Sustainable Investment in China | The Future of Responsible Investment

With assets under management at the UN-backed Principles for Responsible Investment (PRI) now at US$ 30 trillion, it is timely, five years after the initiative’s launch at the New York Stock Exchange, to assess the future of the UN PRI and responsible investment. BSR spoke with James Gifford, the PRI’s executive director to learn more.

Where does the responsible investment movement stand in 2011?

Although more than 900 institutions are now committed to the six PRI principles, I believe responsible investment is still at a relatively nascent stage. However, the next five years will bring significant changes in attitudes, knowledge, and incentives to help make responsible investment mainstream.

What do you think will catalyze progress?

Certainly, climate change is one area where we see policymakers slowly starting to address emissions on a global scale. Other ESG-related trends will emerge, including: demographic changes in youth and aged markets, human rights, water and food security, and increased regulation and transparency of financial markets.

How may this affect responsible investment?

We are likely to see better support for the ESG research industry, local social investment forums, climate change investor groups, corporate responsibility initiatives such as UN Global Compact, and reporting organizations such as Global Reporting Initiative. This growth in research and networks will allow investors to improve analysis of company risks and opportunities; benchmark more accurately against peers; and make ESG integration faster, efficient, and more accurate.

In what area of responsible investment have you seen the most progress?

We’ve seen the most progress in shareholder engagement with companies—the second PRI principle—which is no longer limited to activist investors. Over recent years, mainstream asset owners and investment managers, in collaboration with their peers, have worked to ensure companies are managing ESG issues and meeting stakeholder expectations.

In the next few years, shareholder engagement will be both proactive and reactive prompted by growing ESG awareness and regulation and focusing on systemic issues across regions and industries. These engagements will continue to be supported by the PRI’s Engagement Clearinghouse, which over the last four years has facilitated more than 300 shareholder collaborations on issues such as sustainability reporting, supply chain labor standards, human rights, and carbon emissions.

Where do you think we will be five years from now?

All trustees, including charities and endowments, will be expected to include ESG issues in their investment mandates with their asset managers, and proxy voting and shareholder resolutions will become a cornerstone of many policies. This will produce a tipping point where shareholders are working routinely with other investors on critical sustainability issues and driving performance to everybody’s benefit.

The future is not just making responsible investment mainstream, but ensuring mainstream investors are more responsible.

To view the six Principles for Responsible Investment, visit the PRI website.