Modern Magna Carta: Principles for Responsible Investment

In the lead up to the 800th Magna Carta Anniversary this year Ashley Summers takes a look at the original and a series of modern ‘versions’ of the Magna Carta from the US Constitution to the UN Declaration of Human Rights and various conventions on climate change and sustainability, Magna Carta for the Earth.

While the continuation of a capitalistic and globalised economy isn’t a truly sustainable model, (as we live on a finite planet with finite resources and growth potential,) there are small steps being made to assist in the transition to a sustainable future for all. With some focusing on de-growth and sufficiency that create actual, lasting, and honest worldwide sustainability, investors and other financiers can now actively participate in making informed, responsible choices in their participation in the market economy. In 2006, an initiative called the Principles for Responsible Investment (PRI,) was designed. The principles are sponsored by the United Nations and aim to give investors a deeper understanding about how their investments and portfolios can be made to not only benefit them, but the world around them.

While voluntary and aspirational, the principles incorporate environmental, social, and corporate governance (ESG) responsibilities, encouraging individuals, institutions, and industries to make conscious choices about their investment paths. That is, for people and groups that hold values about protecting the environment and the welfare of other humans, they can now have more control in how their portfolios are structured and where their investments go.

The principles state:

1. We will incorporate ESG issues into investment analysis and decision-making processes.

2. We will be active owners and incorporate ESG issues into our ownership policies and practices.

3. We will seek appropriate disclosure on ESG issues by the entities in which we invest.

4. We will promote acceptance and implementation of the Principles within the investment industry.

5. We will work together to enhance our effectiveness in implementing the Principles.

6. We will each report on our activities and progress towards implementing the Principles.

On the PRI website, unpri.org, their introduction to the idea of responsible investment perhaps summarizes the need for increased awareness best:

Responsible investment is an approach to investment that explicitly acknowledges the relevance to the investor of environmental, social and governance (ESG) factors, and the long-term health and stability of the market as a whole. It recognises that the generation of long-term sustainable returns is dependent on stable, well-functioning and well governed social, environmental and economic systems. It is driven by a growing recognition in the financial community that effective research, analysis and evaluation of ESG issues is a fundamental part of assessing the value and performance of an investment over the medium and longer term, and that this analysis should inform asset allocation, stock selection, portfolio construction, shareholder engagement and voting. Responsible investment requires investors and companies to take a wider view, acknowledging the full spectrum of risks and opportunities facing them, in order to allocate capital in a manner that is aligned with the short and long-term interests of their clients and beneficiaries.