Principles in Practice
Principles for Responsible Investment CEO David Atkin reflects on the industry’s progress, new strategies, and efforts to bring governments and the global investment community closer together.
With responsible investing having evolved from a niche strategy to a global trend over the past two decades, significant tailwinds have driven growth in membership of the UN Principles for Responsible Investment (PRI), as asset owners and managers increasingly recognise the importance of incorporating ESG risk and performance.
“We’ve seen greater engagement from the investment community which wants to make good decisions about long-term value creation and address systemic risk,” the PRI’s CEO David Atkin told ESG Investor. “By taking a responsible investment approach, they will be in a better position to identify risks, as well as opportunities.”
But the favourable shift in investors’ consciousness has been buffeted by global headwinds of late, including the changing geopolitical environment and energy shortages, a cost-of-living crisis, rising inflation and interest rates, and the politicisation of ESG – particularly in US. The risk of greenwashing has also been a growing concern.
The PRI remains a beacon of best practice for institutional investors in a fast-changing and uncertain world, Atkin maintains.
“We are a global organisation that covers all ESG issues, and acts as a depository of knowledge and experience that signatories can tap into,” he said.
New strategy
The PRI has doubled in size from 2019 to 2023 and now has 5,300 signatories in 100 countries, representing about half the global institutional capital space. It covers all types of asset managers and strategies, as well as various kinds of asset owners – including insurance firms, banks and sovereign wealth funds, expanding from its traditional pension fund base.
This more diverse membership spurred the PRI to revise its strategy, Atkin explained. Its 2024-2027 plan, released last month, was the culmination of 18 months of intense conversations with signatories.
An important feedback that PRI received through the consultation was that there is no one way to do responsible investing.
“We need to understand the local context better than we did previously,” said Atkin. “Our priorities are dependent on countries’ geography, regulatory environment and economic structure. As such, we need more resources on the ground.”
The new strategy promotes four key priorities: right-sizing the mandatory reporting regime to make it less onerous; ensuring that signatories continue to be brought together to work on common areas of interest; extending its work in both developed and emerging markets; and recognising the role the PRI plays in bringing global best practice policy into governmental review processes.
“We’ve had this bottom-up response from investors for many years, and now we’ve got top-down architecture being put in place by governments and regulators around the world,” said Atkin. “Investors are advocating that a practitioner’s perspective needs to be brought into the formulation of regulation for it to be implementable. Or that if the policy already in place is not fit for purpose, then there should be room to reshape it.”
Ecosystem engagement
The PRI plans to use the upcoming sustainability-related summits and conferences – Climate Week NYC, PRI in Person and COP16 and COP29 – to showcase and support investor action on net zero, climate resilience and a nature-positive future, as well as raise ambition across the community in each area.
A key message the PRI is looking to convey is that private capital on its own can’t solve the global sustainability issues. According to Atkin, the interplay between public policymaking and private capital – which the PRI focuses on – is reaching an important stage.
“Overall, we need to be creating an enabling environment from the public-policy perspective that allows sustainable capital to scale up,” he explained. “Delayed action on climate change is creating material risks for investors and the economy. Governments must facilitate and, frankly, do more than they have done to facilitate investor efforts.”
Associated with the UN General Assembly, Climate Week NYC presents an opportunity for investors to gain access to government officials, including through platforms such as Sustainable Investment Forum North America and the UN Global Compact Leaders Summit.
The network’s own conference, PRI in Person, enables investors to liaise, debate and listen to examples of best practice. The PRI also uses the event to work in a more collaborative way with governments and policymakers. Ahead of last year’s conference, it reached out to the Japanese government to encourage dialogue with international investors.
“We gave the Japanese government a platform to explain what the country is doing around sustainability and systemic risk, and the government seized the opportunity [to engage],” said Atkin. “The prime minister made substantive policy announcements to create a more attractive environment for investment in the country’s energy transition.”
Importantly, this was an example of a whole-of-government response that involved Japan’s then-minister of the economy, trade and industry. The government hosted 30 side events around the conference to outline its ambitions, while leaders from hard-to-abate sectors spoke of the challenges they faced in transitioning to net zero by 2050 and investments needed to scale up innovations already underway.
“That was a good example of how industry, governments, and local and international investors all have a role to play [and can collaborate],” said Atkin.
Through dialogue, the PRI is hoping to help governments understand that those who create the right policy and environment will attract capital. This year, PRI in Person will be held in Canada – a commodity-based economy facing its own challenges in developing a transition pathway.
“We have offered the Canadian government a platform to tell its story to international investors, which has been well-received,” said Atkin. “Capital is mobile. Investors need to be clear why they should invest in your transition versus another country’s.”
Climate and nature
Atkin may not have attended a biodiversity COP previously, but this year he will be in Cali, Colombia, for COP16. Past discussions with investors have helped him notice the global consensus forming around the idea that solving climate change won’t be possible without also addressing nature loss.
“The challenge for investors is that nature and biodiversity aren’t like climate, as they are localised and don’t have a simple number you can work back from,” he said. “But through responsible investment policies, stewardship practices and engagement with regulators, we can inform the policies that governments are putting in place.”
The PRI will showcase its Nature Policy Roadmap in Cali, which discusses policy reforms and instruments that can enable investors to effectively address nature risks and economic transition through a whole-of-government approach.
“Governments should clarify the relevance of investors’ role in addressing nature issues, and regulators should implement robust corporate and investor duty regimes to manage and address nature-related factors,” said Atkin. “This should involve incentivising the development and disclosure of entity-level transition plans.”
At COP29 in Baku, Azerbaijan, governments will have a chance to progress on key climate issues, including phasing out fossil fuel, accelerating the ramp-up of renewable energy sources, closing the funding gap, and getting adaptation on track, said Atkin.
Importantly, policymakers will be negotiating a new collective quantified goal on climate finance to replace the existing goal of US$100 billion per year, set in 2009.
“We should accelerate capital mobilisation towards mitigation and resilience in emerging markets and recognise the important role of non-party stakeholders, as well as multilateral fora such as the G20 [Group of 20],” he said.
While there have been debates around bringing the two COPs together, Atkin believes nature needs a separate focus from climate at the current juncture – because biodiversity is a nascent area that many are just beginning to understand. “However, there will need to be a convergence to solve these issues and others, such as a just transition,” he added.
Pointing to the example of South Africa, where climate is an urgent matter and the country working on a number of initiatives, Atkin said there was also a recognition of the risk of stranded communities.
“The just transition piece is critically important for them,” he explained. “The need to integrate different parts of the puzzle into one holistic plan is clear. Therefore, over time, to have a properly integrated approach, you will need to have one process bringing it all together.”
Thinning ranks?
Attending Climate Week NYC should also allow Atkin and many other investment professionals to take the political temperature ahead of the upcoming US elections – particularly with regards to the backlash against sustainability that has tinted the landscape in recent years.
Atkin attributed the mounting anti-ESG rhetoric to parts of the fossil fuel industry fighting back against climate policymaking.
“They have catalysed the Republicans to focus on investors working together to have a dialogue with fossil-fuel companies around their business models, saying it is anti-competitive,” he said. “However, these initiatives are following the law, so there is no risk that investors are being asked to contravene their duties.”
Yet, there is a cost to business for asset managers operating in the US, several of which have been subpoenaed or sent letters by House of Representatives committees or state attorneys. Mindful of the pressure they face, which has already forced many of them to leave initiatives such as Climate Action 100+ (CA100+), Atkin prefers to focus on the bigger picture
He points out that numbers continue to swell in CA100+: while it had 30 voluntary withdrawals, 85 new signatories have joined since July 2023. “It’s still seen as an important way that investors can work together to engage with companies on climate,” he said.
If an asset manager believes that climate change is a material risk, they have a fiduciary responsibility to continue to work on it, Atkin insisted – even under sustained political pressure.
“If they stopped working on these issues, they would open themselves to fiduciary risk, but that’s not what we’re seeing,” he explained. “Even asset managers who have pulled away are continuing to work in these areas. Importantly, they’ll be tested by asset owners who allocate mandates and want to know they address these risks.”
To date, the PRI hasn’t experienced the same pressure on its membership as the CA100+, Atkin observed – further highlighting the need for the PRI to evolve to stay relevant.
“Our role will continue as long as we are a valuable investor association representing our members’ views around the globe.”
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