The sixth principle states that signatories will “each report on our activities and progress towards implementing the Principles.”
While principle three dealt with disclosure concerning companies invested in, principle six goes to the heart of reporting how the signatory is performing. It is the only principle with any enforcement teeth as a small number of signatories have been delisted due to failure to report.
As with principle three, disclosure allows investors to make informed choices. Free and open markets depend on timely information being available to the widest number of participants. Advantage in a market is often secured by distorting this flow of information. By reporting how a signatory is performing against the five previous principles (analysis, ownership, disclosure, promotion, collaboration) it is possible to see whether the concept of responsible investment is becoming a central part of investment decision-making and ownership, or whether it remains peripheral.
Beneficiaries, those who invest, who take an active interest in their portfolio, will make better decisions if they are aware of the longer-term implications of ESG issues on performance. Reporting on UNPRI activities, progress and successes creates a legitimate platform and context to discuss these wider strategic issues.
We would assert that most investors, whether private or institutional, still fail to make the connection between investment and wider environmental, social and governance issues. If this was not the case we would have not had the frequent market failures due to poor governance, growing social unease or the increasing degradation of our environment. Investment stubbornly remains dominated by those who see short-term profit maximisation, at whatever cost, as the principle motivator.
However, this domination is slowly eroding. The financial crash of 2007 has made more investors than ever before consider the impact of their investment – as EIRIS, UKSIF and EuroSIF regularly report. The subsequent economic malaise and continued financial failures of the subsequent five years has crystallised that thinking for some. There have been a growing number of responsible funds.
Moreover, in happy coincidence, as old sectors fail, new clean technologies are emerging and becoming established. These represent exceptional investment opportunities while also reducing our impact on the planet or addressing the damage we have done.
We now have a framework in which responsible investment can take place (the principles), we have styles of investment (negative [excluding those that do harm] and positive screening [investing in those that benefit]) that cater for all attitudes and degrees of responsible investment.
What we need more than ever is a louder voice for this approach to investment, that impartially, optimistically and responsibly explores the main issues, positive impact, huge opportunities and key players within responsible investment.
That need for a louder voice was the genesis of Blue & Green Tomorrow. Responsible investment remains a relatively small sector for now, but a rapidly growing one. With the right kind of leadership and message, we might just create a sustainable tomorrow for future generations.
So there you have them. The UN Principles of Responsible Investment (INPRI). They go as far as any investment industry, international and aspirational set of principles can go. In analysing them, we have been impressed with the clarity of thought that has built simple steps around investment analysis, ownership, disclosure, promotion, collaboration and reporting.
In the final article in this series tomorrow, we look the future of responsible investment and whether the principles go far enough to avert a coming catastrophe.