What’s the UNPRI?
The United Nations-supported Principles for Responsible Investment, or UNPRI, refers to an effort by a group of investors to get funds and asset owners to support six key principles for sustainable investing.
It’s part of a broader trend toward responsible investing, which includes a push toward ESG investing (incorporating environmental, social and governance considerations into the decision making process).
What are the six principles?
The six principles, which were developed by a worldwide group of institutional investors at the request of the United Nations, are as follows:
Principle 1: Incorporate ESG issues into investment analysis and decision-making processes.
Principle 2: Be active owners and incorporate ESG issues into ownership policies and practices.
Principle 3: Seek appropriate disclosure on ESG issues by the entities in which you invest.
Principle 4: Promote acceptance and implementation of these principles within the investment industry.
Principle 5: Work together to enhance the group’s effectiveness in implementing the principles.
Principle 6: Report on your activities and progress towards implementing the principles.
It’s important to note that while the principles are supported by the United Nations, the PRI is an independent organization and not part of the UN.
Who’s signing on?
The principles are a set of guidelines for investors to try to incorporate ESG into their decision-making. Although they are voluntary, an increasing number of clients are asking fund managers if they’ve signed on. The idea is that by signing on to the PRI, investors are publicly committing to uphold these values. Asset owners, investment managers and service managers can all become signatories.
There are currently more than 1,800 signatories to the UNPRI, a big jump from the 100 involved when the principles were launched in 2006. Signatories have to pay a fee, which helps to fund the initiative, and engage in proper reporting.
What should you keep in mind before becoming a signatory?
While ESG investing is growing in popularity, the industry lacks a set standard for measuring impact, so results can be hard to tally.
Some signatories to the PRI have also fallen short of their commitments and have been put on notice that they must meet minimum requirements to stay in the group. This has led to concern that some may be signing up without changing their behaviour, and may be either failing to follow the principles, or to sufficiently increase their commitment to ESG over the years.
One of the key misconceptions around joining the PRI is that the principles could be restrictive. They’re not meant to hold anyone back, although they do create obligations for firms around reporting and presenting certain information to the PRI.
That allows the organization to track the practices of its signatories and help them fulfil the six principles, as well as share information about how other funds are approaching ESG investing, which can be helpful for the ones who aren’t as far along in the process.