Principles for Responsible Investment: the way aheadApril 2011
The UN PRI has been expanding its operations, membership and global influence in recent years. Mike Scott speaks to the organization’s new chairman, Wolfgang Engshuber, to find out his plans for the future
‘When we first met six years ago, none of us thought we would be where we are today,’ says Wolfgang Engshuber, one of the founding signatories of the United Nations Principles for Responsible Investment and its new chairman.
The scheme, which started when Kofi Annan invited 20 institutional investors to work with the UN to improve investor behaviour, now has close to 900 signatories representing $25trillion in assets under management. ‘It has been a huge success in terms of how many signatories we have signed up and how actively they are engaging,’ Engshuber, the chief administrative officer of Munich Re America, adds.
In its early stages it was easy to characterize the PRI as being driven by the Anglo-Saxon investment world, and equity investors in particular, but it is now broadening out to include all regions of the world and a range of different asset classes, he asserts. While PRI membership remains focused in Europe, the scheme is gaining traction in the US and in markets such as Brazil and South Korea.
‘One of my tasks is to extend the scheme more globally, especially in Asia,’ Engshuber says. He will also focus on drawing in more investors from different asset classes, in particular fixed income but also infrastructure and alternative investments. ‘It is important that we have global participation across many asset classes,’ he adds.
There has been criticism that many signatories ‘simply hang the certificate on the wall,’ in Engshuber’s words. Members have to fill out a comprehensive survey setting out how they are complying with the principles. A minimum of one third of signatories are contacted for further follow-up. However, ‘this year will be the real test because we are introducing mandatory fees,’ the new chairman says. ‘We expect to lose some signatories as a result.’
Another issue, though, was that in the early stages many signatories were unclear what the principles meant, and how they should be integrated into investors’ daily business. ‘Now there is much more clarity on what the principles mean and on the various workstreams.’
Nonetheless, the fees will help to strengthen the PRI’s own infrastructure. ‘It is important that we have our own governance, risk and financial structures in place. We also need to invest in local networks in areas where we are not as well represented.’
One driver for the initiative’s strong growth was the global financial crisis, he adds. ‘The crisis highlighted a lot of systemic issues. Investors such as pension funds and the insurance industry need long term financial stability in markets and there was a total failure in that regard, with bubbles, financial instruments that were not clearly understood and interests that were not aligned.’
As important as the number of signatories is the number of collaborative projects that are going on through one of the PRI’s most important elements, the engagement clearing house. This allows investors to team up to engage with companies on a range of subjects.
Other issues that are likely to be addressed range from the cost of externalities for universal owners to the impact of population growth, but Engshuber concludes: ‘The issues come from the signatories – we just provide the platform.’
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