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What are PRI Standards and how can the company integrate them?

PRI Standards

The UN Principles for Responsible Investment (PRI) is indeed a global organization that promotes the incorporation of environmental, social, and corporate governance (ESG) factors into investment decision-making. The PRI was launched in April 2006 with UN support and currently has over 2,700 participating financial institutions as of August 2021. These institutions participate by signing on to the PRI’s six key principles and then reporting on their progress regularly. The organization’s central point of view is that environmental and social considerations are important factors to consider when making investment decisions and should thus be considered by responsible investors. To combat this prevalent attitude, the PRI has proposed six core principles to which participating companies have agreed to commit.

These six principles, as stated on their website, are as follows:

  • Principle 1: ESG issues will be incorporated into investment analysis and decision-making processes.

Possible Actions

  • Include ESG considerations in investing policy declarations.
  • Contribute to the creation of ESG-related tools, measurements, and analysis.
  • Evaluate internal investment managers’ ability to integrate ESG problems.
  • Analyze external investment managers’ ability to integrate ESG problems.
  • Request that investment service providers (such as financial analysts, consultants, brokers, research firms, or rating businesses) incorporate ESG factors into their ongoing research and analysis.
  • Encourage academic and non-academic study on this topic.
  • Encourage investing professionals to participate in ESG training.
  • Principle 2: As active owners, we will incorporate ESG considerations into our ownership policies and practices.

Possible Actions

  • Create and declare an active ownership policy that adheres to the Principles.
  • Use your vote privileges or keep an eye on compliance with voting regulations (if outsourced)
  • Create a capability for engagement (either directly or through outsourcing).
  • Participate in policy, regulatory, and standard-setting formation (for example, supporting and defending shareholder rights).
  • File shareholder resolutions that are compatible with long-term ESG concerns.
  • Engage with businesses on ESG problems.
  • Participate in efforts for collaborative engagement.
  • Request that investment managers engage in ESG activities and report on them.
  • Principle 3: We will seek appropriate ESG disclosure from the entities in which we invest.

Possible Actions

  • Request standardized reporting on ESG problems (through instruments like the Global Reporting Initiative).
  • Request that ESG problems be included in yearly financial reports.
  • Inquire with corporations about their adoption/adherence to applicable norms, standards, codes of conduct, or worldwide initiatives (such as the UN Global Compact)
  • Encourage shareholder actions and resolutions that promote ESG transparency.
  • Principle 4: We will promote the principles’ acceptance and implementation within the investment industry.

Possible Actions

  • Include requirements relevant to the Principles in calls for bids (RFPs)
  • Align investment mandates, monitoring methods, performance measures, and incentive structures properly (for example, when applicable, ensuring investment management systems reflect long-term time horizons).
  • Inform investing service providers about your ESG requirements.
  • Examine partnerships with service providers who fall short of ESG requirements.
  • Aid in the creation of instruments for measuring ESG integration.
  • Encourage regulatory or policy changes that will allow the Principles to be implemented.
  • Principle 5: We will collaborate to improve our effectiveness in putting the principles into action.

Possible Actions

  • Participate in networks and information platforms to exchange tools, pool resources, and use investor reporting as a learning tool.
  • Address important emerging challenges together
  • Create or fund relevant collaborative efforts.
  • Principle 6: We will each report on our activities and progress in putting the principles into action.

Possible Actions

  • Explain how ESG considerations are incorporated into investment procedures.
  • Declare active ownership actions (voting, participation, and/or policy discourse).
  • Explain what is expected of service providers regarding the Principles.
  • Inform beneficiaries of ESG problems and the Principles.
  • Using a ‘Comply or Explain’ approach, report on progress and/or successes related to the Principles.
  • Investigate the influence of the Principles.
  • Use reporting to increase awareness among a larger set of stakeholders.

How to integrate PRI

Companies that sign the PRI demonstrate their responsibility and commitment to incorporating ESG factors into investment decision-making and ownership. PRI is a network of international investors who work together to put six principles into action. These measures reflect the belief that ESG issues can harm investments. In addition, over 1550 investment institutions are currently under management, with approximately 60 trillion dollars in assets.

The Principles for Responsible Investment (PRI) has published guidance for asset owners on how to incorporate beneficiaries’ decisions on environmental, social, and governance (ESG) problems into their investments. The PRI has devised a four-step procedure for financial businesses to help to comprehend and incorporate their customers’ beliefs, as well as the advantages of investing sustainably. The four-step process is recommended as follows:

  1. Define engagement objectives– Asset owners should be clear about the knowledge they want to acquire and share, as well as the investment strategies they are willing to modify in response to beneficiary criticism.
  2. Engage Beneficiaries– To solicit beneficiary preferences, asset owners should use a combination of measures such as surveys, group discussions, conversations, beneficiaries’ involvement with trustees, information and analysis, and analyzing beneficiary initiatives. PRI also suggests solutions for overcoming typical obstacles such as communication barriers, poor beneficiary participation, and insufficient provision.
  3. Put preferences into practice– To solicit beneficiary preferences, asset owners must use a combination of measures such as survey data, focus group discussions, personal interviews, beneficiary representation on trustee boards, research and data analysis, and understanding of beneficiary campaigns. PRI also suggests solutions for overcoming typical obstacles such as information gaps, poor beneficiary participation, and inadequate capacity.
  4. Report back to beneficiaries– Asset owners may incorporate beneficiary preferences into their investment strategies in a variety of ways, including changing capital allocations, allocating more reserves to corporate and policy involvement on priority issues, and impacting sustainability outcomes. Asset owners should also convey to their service providers the important goals identified through beneficiary involvement, and include beneficiary preferences in the asset management selection, appointment, and monitoring procedures.

PRI Membership

PRI signatories must meet specific add’l minimum standards in addition to integrating all or some of the PRI principles. Failure to abide by these prerequisites once an early-stage period could outcome in the signatory being delisted as a PRI signatory, which may have negative public relations consequences for the former signatory. Signatories to the PRI must, in relevant part,

  • Membership Fee – Pay a subscription based on the assets managed.
  • Annual Report – Prepare an annual report on the signatory’s responsible investing activities using the PRI’s “framework.” The framework includes mandatory sections for all signatories4 and asset class-specific modules that must be completed if applicable. Each question is designed to identify relevant indicators, form a peer group, and evaluate the signatory’s ESG policies and procedures.
  • Responsible Investment Policy – Adopting a responsible investment policy outlining the signatory’s approach to responsible investing allows this policy to account for more than half of the signatory’s AUM.
  • Accountable Staff – Assign a few individuals responsible for carrying out the principles at the signatory. These individuals may have additional responsibilities within the organization.
  • Senior-level Commitment and Accountability – Create mechanisms to implement the responsible investment policy and related procedures, including senior-level oversight and accountability. Many investment managers achieve this by establishing a formal committee to oversee the responsible investment policy.

It is crucial to recognize that the PRI requirements are intended to encourage collaboration and continuous improvement of best practices among investment managers who are committed to responsible investing. They do not establish requirements.

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