In April the Principles for Responsible Investment (PRI) initiative marked ten years as the world’s leading proponent of responsible investing. Launched as a collaboration between the United Nations Global Compact and the U.N. Environment Programme Finance Initiative, the PRI promotes six principles involving environment, social and corporate governance (ESG) issues that should be integrated into the investment practice. Its mission: to increase portfolio transparency and provide asset owners the information they need make informed decisions about their choice of fund manager.
Based on the numbers alone, we know that the PRI’s efforts are making headway. This past decade, the number of signatories grew to 1,500 from an initial 100. Those signatories’ assets under management now total some $60 trillion, far eclipsing the $7 million at the network’s inception.
Northern Trust, as a signatory of PRI, has embraced the PRI’s overarching themes of transparency, accountability and continuous improvement. Indeed, we use the PRI framework principles internally to formalize our ESG annual goals and set priorities, and I serve on two PRI committees.
We are far from alone in adopting these principles: Last month 500 representatives from signatories across the global financial services industry met in New York to mark the PRI’s anniversary. The conference served as testament to how far responsible investing has come. But it also was a practical reminder of how much farther we must go.
Foremost among those challenges are continuing efforts to fully integrate ESG factors into financial models. We envision an industry in which we no longer distinguish ESG products from others. In fact, our goal is to inextricably weave ESG factors into the fabric of industry standards, making them part of the investment decision-making process. There already are structures in place helping promote this message, including the Sustainability Accounting Standards Board, the U.N. Development Programme Sustainable Development Goals and the six principles of the PRI.
The PRI’s work is far from complete. We know that companies and money managers increasingly will face pressure to consider material ESG factors when investing in companies. Investors will play a key role in shaping ESG factors going forward, including providing feedback and retaining transparency in these categories. The industry will need to adopt a mind-set that takes into account broad systemic issues such as ensuring that fiduciary duties are met, creating sustainable stock exchanges, addressing climate change in portfolio analysis and increasing data dissemination.
We also expect continued push and pull between regulators and asset owners. For instance, certain panelists at the PRI anniversary event said asset owners have a responsibility to integrate ESG factors into their plans as part of their fiduciary obligations and should take these risks and opportunities into account. For that to happen, it is clear that investors will need to encourage regulation to provide incentive to companies to improve their ESG reporting and risk mitigation.
Participants also discussed simplifying the sometimes tedious task assets owners face as they navigate PRI’s accountability and transparency requirements for choosing asset managers. To address these and other issues, the PRI has scheduled workshops with its signatories in a number of locations globally to develop a blueprint for the next ten years.
Over the past ten years, the financial services industry has moved from a socially responsible investing approach to one of holistic ESG integration. We should aim to be a part of not only an environment in which investments are based on financial information from databases but also one in which investors fully understand ESG risk and opportunity characteristics.
I hope the financial services and ESG industries will continue collaborating over the next decade to more closely and meaningfully address ESG issues. Working together, we can better embrace these opportunities as not just ESG investing — but as commonsense investing.
Mamadou-Abou Sarr is global head of ESG investing at Northern Trust Asset Management in Abu Dhabi. He is a member of the PRI’s Listed Equity Advisory Committee and is chair of its Outreach Subcommittee.
