Ethical Performance
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Merger aims to create ‘powerful voice’ on SRI

November 2008

The Enhanced Analytics Initiative (EAI), which aims to improve the quality of investment research into extra-financial issues, is to be subsumed into the UN Principles for Responsible Investment (PRI).

Administrators of the two bodies announced last month that all operations will be combined during the next few weeks and will go forward under the PRI name.

Signatories and supporters of both ventures, who manage more than $15,000billion (£8,663bn) between them, claim the merger will create ‘a single, powerful voice’ in support of responsible investment and better environmental, social and governance (ESG) research.

EAI chairman Peter Scales said the tie-up was a ‘logical step’ and would ‘allow us to internationalize and extend the call for extra-financial investment research, with the benefit of the PRI’s global reach and broad signatory base’. The way for the merger was paved early last year when both parties announced a ‘formal alignment’ (EP8, issue 9, p6).

The principles, which were launched in early 2006 (EP8, issue 1, p1) by a group of 20 pension funds at the UN’s behest, commit funds to incorporate responsible investment considerations into daily investment practice, both in company analysis and in the exercise of ownership rights.

The Paris-based EAI, which dates back to late 2004, has encouraged more ESG research by offering brokers and investment banks financial incentives to increase coverage of social and environmental topics. Asset owner signatories set aside at least five per cent of the money they normally pay to brokers as a kitty for rewarding those judged to be providing the best extra-financial research. The payments, which have typically amounted to several million euros in total, are made twice yearly.

However, this approach may now be in jeopardy, as officials say the merger ‘will necessitate changes to the existing EAI process’. A working group will consider how to take the project forward, and is expected to produce conclusions by the end of the year. A ‘closing meeting’ of the EAI in Paris on 4 December is likely to discuss the issue.

The newly merged organization will be based at UN headquarters in New York.

Steve Waygood, head of engagement at Morley Fund Management, said the merger ‘makes a lot of sense’ but warned that it needed careful management to build on the good work of the EAI. ‘In many markets it remains possible for companies to blacklist brokers on the strength of a critical ESG comment. This is obviously a significant impediment to the sell-side provision of ESG research.

‘The asset owning and asset managing members of the PRI have a responsibility to step in when this happens and I look forward to seeing how the PRI helps brokers when they stick their neck out,’ Waygood said.

The PRI now has more than 600 signatories and is understood to be pausing to consolidate before seeking further expansion.

Enhanced Analytics Initiative | Global | Mergers

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