Sustainable Investment in China | Principle 1 and the Rise of Responsible Investment

In the past, it was rare that financial institutions considered “extra-financial” matters—such as corporate governance and climate change—relevant to investment decisions. Modern responsible investors argue that companies that take into account and manage the full range of risks and opportunities, including ESG issues, are best able to deliver long-term value for investors. Responsible investment is clearly on the rise, perhaps most obviously indicated by the number of mainstream investors now signed up to the PRI. In just three years, over 600 investors from five continents, representing around US$18 trillion in assets, have adopted and started implementing the principles.

The first of the six PRI principles requires investors to “incorporate ESG issues into investment analysis and decision-making processes.” Signatories often cite this as the most difficult principle to put into practice because the process can be different depending on to which sector, asset class, and region each investment decision pertains. For example, how valuable is a company’s management of its supply chain? Or how might a company’s high carbon emissions affect its share price over the long term? Each investor will have to develop its own process to assess the materiality of ESG issues.

Implementation examples of Principle 1 include the development of ESG-related tools, metrics, and analysis, training for trustees and investment professionals in ESG issues, and, in the case of asset owners, assessment of investment managers' capacity to incorporate ESG issues into investment decisions. Signatories often use specialized ESG research to inform their decisions, and with this in mind, the PRI Initiative recently created the "Enhanced Research Portal," a free online directory for signatories that provides an overview of ESG research in the market and supports the implementation of Principle 1.

The PRI Initiative is the first time institutional investors, fund managers, and professional service partners have developed a truly international and mutually supportive framework within which to consider and take action on the most important and material ESG issues. It is inevitable that investors will recognize and act on ESG issues over the long term, as these issues are clear drivers of long-term value. As an investor-led initiative, we welcome any Chinese investors that want to sign up to the PRI.

For more information, please contact Narina Mnatsakanian at narina.mnatsakanian@unpri.org.