What Are the UN Principles for Responsible Investment (PRI)?
Let me explain to you what the UN Principles for Responsible Investment (PRI) is—it's an international organization focused on pushing investors to include environmental, social, and corporate governance (ESG) factors in their decision-making processes.
Launched back in April 2006 with backing from the United Nations, the PRI now has over 4,900 participating financial institutions as of March 31, 2021. These institutions join by signing on to the PRI's six key principles and then submitting regular reports on how they're progressing.
Key Takeaways
You should know that the PRI is all about encouraging environmental and social responsibility among global investors. It operates on voluntary disclosures from its members, known as signatories. Today, these signatories handle over $121 trillion in assets worldwide, including some of the biggest players in the investment world.
Understanding the UN Principles for Responsible Investment (PRI)
The core idea here is that ESG considerations are crucial in investment decisions, and responsible investors need to factor them in. For instance, I believe it's both financially and ethically wrong to ignore a company's environmental impact when evaluating it as an investment. Traditionally, many investors treated these as externalities to overlook, but the PRI challenges that view.
To address this, the PRI established six core principles that signatories must commit to. Collectively, these signatories manage over $121 trillion in assets under management, including founding members like the Norwegian Government Pension Fund, the Government Pension Fund of Thailand, the Canada Pension Plan Investment Board, and the California Public Employees’ Retirement System (CalPERS).
The Six Core Principles
- Principle 1: We will incorporate ESG issues into investment analysis and decision-making processes.
- Principle 2: We will be active owners and incorporate ESG issues into our ownership policies and practices.
- Principle 3: We will seek appropriate disclosure on ESG issues by the entities in which we invest.
- Principle 4: We will promote acceptance and implementation of the Principles within the investment industry.
- Principle 5: We will work together to enhance our effectiveness in implementing the Principles.
- Principle 6: We will each report on our activities and progress towards implementing the Principles.
Example of the UN Principles for Responsible Investment (PRI)
Take Standard Life, a financial services company acquired by Manulife in 2015—it's a PRI signatory that applies ESG factors to evaluate risks and opportunities in the automobile supply chain, especially with new anti-pollution laws under consideration in the European Union.
After assessing how this legislation could affect automakers and suppliers, they adjusted their investments in that sector and raised their valuation of LG Chem, a lithium-ion battery maker. This was partly because they expect stricter emission standards to speed up the shift to electric vehicles, boosting global battery demand.
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