Q & A with Emilie Goodall, Head of Environmental and Social Themed Investment, UN-supported Principles for Responsible Investment (PRI)
Thanks for speaking to us Emilie, but first things first, we hear the term a lot, but what does “Responsible Investment” mean?
Thanks for the opportunity and the questions! Responsible investment is an approach to investment that explicitly acknowledges the relevance to the investor of environmental, social and governance (ESG) factors. Responsible investors recognise that the generation of long-term sustainable returns is dependent on stable, well-functioning and well governed social, environmental and economic systems. We have a handy two page summary for those who want to know more.
That sounds great – so what is the PRI and how does it work?
The PRI Initiative is an international network of investors working together to put the six Principles for Responsible Investment (PRI) into practice. The goal is to understand the implications of sustainability for investors and support signatories to incorporate these issues into their investment decision making and ownership practices. There are now nearly 1200 asset owners, investment managers and service providers signed up from around the world, managing over US$ 30 trillion. The PRI Initiative helps investors to learn about and collaborate on the financial and investment implications of environmental, social and corporate governance issues.
Could you give us an example of how the PRI has led to more responsible investment?
Let me give you a couple! In terms of tackling specific problems in the investment chain, the PRI runs a collaborative engagement platform called the Clearinghouse. It provides signatories with a private forum where they can pool resources and share information when engaging with companies and policy makers on ESG issues. Collaboration carries extra weight and can be less resource intensive than if investors engaged alone. One recent engagement brought together 21 investors concerned with poor public disclosure of anti-corruption risk management among 21 companies. After three years of engagement, sixteen companies have improved their performance against a set of indicators provided by Transparency International, with ten companies improving their score by four-fold and the leading company improving its score by six-fold.
Looking at impact from a more systemic level, the PRI is accompanied by a reporting framework which all signatories are required to complete (and publish) annually, in a bid to increase transparency and accountability. The PRI assesses individual signatories’ results and benchmarks performance against that of their peers, to aid learning. In 2011, PRI analysed the results of the reporting framework over the past five years to see what had changed – see PRI’s Report on Progress. To pick out just a couple of examples, having a responsible investment policy (one of the first steps for responsible investors) had become a norm among PRI signatories. Two thirds of investment managers had such a policy in 2007, and in 2011 it was up to 94%. Integration of ESG factors into investment criteria was up to US$ 10.7trillion from US$ 3.6trillion in 2009. Clearly, there’s still some way to go, but this presents a good start! Attribution is always difficult, but in a recent survey conducted by MSCI ESG Research, survey participants identified the top driver for ESG adoption as the PRI (25%), closely followed by asset owners (24%), NGOs (15%) and corporate institutions (11%).
The focus of the PRI seems to be around the signatories, how do investees and say, the general public, benefit?
Although the Principles are designed to enhance the delivery of long-term returns to clients and beneficiaries, their implementation puts greater attention on ESG issues throughout the investment chain. The theory of change is that corporate management will take more interest in these additional drivers of risk and reward if encouraged by investors to adopt a more systematic approach to managing ESG issues, and that these drivers will come to define corporate profitability in the medium and longer term. In this way, the Principles for Responsible Investment should contribute to improved corporate performance on environmental, social and governance issues, better aligning investors with the broader objectives of society.
You recently launched a report on another set of principles – the PIIF (Principles for Investors in Inclusive Finance), what’s that?
The PIIF, housed within the PRI Initiative, were launched in 2011 by a small group of investors. These seven Principles are designed for investors providing finance, either direct or indirect, to retail institutions (e.g. companies, banks or microfinance institutions) that provides financial services (credit, savings, insurance, mortgages, remittances, payments) to clients who have traditionally been excluded from such services. These could be consumers, microenterprises or SMEs, in emerging or developed markets. As of June 2013, 51 investors had signed the PIIF, between them managing two thirds of the estimated US$14 bn of foreign capital investment in inclusive finance.
As with the PRI, the PIIF is accompanied by a reporting framework. This was piloted for the first time last year. The summary results are available in the PIIF Signatories’ Report on Progress, which enables investors to see the progress being made, by indicating examples of emerging good practice as well as areas for improvement.
It’s been two years since PIIF was launched – what has been learned so far?
The PIIF brings together a wide range of investors, from non-profits to boutique investment managers to corporate pension funds. Interpretation and implementation of the Principles therefore varies, so a number of investors have helpfully shared case studies and action plans with one another. In some areas of the Principles, like ‘balanced returns’, we are still in the process of defining what this means. In October we’ll be holding a joint roundtable with the Council for Microfinance Equity Funds (CMEF) in London on this topic.
In your view then, what are the key trends to look out for in responsible inclusive finance?
There is a push for financial inclusion to be included in some form in the post-Millennium Development Goals, so I anticipate continuing scrutiny of the role financial inclusion can play in delivering development objectives. That will likely require a greater commitment to not just social performance measurement but also outcomes measurement, in SME finance as well as in microfinance. Not all investors see it as their role to capture such information; greater disclosure will bring the additional benefit of making these differing approaches more visible.
Emilie Goodall joined PRI in July 2011 as Project Manager for the Principles for Investors in Inclusive Finance (PIIF). She became Head of Environmental and Social Themed Investing at the PRI in 2012, and is currently PRI's Acting Head of Implementation Support. Previously, she was Senior Investment Manager at CAF Venturesome, a social investment fund. There she managed debt and equity-like investments in nonprofits, and was engaged in research and policy work promoting the growth of the UK impact investing market. She holds an MA in Philosophy and French from the University of Oxford and qualifications in Financial Management and Development Management.