Sustainable responsible investment has become an emerging investment approach in recent years, especially in Europe and the United States. The concept of ESG (Environmental, Social, and Governance) was first proposed in 2004. Two years later, the Principles for Responsible Investment were developed by an international group of institutional investors and launched by the United Nations, aiming to incorporate ESG issues into investment analysis and decision-making processes. The principles have provided guidelines for investors to implement sustainable investment strategies and helped them enhance capabilities and mitigate risks. Since then, sustainable investment funds applying ESG factors have sprung up.
PRI was initiated by UN to promote ESG awareness
The Principles for Responsible Investment (PRI) is a United Nations-supported international network of investors. In 2005, Kofi Annan, the then UN Secretary-General, brought together a group of the world’s largest institutional investors to draft principles for better integration of ESG factors into the investment process. The process was convened by the UN Secretary-General, and the principles were launched at the NYSE in 2006. During the 2008-2009 financial crisis, the number of PRI signatories increased significantly. In 2013, PRI introduced a new reporting framework requiring signatories to report on their responsible investment activities annually. The six principles aim to promote the consideration of ESG issues in investment analysis, active ownership, appropriate disclosure, promotion of the Principles, and reporting progress.
Key supporters and promoters of sustainable investment
The PRI has played an important role in promoting sustainable investment practices globally. As of April 2020, there are over 3,000 signatories, including more than 500 asset owners and over 2,100 investment managers. The signatories, especially large institutional investors and asset management firms, have actively incorporated ESG factors into their investment processes and developed various sustainable investment funds and ESG integration strategies. For instance, Goldman Sachs Asset Management launched a sustainable equity fund based on ESG research framework in 2008, two years after PRI was published. Since then, leading financial institutions like UBS, BlackRock, HSBC and Allianz have joined the initiative and developed their own ESG investment offerings. The emergence of ESG indices by MSCI in 2010 has further driven the growth of the market.
Ongoing efforts to promote implementation
According to Principle 6 of PRI, the signatories should report on their activities and progress towards implementing the Principles. PRI Secretariat has taken steps to improve accountability and transparency from its signatories. In 2013, it introduced a new reporting framework requiring asset owners and investment managers to disclose how they incorporate ESG issues into investment practices annually. The new framework improved the accountability of PRI signatories and helped better align investment activities to broader interests of the society. Regional and global PRI networks also organize events and workshops regularly to facilitate knowledge sharing on ESG incorporation and responsible investment practices. The transparent disclosure and collaborative efforts have enhanced the implementation of the Principles substantially.
The Principles for Responsible Investment has established guidelines and frameworks to facilitate the incorporation of ESG factors into mainstream investment processes since 2006. As a United Nations-supported initiative, it has rallied institutional investors to become active promoters of sustainable investment. The principles have laid the foundation for the growth of sustainable investment funds applying ESG integration globally.