Principles for Responsible Investment (PRI), UNEP Finance Initiative and The Global Compact (April 2006)

The PRI are 6 general principles that are intended to promote the integration of environmental, social and governance issues into investment decision-making and ownership practices of institutional investors. The proponents of these principles suggest that their implementation and adoption will improve the long-term return to beneficiaries i.e. those individuals whose money the institutional investors are investing. The principles deal with incorporating ESG metrics, active ownership, disclosure, reporting, advocacy and implementation of the principles.

The Principles are the product of a group of investment professionals representing 20 institutional investors from 12 countries who were invited by UN Secretary General Kofi Annan to develop the principles in support of the goals of implementing sustainable development within the very influential world of international finance. Although the promotion and implementation of sustainable development was a key impetus for the PRI project, the proponents also claim that the adoption of the PRI also reflect investors’ fiduciary duties and superior risk-adjusted rates of return. So, not only do the PRI rely on ethical principles, they also forward a compliance and financial return argument that argues in favour of – or even requires their adoption.

The fact that institutional investor managing over USD$2 trillion is not insignificant. Still there are many institutional investors- particularly some of the largest in the US- who have not signed on. More importantly, the real issue is whether even the supporters and signatories of the Principles are doing anything meaningful to implement them. They are many agreements of principle, protocols, best practices and the like that remain in theoretical purgatory waiting to become a meaningful and functional part of the world of global finance and corporate governance. Though the Principles are a nice and hopefully useful normative expression of how financial managers should manage their clients’ money, the devil remains in the details: there are many paths to sustainability and many ways of measuring environmental, social and governance issues. Most important is whether any consensus will develop on how to move beyond the aspirations to operationalise these very general voluntary principles?