2018 seems to have been the year when climate change phenomena really hit close to home to many of us.This summer, deadly fires popped out just about everywhere, from California to Arctic Sweden and down to Greece. Drought in Europe has turned usual green land to yellow in a matter of days. Japan and Korea didn’t escape the scary heat waves. The big question mark that appears in many minds might be : why is this happening and what shall we do, to sort the tremendous challenges climate change is bringing to our planet? There is no doubt now about the economy’s responsibility on this situation. And a way to tackle it, is to find better ways to invest responsibly.
Socially responsible investing, is also known as sustainable, “green” or ethical investing. This corresponds to a type of investment strategy which balances both financial return and social/environmental good to bring about a positive change.
Socially responsible (SRI) is said to have been originated by the Quakers spiritual group in 1758, when the Quaker Philadelphia Yearly Meeting prohibited members from participating in the slave trade going on in America at the time. Spiritual and religious institutions have since then been the pioneer proponents of social investing. John Wesley one of the founders of Methodism, made a sermon entitled “The Use of Money” (1770) where in a certain way he pointed out the key elements of social investing i.e. not to harm your neighbour through your business practices and to avoid industries like tanning and chemical production, which can harm the health of workers.
The 1960s civil rights movement and the Vietnam War, brought socially responsible investment to the modern era. During this time, social investors increasingly sought to address equality for women, civil rights, and better working conditions.
The Six UN Principles for Responsible Investment
With the turn of the century, with a whole new set of values becoming mainstream, the importance of responsible investment became even more evident. In early 2005, the then UN Secretary-General, Kofi Annan, invited a group of the world’s largest institutional investors to join a process to develop the Principles for Responsible Investment. A 20-person investor group was drawn from institutions in 12 countries, supported by a 70-person group of experts from the investment industry, intergovernmental organisations and civil society. From this process the Principles for Responsible Investment were launched in April 2006 at the New York Stock Exchange.
Since then, The United Nations-is supporting the Principles for Responsible Investment (PRI) initiative to put the six Principles for Responsible Investment into practice. The PRI reflect how environmental, social and governance (ESG) issues can affect the performance of investment portfolios and how these issues must be given appropriate consideration by investors if they are to benefit the world overall.
The Principles result from the profound acknowledgement that environmental, social and governance (ESG) issues, such as climate change, human rights and corruption, affect theworld wellbeing, therefore the performance of investment portfolios should take into consideration those principles . ESG issues should be considered holding the same importance as more traditional financial factors if investors truly aim to build trust in society.
The PRI official webpage states:
“In implementing the Principles, signatories contribute to the development of a more sustainable global financial system.
The 6 PRI are the following:
1.We will incorporate environmental, social and corporate governance (ESG) issues into investment analysis and decision-making processes. Signatories can follow the first principle by supporting the development of ESG-related tools, metrics and analyses and by encouraging research and analysis by service providers and academics on ESG-related issues.
2. We will be active owners and incorporate ESG issues into our ownership policies and practices. Signatories can follow the second principle by promoting and protecting shareholder rights and by engaging with companies on ESG issues.
3. We will seek appropriate disclosure on ESG issues by the entities in which we invest. Organizations can ask companies to integrate ESG components into their annual financial reports and request standardized reporting of ESG issues through tools such as the Global Reporting Initiative (GRI). The GRI is a sustainability reporting effort that asks organizations to disclose their impact on issues such as climate change, human rights, and corruption.
4. We will promote acceptance and implementation of the principles within the investment industry. Signatories can communicate their ESG expectations to service providers and revisit relationships with providers that do not adhere to ESG guidelines.
5. We will work together to enhance our effectiveness in implementing the principles. Organizations can collaborate to address new issues and support initiatives by sharing information, tools and resources.
6. We will each report on our activities and progress towards implementing the principles. Through this principle, organizations can raise awareness of ESG principles among stakeholders and beneficiaries.
The way it works is that when signing the principles the signatories agree to abide, support and promote the principles while better managing risk and seeking to responsibly increase investment returns.
The Principles saw increased sign-up following the “Global financial crisis of 2008-2009”. As of August 2017, more than 1,750 signatories from over 50 countries representing approximately US$70 trillion have signed up to the Principles.
What are signatories and how to become one
To be eligible to become a signatory, says the PRI website, an organization must be an asset owner, investment manager or service provider. Examples of asset owners include pension funds, sovereign wealth funds, foundations, endowments, insurance and reinsurance companies and other financial institutions that manage deposits. Investment managers are organizations that oversee a third party’s assets in the institutional or retail market. Service providers offer products or services to asset owners and/or investment managers.
Signatories must provide a signed declaration on company letterhead to commit to ESG issues in their investment analysis and decisions, to promote the PRIs within the investment industry and to publicly report on their progress toward implementing the principles. Unfortunately, the principles are considered aspirational. Organizations may become signatories when they are in the process of working toward the principles. Becoming a signatory also requires payment of a fee.
Maria Fonseca is the Editor and Infographic Artist for IntelligentHQ. She is also a thought leader writing about social innovation, sharing economy, social business, and the commons. Aside her work for IntelligentHQ, Maria Fonseca is a visual artist and filmmaker that has exhibited widely in international events such as Manifesta 5, Sao Paulo Biennial, Photo Espana, Moderna Museet in Stockholm, Joshibi University and many others. She concluded her PhD on essayistic filmmaking , taken at University of Westminster in London and is preparing her post doc that will explore the links between creativity and the sharing economy.