Progress for responsible finance

By Doug Watt | August 10, 2012 | Last updated on August 10, 2012
3 min read

Many institutions have recognized that environmental and social issues are investment issues, too.

By the numbers, the United Nations-backed Principles for Responsible Investment (PRI) have been a success. More than 1,000 investment institutions have become signatories since the PRI was created in 2005, with assets under management of about US$30 trillion.

In a nutshell, the principles require signatories to incorporate environmental, social and governance (ESG) issues into the investment analysis process, and to report on that integration.

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There are about three-dozen Canadian PRI signatories, including TD Asset Management, CPPIB, Ontario Teachers’ Pension Plan, OceanRock Investments, NEI Investments and Vancity Investment Management.

“[The PRI] is helping to change the narrative about the role of financial markets in society,” says Benjamin Richardson, professor and Canada research chair in environmental law & sustainability at the University of British Columbia. “It’s about your relationship to a broader community.”

Five stock exchanges have publicly committed to promoting long-term sustainable investment and improved environmental, social and corporate governance disclosure and performance among companies listed on their exchange.

The NASDAQ OMX, BM&FBOVESPA, the Johannesburg Stock Exchange (JSE), the Istanbul Stock Exchange (ISE) and the Egyptian Exchange (EGX) represent 4,600 listed companies in developed and emerging markets.

Level playing field

The PRI creates a level playing field so investors who are interested in responsible investment can feel there are others getting on the same bandwagon, Richardson adds.

“It’s definitely taken away the first-mover risk. If you look at the list of signatories and the assets behind the PRI, there’s safety in numbers,” says Mercer’s Jane Ambachtsheer, who worked with the UN to develop the PRI.

Even though the principles aren’t a household name, largely due to their focus on the institutional investment sector, Ambachtsheer says they have helped to legitimize responsible investing through the “momentum and calibre of the organizations that have gotten involved.”

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Julia Langer, CEO of the Toronto Atmospheric Fund, a PRI signatory in 2010 and 2011, says, “The PRI galvanized our intentions; it demonstrated that we were in good company.”

Sterling Rempel, CFP, Future Values Estate & Financial Planning says the PRI is a good fit with his Calgary firm’s focus on responsible investment at the retail level. Several of his clients want their investments to reflect their values.

“The PRI helps me [discover] the client’s investment preferences, whether it’s green, favouring certain companies, or excluding certain industries,” Rempel says. “I see it as a risk management tool.”

There’s more to the PRI than adherence to ESG standards.The PRI creates a forum for exchange of best practices, knowledge and peer networking, says Richardson.

Signatories have access to a broad range of tools, including the engagement-clearing house, a global repository of corporate engagements.

“A thousand different investors from around the world can log on and collaborate around an engagement, be it with the oil sands or Sudan or say-on-pay,” says Ambachtsheer.

But the PRI isn’t perfect. Richardson says codes of conduct like the PRI don’t necessarily fulfill expectations.

“There’s a lack of sanctions if you don’t perform well. The public reporting on how you perform is not stringent and not regular,” he says.

“Codes of conduct can be used as a way to forestall more credible regulation by states.”

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Ambachtsheer argues the PRI isn’t about bringing in sanctions, but rather helping members become more effective.

“If it wasn’t voluntary, it wouldn’t be where it is today,” she notes. “The intention has always been to raise the bar year after year in terms of mandatory disclosure, and signatories always have to report on what they are doing.”

Richardson would like to see some systematic, arm’s-length research that tries to assess the impact of the PRI. “We need independent research—that would be my key recommendation.”

Doug Watt is an Ottawa-based financial writer.

Doug Watt