Sustainable Investment in China | Trends in Investor Disclosure Practices

What responsible-investment information should investors disclose to the public? Should they disclose their policies and processes? How often should they engage with companies, and to what extent should they integrate ESG factors into their decision-making processes? How extensive should public reporting information be? Should it be part of investors’ regular annual reporting, or part of a separate responsible investing-related document?

Different users and stakeholders have varying opinions on what kind of responsible-investment information should be disclosed. Asset owners, for example, use the information to monitor their investment managers and report to their trustees. Consultants use the results to provide new services to investors and track the progress of their clients. Beneficiaries, such as pensioners, use this information to assess the degree of sustainability implementation within their pension schemes. However, many beneficiaries have limited knowledge and time to analyze this information, so there is a critical role for media, consumer and industry groups, NGOs, and regulators to play in informing beneficiaries and other consumers about responsible-investment information.  

In this age of transparency, investors are demanding rigorous financial and extra financial reporting from their investees. However, investors’ own reporting often lags behind (which is starting to change), and in many cases is a core part of responsible-investment activities. There are multiple benefits of reporting, which include improving investors’ own understanding of their activities and performance. Reporting also encourages greater internal tracking and oversight mechanisms, giving investors a clearer understanding of their performance. Furthermore, reporting stimulates dialogue with stakeholders, which in return can lead to more innovative investment products and services, new investment practices, and stronger investor brands. Finally, reporting is an increasingly important factor in client retention and growth as it supports increased communication with clients.

The UN-backed Principles for Responsible Investment (PRI) has provided a platform since 2006 to enable investment managers and asset owners to disclose and report on the sustainability of their processes, activities, and outputs as long-term investors. The PRI is a global initiative of investors, currently numbering more than 900 signatories with approximately US$31 trillion in assets under management, who commit to implementing the six PRI Principles. In 2011, 545 PRI signatories completed the PRI survey, with 44 percent publishing their responses online. However, the survey’s ability to provide a clear and transparent account of responsible-investment activities is more difficult with the diverse asset classes and strategies that define typical reporting activities.

To accurately measure responsible investment, the PRI aims to create a new, robust and comprehensive responsible-investment reporting and assessment process for investors. Investors have identified a real need for a reliable process to assess responsible-investment capabilities, and like all other areas of business, there needs to be clear indicators of progress, success, and accountability. While reporting may be resource-intensive, most investors recognize the importance of it, both to their own internal management of these issues, and the integrity of the PRI.

Instead of structuring the new reporting framework for investors around the six PRI Principles, the framework will focus on questions relevant to asset classes (including listed equity, fixed income, property, infrastructure, private equity, and impact investing) and whether an investor makes direct or indirect investments. This will allow stakeholders to uniformly compare investor activities by identifying leaders and laggards, and will provide investors with a way to showcase their strengths and activities in this space.

The new framework will have a significant impact on the responsible-investment industry, especially PRI signatories, where partial mandatory disclosure is being planned for 2013. The PRI recently facilitated a meeting with investors and stakeholders to gather ideas on what should be mandatory and what the consequences of increased disclosure will be. A summary of these results will be released in 2012. For the PRI and the responsible-investment industry, it is clear that investor reporting, accountability, and transparency are fundamental for the future.

By Lorenzo Saa, Head of Reporting and Assessment, UN Principles for Responsible Investment

To find out more about the PRI or how to become a signatory, please visit www.unpri.org/sign.