UN PRI raises the ESG bar for signatories

4 min read
Tessa Walsh

The UN-backed Principles for Responsible Investment has launched a three-year strategy that aims to raise the bar for signatories as the influential body steps up its drive to develop a sustainable global financial system.

The ambitious 2021–24 Strategic Plan will strengthen the connection between financial risks and their impact in the real economy as sustainable financing continues to move into the mainstream.

The PRI has 3,600 signatories, managing more than US$100trn in assets, which represents more than half of the world’s institutionally managed funds, and the strategy is the second launched under its 10-year Blueprint for Responsible Investment.

“Our aim is that all investment is responsible investment. It’s not niche and it’s impacting all aspects of capital markets,” said Fiona Reynolds, CEO of the PRI.

The strategy will focus on climate change by encouraging more asset owners to make net-zero commitments, which the PRI sees as its most important work if the world is to meet the Paris Agreement’s 2050 emissions reduction targets.

“We’re running out of time on climate change and we have to get serious net-zero commitments and get people moving now. This is a really critical period on the environmental side,” Reynolds said.

The PRI is extending its work on ESG incorporation and stewardship in less developed areas such as fixed income and private equity, as well as listed equities, and is also planning a collaborative engagement on human rights.

“There is a huge focus on fixed income, including how you engage on the corporate and sovereign side and how you do stewardship,” Reynolds said.

The PRI has 807 private equity signatories, which includes investment managers that invest in private equity or venture capital, either directly or in funds of funds. It also has 79 general partners that have joined in the last 12 months.

Four of the world’s top 10 private equity firms have yet to sign up – Blackstone, The Carlyle Group, Advent International and Warburg Pincus – and the PRI is intending to keep up the pressure.

The remaining six private equity firms in the top 10, KKR, TPG, Neuberger Berman, CVC, EQT and Vista, are already signatories.

“We need to have more private equity investors,” Reynolds said.

Raising the bar

The PRI is changing the criteria for its signatories, increasing minimum requirements with a new reporting framework that will also highlight leadership.

The reporting framework is beefing up accountability by including a section that will assess outcomes, which will make it harder to achieve a higher score.

“Increasing the accountability of our signatory base will be key to tackling risks of greenwashing,” Reynolds said.

The PRI wants to introduce more leadership programmes after success with the Net Zero Asset Owner Alliance, a group of 35 institutional investors with US$5.6trn of assets under management.

The group has committed to transition their portfolios to net-zero emissions by 2050 and set interim targets for 2025 and it recently published guidance to help asset owners engage with managers’ climate-related proxy voting.

Although the PRI prefers to work with a broad group of signatories, it can remove those that fail to meet minimum requirements, and delisted five groups in September that did not report.

The organisation is also working globally to ensure that legal frameworks keep pace with governments’ commitments to the Paris Agreement and the UN’s Sustainable Development Goals, and do not clash with fiduciary duty. It is also designing an SDG framework.

The PRI’s latest three-year strategy is designed to increase sustainability in financial policy and regulation globally, which it regards as one of its biggest wins, as it continues to push for harmonisation.

“I think where we’ve been successful is trying to bring responsible investment into the mainstream and embedding sustainability in financial regulation,” Reynolds said.