and collaboration within the company and among various firms are direct, honest, and efficient.
Principle #3:
Seeking sufficient disclosure on ESG complications by those who have invested.
This again relates to transparency, specifically with ESG issues that could be reported with annual reports, standard guidelines, codes of conduct, shareholder initiatives, etc.
Principle #4:
Promoting open-mindedness and execution of the Principles within the investment industry.
This principle relates more to corporations’ labor/ human aspect, such as communication and relationships with service providers, along with implementing incentive structures and performance indicators for ESG-related benchmarks.
Principle #5:
Collaborating to enhance effectiveness in executing said Principles.
This calls for companies to reflect on their practices and how they can be better prepared to integrate the principles within their internal systems and hierarchies.
Principle #6:
Disclosing activities and improvement towards executing the Principles.
And lastly, the final principle is fairly self-explanatory and, once again, calls for increased transparency and honesty with the progress made and issues faced during the transition to becoming accurate representations of the policies of the PRI.