Supporting Implementation

Objective 1

Support signatories in making progress towards implementing the Principles

The PRI produces guides, case studies, webinars and events to inform investors how to implement the Principles into their investment practices, in a systematic way, within each asset class.

ESG INTEGRATION AND ACTIVE OWNERSHIP

Reporting Framework respondents reporting ESG integration or active ownership activities, in internally managed assets:

78%

...against a target of 75%.

INCORPORATING CLIMATE CHANGE

Proportion of assets managed by Reporting Framework respondents reporting that they...

...sought climate change integration by companies:

AO: 63%
IM: 50%

...targeted low-carbon or climate-resilient investments:

AO: 62%
IM: 47%

...established climate change sensitive or integrated asset allocation strategy:

AO: 23%
IM: 16%

AO = Asset owners | IM = Investment managers

EMBEDDING ESG FACTORS IN CREDIT RATINGS

In May 2015, 78% of respondents to a PRI survey said that they wanted to see ESG considerations incorporated more explicitly into credit ratings.

It is important that rating agencies and investors are aligned and speaking a common language when it comes to considering ESG factors: credit rating agencies are an integral part of the world’s US$100 trillion debt capital markets, and over 400 PRI signatories invested in corporate or sovereign debt.

This is why the PRI has been bringing investors and credit rating agencies together to commit to enhancing systematic and transparent consideration of ESG factors in the assessment of creditworthiness. This work led to six credit rating agencies including S&P Global Ratings and Moody’s, and 100 investors managing US$16 trillion, signing a Statement on ESG in credit ratings.

“We, the undersigned, recognise that environmental, social and governance (ESG) factors can affect borrowers’ cash flows and the likelihood that they will default on their debt obligations.”

Rating agencies’ commitments as part of signing the statement include to evaluate the extent to which ESG factors are credit-relevant for different issuers and to publish their views on how ESG factors are considered.

The launch of the Statement marks the start of a two-year programme (funded by The Rockefeller Foundation) to bring investors and credit ratings agencies together in a series of ratings forums around the world to discuss the links between ESG and creditworthiness. The project has been initiated by the PRI with support from the UNEP Inquiry and a committee of PRI signatories that includes some of the world’s largest fixed income investors.

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RI IN FIXED INCOME

Proportion of fixed income assets for which investment manager signatories report implementing some level of responsible investment:

85%

for internally managed assets.

RI STRATEGIES IN FIXED INCOME

Proportion of fixed income assets for which investment manager signatories report implementing the following responsible investment strategies:

Screening: 74%
Integration: 66%
Themed: 22%

for internally and actively managed assets.

 


 

SUPPORTING THE NEXT LEVEL OF INTEGRATION IN LISTED EQUITY

Guiding signatories on how to integrate ESG factors into listed equity analysis, 2013’s Integrated Analysis became the PRI’s most-read publication, and a responsible investment industry landmark.

We have been creating a brand new edition, which will be the most comprehensive description to date of what ESG-integrated analysis is, and how it works in practice.

The guide contains information and case studies on integration techniques that apply to investment strategies including fundamental, quantitative, smart beta and passive investment. It assists asset owners and investment managers with constructing investment processes that include integration techniques, and with how to monitor that integration’s impact. A chapter on sell-side investment research maps out the types of ESG-integrated sell-side research available, and demonstrates sell-side brokers’ integration techniques.

“Anticipating that ever-more momentum will make ESG integration standard practice, the PRI hopes this guide will assist signatories and the investment industry as a whole in preparing for the new norm.”

ENGAGEMENT EFFECTIVENESS

Average number of changes or commitments to change per company engaged with, for...

...individual engagements:

AO: 0.14
IM: 0.13

...collaborative engagements:

AO: 0.35
IM: 0.22

...service provider engagements:

AO: 0.32
IM: 0.27

AO = Asset owners | IM = Investment managers

RI IN LISTED EQUITY

Proportion of listed equity assets for which investment manager signatories report implementing some level of responsible investment:

100%

for internally managed assets.

RI STRATEGIES IN LISTED EQUITY

Proportion of listed equity assets for which investment manager signatories report implementing the following responsible investment strategies:

Screening: 79%
Integration: 81%
Themed: 32%

for internally and actively managed assets.

PORTFOLIO CONSTRUCTION

Reporting Framework respondents reporting ESG integration in portfolio construction/fair value analysis in listed equity:

47%

...against a target of 60%

ACTIVE OWNERSHIP

Reporting Framework respondents reporting active ownership activities in listed equity:

66%

...against a target of 70%

VOTING DISCLOSURE

Reporting Framework respondents reporting how they disclose voting activities:

Public: 56%
Clients*: 21%
None: 23%

*Clients/beneficiaries

 


 

A NEW BREED OF TOOLS FOR PRIVATE EQUITY

Limited partner (LP) signatories, like all asset owner signatories, are required to report on their ESG incorporation practices for the three stages of selecting, appointing and monitoring their investment managers. The PRI has been building tools to support them in doing this, and to create consistent approaches across the industry.

The first of those is now out. Aimed at the selection phase, the LP responsible investment DDQ is an adaptable list of questions that LPs can ask general partners (GPs) pre-commitment to understand and evaluate how GPs integrate material ESG factors into their investment practices.

It is accompanied by a guidance document to enhance LP-GP dialogue, including more developed questioning, short case studies that demonstrate the market relevance of the due diligence questions, and pointers to relevant publicly available resources.

“Q2.5 During deal structuring, what is the process for integrating ESG-related considerations into the deal documentation and/or the post-investment action plan?”

Following the launch of the LP responsible investment DDQ covering ESG considerations in manager selection, the PRI is working with signatories to develop an appointment tool covering how to incorporate responsible investment considerations into limited partnership agreements and/or side letters.

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RI IN ALTERNATIVES

Proportion of assets in alternative asset classes for which investment manager signatories report implementing some level of responsible investment:

Property: 93%
Private equity: 73%
HF*: 26%
Infrastructure: 79%
Other**: 31%

for internally managed assets.

*Hedge funds

**Forestry, farmland, inclusive finance and commodities

 

 

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