The Principles for Responsible Investment (PRI) have launched a new reporting framework that is designed to enhance the transparency of disclosures by asset owner and investment manager signatories.
Signatories will be required to publicly report each year on their implementation of the PRI’s six principles across a wider range of asset classes and investment activities, including voting and engagement; manager selection, appointment and monitoring; and the integration of environmental, social and governance (ESG) factors into investment decision-making processes and ownership practices. PRI has said that they expect signatories to use the new reporting framework by mid-2014, and that signatories that do not use the new framework will be delisted in the second half of 2014.
“Calls for the global investment community to be more transparent about how it is responding to the governance and sustainability challenges that define our era have grown louder since the financial crisis,” said Wolfgang Engshuber, chair of the PRI Advisory Council. “The PRI has responded with the launch of this new Framework, which will enable institutional investors to demonstrate how they are embedding material ESG factors into their processes and working to strengthen the governance of companies and the market as a whole.”
The reporting framework has more than 220 indicators across 12 modules, requiring disclosures from signatories about policies and practices in asset class-specific modules covering listed equities, fixed income, private equity, property, infrastructure, and inclusive finance. PRI said an average signatory will need to complete five modules and 75 indicators. Signatories will begin reporting from 1 October and have until 31 March 2014 to submit their responses.
“Responsible investment is one of the fastest growing investment trends of the 21st century and robust reporting on ESG integration, voting and stewardship activity is essential if the financial services industry is to win back the trust of its stakeholders,” said Fiona Reynolds, managing director of the PRI. “This information will improve the dialogue between companies and investors about the real drivers of long-term performance, risk and return, and help asset owners more effectively evaluate and select managers, ensuring the investment chain functions effectively for clients and beneficiaries.”
While many signatories have made “good process” in implementing the PRI principles over the first five years of the previous reporting and assessment process, much deeper implementation is needed for signatories to fulfil the PRI’s mission, said Lorenzo Saa, head of reporting and assessment at the PRI.
“A new layer of public transparency built into the framework will allow each signatory to evidence how its activities and interests are aligned with those of its clients, and help the market recognise and reward those investors that have truly embraced responsible investment,” Saa said. “An annual assessment of each signatory’s progress implementing the principles, year-on-year and relative to their peers, will act as a learning tool and help them determine which areas and activities they need to improve.”