The principles of responsible investment – a short series. The future

UNPRI is a set of six aspirational and voluntary principles, which we have explored over the last nine days. As more and more asset owners and managers become signatories, representing ever more trillions of investment, we ask, will it make a difference?

The short answer is yes.

Anything that draws attention to the direct connection between investment and its real world impacts, on the environment and society, has to be a ‘good thing’. The connection between what you invest in and the world we are creating has been ignored for too long. UNPRI makes environmental, societal and corporate governance issues a core area for signatories to consider in their investments. Awareness and engagement are the first step towards creating investment that is more responsible.

The longer answer is maybe.

Trillions still flow into companies and activities that have no regard for their impact on environment and society, or do not conform to good corporate governance norms. Many of them are signatories to UNPRI. The current model of irresponsible investment has enormous momentum, which creates a conscious and unconscious resistance to new models.

In addition, the majority of investment activity takes place in the speculative and unproductive areas of currency trades and derivatives. For every £1 of stocks and shares trading, £11 is traded in currency and £7 in derivatives. The huge flow of funds in these areas have dramatic real world effects on societies by creating exchange rate, share and commodity price fluctuations. They affect the environment by changing the nascent green priorities and policies of governments. Can such trades ever be responsible where their only motive is profit?

If responsible investment is to take hold in the timescales our planet and its people require, we will need something far more binding and urgent than aspirational principles, although they are a very good place to start. Our climate, resource scarcity and environmental degradation do not have the luxury of time.

Principles 3 (disclosure of investment ESG performance) and 6 (reporting of asset owner/manager ESG progress) really come into their own here.

Increasing disclosure about the ESG behaviour of companies that have been invested in allows investors to make informed choices. More reporting on the progress made by asset owners and managers in making ESG issues core to investment decisions and ownership allows investors to make informed choices. Naming those who do not sign up to the principles would be a very powerful stick although this probably goes against the spirit and ethos of organisation and its voluntary nature. Maybe it is for others, such as Blue & Green Tomorrow, to do the naming and shaming of those who do not sign up to the principles.

We would like to see some public acknowledgment of those that excel at the principles. By promoting the ideal type, we may encourage others to raise their own standards.

Industry awareness and engagement will only go so far. Preaching to the converted similarly has limited scope for making a difference. The profile needs to be far higher amongst the unconverted to make the difference that is required.

Governments and political parties on a local, national, and intergovernmental level should be encouraged to sign up to the principles as they represent the policy-makers and framework-setters for significant volumes of investment. They establish the rules of the game and if the rules are responsible, the game has a better chance of being so.

The media needs to be engaged in the debate. The environmentally aware media too often focuses on the symptoms of irresponsible investment rather than their causes. We can either spend trillions trying to adapt to the damage our investments are doing or start a real debate about the attempt to mitigate them at their first cause. Investment. The ratio of financial trades to real world trade is 26:1, yet most of the media debate takes place at the lowest level, real world trade and its impact. Newspapers and magazines that advocate living that is more responsible promote financial products that are profoundly irresponsible in their outcome.

The public generally, and investing public specifically, need to be shown the very simple connection between an investment and a real world outcome. Ideally, this outcome would be something local and immediate or least a national outcome. The more distant the outcome in time or geography, the grater the disinterest. An individual membership scheme that allowed ordinary investors to sign up to the principles would be a positive step to raise awareness and engagement. Many organisations make the mistake of separating the consumer and business world, when many consumers are investors and business leaders. The wealthiest consumers are often the biggest investors and most senior business leaders. Individual members can act as ambassadors and a crowd resource for UNPRI.

At the beginning of this series, we set out the logical argument, “It is irresponsible to cause harm to children. Corporation A causes harm to children. Corporation A is irresponsible.” It is possible to continue the logical argument that, “investing in Corporation A is irresponsible,” and “asset manager/owner B invests in Corporation A, therefore asset manager/owner B is irresponsible.” The caveat being that active ownership of Corporation A, where ESG changes are actively being made, would break down the logic.

By replacing ‘harm children’ with the most grievous ESG issues and identifying those companies that act irresponsibly, and who owns stakes in them, we might just allow people to make the connection between their investment and real world outcomes. Again maybe this is a role that others in the media need to play, more regularly.

Simple really.

Six years a brilliant global statesman, Kofi Annan, established UNPRI. We have a framework that has hundreds of signatories representing trillions of pounds worth of investment. The principles are necessarily aspirational and voluntary to encourage the widest participation and engagement. That is just the beginning. The next six years represent an exciting new chapter for UNPRI. The opportunity exists to create a rapidly-growing and inclusive rather than exclusive movement that informs and educates as wide an audience as possible of the possibilities of responsible investment.

Before it is too late.

You can read UNPRI’s annual report here.

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