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Driving Value through Responsible Investing
James Gifford, a speaker at the marcus evans Nordic Pensions & Investments Summit 2010, explores the benefits of adopting the UN’s Principles for Responsible Investment.
Adopting the Principles for Responsible Investment (PRI) help drive long-term prosperity for institutional investors, according to James Gifford, Executive Director of the United Nations Principles for Responsible Investment Secretariat. A voluntary set of principles developed in partnership with the UNEP Finance Initiative and the UN Global Impact, the PRI are designed to encourage investors to recognise that environmental, social and corporate governance (ESG) issues are core value drivers. A speaker at the marcus evans Nordic Pensions & Investments Summit 2010 taking place in Sweden, 27 - 29 October, Gifford discusses the importance of the PRI and how investors can benefit from establishing a responsible investment framework.
Why are the Principles for Responsible Investment necessary?
James Gifford: We have seen investors take a short-term myopic view of investments, very much focused on quarterly returns and short-term outperformance. This has caused problems in incentivisation and misalignment in risk taking, and the financial crisis over the last few years is a perfect example of where the culture of the finance sector undermined long-term returns for investors.
The Principles for Responsible Investment (PRI) are an attempt to encourage investors to recognise that environmental, social and corporate governance (ESG) issues are core value drivers for the long-term prosperity of a company. They provide a framework for the integration of these issues into investment processes and ownership practices. Many funds are finding the PRI a very useful framework from which to build a foundation of more detailed and responsible investment policies.
The financial industry as a whole needs to take responsibility for the economic crisis. Institutional investors, while not involved in actually generating the derivatives at the heart of the crisis, were buying them without understanding what was involved. Banks and investors need to take some responsibility for the pressures put on Wall Street to deliver short-term outperformance and the risk management systems which clearly failed.
Which are the most important Principles?
James Gifford: Principles one and two are the most important principles in term of implementation. Principle one is the incorporation of ESG issues into investment processes, and this includes within listed equities, fixed income, property, private equity, and even hedge funds.
The second Principle is relevant once you own the investment. Some owners are active and seek to be a good steward for that company and undertake activities such as shareholder engagement and informed voting at company meetings. Good stewards monitor the company and the risks and opportunities facing the company. Ideally, they should engage in a dialogue with other shareholders in order to pool their resources and seek change where required.
These two Principles are the core limbs of the PRI. But before jumping in, investors need to spend time developing their policies and working out what is best practice and what other investors are doing. There must be a robust policy and strategy in place for responsible investment to be effective. The Norwegian government pension fund, for example, has a very comprehensive, transparent, publicly available and periodically revised responsible investment policy.
The United Kingdom is very strong in shareholder engagement with companies, but the Nordic region is close behind. The leading regions on active ownership are the Nordic region, Netherlands, the United Kingdom, Canada and Australia. The Norwegian signatories perform the best in terms of development of their governance, policies and strategies. Danish signatories score the highest on the first Principle and Finish signatories on the second. Overall, the Nordic region is one of the fastest growing regions in responsible investment with some very forward-thinking practices being undertaken.
What are some of the steps for developing effective internal controls?
James Gifford: The PRI has no absolute standards. That said, we do have an annual reporting and assessment process whereby we ask investors the extent to which they incorporate ESG issues in various asset classes, and how active they are as owners.
This requires monitoring and collecting data about responsible investment activities by investors. Once organisations have their strategies in place, they need to be able to collect basic data on their responsible investment activities, and perhaps more difficult, the responsible investment activities of their fund managers. We ask a number of questions about the activities of these managers, so a lot of pension funds who outsource their investment management need a good understanding of what their fund managers are doing. That requires a pro-active dialogue, which will require at least an annual if not more regular review of fund performance on financial as well as ESG issues. Many leading fund managers who are strong in responsible investment have quarterly reporting to their clients, on quite specific responsible investment activities.
Contact: Sarin Kouyoumdjian-
Tel: + 357 22 849 313
About the Nordic Pensions & Investments Summit 2010
This unique forum will take place at the Sheraton Stockholm Hotel, Stockholm, Sweden, 27 - 29 October 2010. Offering much more than any conference, exhibition or trade show, this exclusive meeting will bring together esteemed industry thought leaders and solution providers to a highly focused and interactive networking event. The summit includes presentations on managing risks, responding to regulation requirements and capitalising on investment opportunities.
For more information please send an email to firstname.lastname@example.org or visit the event website at http://www.nordicpensions-
Please note that the summit is a closed business event and the number of participants strictly limited.
About marcus evans Summits
marcus evans Summits are high level business forums for the world’s leading decision-makers to meet, learn and discuss strategies and solutions. Held at exclusive locations around the world, these events provide attendees with a unique opportunity to individually tailor their schedules of keynote presentations, think tanks, seminars and one-to-one business meetings. For more information, please visit http://www.marcusevans.com
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