For many investors, membership of Principles of Responsible Investment is just box-ticking. It can be more if signatories take the commitment seriously
Sustainability is a behavioural posture adopted by companies in order to meet the challenges and risks of an increasingly accountable world. It is part of the culture of a business, not a strategy or an agenda item. It doesn’t require a board seat or a brass plate. It is a vital, differentiated, distinguishable behaviour that exists in well-managed, forward-thinking businesses.
On its newest assembly lines BMW produces less than 50g of waste per vehicle. Less than the weight of keys and still the company has plans to reduce it further. This is a business driven by economic imperatives producing responsible accountable outcomes.
You only get better at things you measure – a mantra for workout warriors, but sage advice from business leaders who understand the economic benefits of responsible accountability. The first key step is to measure. Increasingly productive improvements evolve from there.
Efforts to create coherent and consistent metrics for measuring and analysing sustainable and responsible practices have been underway for years. At the forefront are organisations such as the Sustainable Accounting Standards Board (SASB), the International Integrated Reporting Council (IIRC), the Global Reporting Initiative (GRI) and the Sustainable Stock Exchanges Initiative (SSE), as well as the United Nations-supported Principles of Responsible Investment (UNPRI).
However, given the multiplicity of cross-border issues that exist, it will take years to gain policy mandates and decades to achieve standards. With the best will in the world, GAAP and IFRS standards, with strong backing and determination, took decades to construct. We cannot realistically expect that the many hurdles to a sustainability standard will be overcome any faster without meaningful influence.
The UNPRI holds its annual gathering of signatories in Cape Town this week. It’s no surprise. South Africa, through the King report on corporate governance and the recent Code for Responsible Investing, has emerged as a global leader in the field of responsible accountability.
As an organisation, the PRI represents 1,243 of the world’s leading financial institutions, accounting for more than $30tn in investment assets. Since its launch in April 2006, the PRI has successfully heightened awareness and created education programmes around the issues of responsibility in the investment community, the environment, our society and governance generally.
However, most of the membership struggles to recount the number of principles that make up the PRI, let alone describe any one of them in any detail. Partially a victim of its own success, the PRI for many institutions is no more than a kitemark to display on websites and marketing materials with an underlying level of commitment that is all but vacant.
Capital deployment by financial institutions represents one of the most powerful forces in our global economy. It is hard to imagine that many of the listed companies among the more than 50 regulated exchanges in the world do not have a single PRI signatory as a shareholder. The reach of the PRI is unparalleled. The potential influence to bring about tremendous change is enormous. But it is desperately under-utilised.
There is no need to amend or alter the commitment. There is no need to change the charter or adjust the principles in order to achieve enormous impact. The third principle states very clearly that all signatories will seek appropriate disclosure by the entities in which they invest.
On the basis that you get better at the things you measure, the third principle should be the first domino in a perpetuating chain reaction of measure, monitor, manage and improve. Compelling disclosure is key, it creates the necessity to measure and it is an existing PRI commitment.
This is not to say that the PRI is not contributing today. Clearly it is. Without the PRI, responsible accountability in the investment community would be far more disjointed than it is today. But the measure of progress should be tangible. According to the Corporate Register, only 6,559 of the world’s more than 50,000 listed entities produced a corporate sustainability report in 2012. Given the reach, influence and purported commitment of the PRI, this is far too few.
Ultimately, the objective of the PRI is to use the power of capital allocation to embed behaviours of responsible accountability in the companies in which we invest. Commitment is required to drive this mandate beyond the status of a kitemark. Signatories have been challenged in the past, but it’s time to take the commitment seriously and leverage the enormous power of the organisation to uphold a set of well-constructed principles whose time has come.
Gerrit Heyns is a founding partner at Osmosis Investment Management in London and a member of the UNPRI.
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