UN-PRI…Just One More Check Box?

UN PRI278 Asset Owners.  811 Investment Managers. 173 Professional Service Partners.

Everyone’s doing it. To date, 1,262 companies have signed the UN-PRI agreement, pledging to implement the Six Principles for Responsible Investment (view prior post for further detail on Principles).  Seemingly, it bodes well to be a signatory of the UN-PRI…and, more importantly, it is negative to fall behind in this race.  Imagine you are a fund manager with mediocre performance, fighting to win a mandate against two competitors who not only display a superior track record, but they’ve also signed the UN-PRI. Game over. You lose.

So why wouldn’t one sign?  Sure, there is a small fee to sign (of course).  And yes, there is an annual fee for all signatories, calculated on a sliding scale based on total AUM (or number of employees in the case of service providers).  But relatively speaking, the cost of signing the UN-PRI is trivial.

The problem transpires when managers sign the UN-PRI to “check the box”, but fail to implement any real change.  The Six Principles of the UN-PRI are “voluntary” and “aspirational”.  In other words, failure to comply does not result in any legal or regulatory sanctions.  The official UN-PRI website states: “There may be reputational risks associated with signing up and then failing to take any action at all, but the commitments are, for most signatories, a work in progress and a directional focus, rather than a prescriptive checklist with which to comply”.

Humans are innately selfish.  Often, positive or negative reinforcement is a requisite to produce desired behavior.  If ESG-investing has not yet definitively proven to result in long-term outperformance, and there are no negative sanctions accompanied with failure to implement UN-PRI principles, one might contend the incentive is not strong enough to compel managers to change a process.

If the UN-PRI becomes just another check box, is anything truly changing?

3 thoughts on “UN-PRI…Just One More Check Box?

  1. Hi Jennifer
    Nice post today
    In your next post could you please educate me about the history of the UN PRI?
    How do other could tries handle this?

    Like

    • Maria – thanks for the comment. I can certainly touch on the history of the UN PRI and I additionally urge you to read August 19th’s post, “The United Nations Principles for Responsible Investment”.

      Like

  2. Good managers who are investing for the long-term will take into consideration ESG factors that they believe will affect stock prices. Bottom-line it’s performance. Those “renting” stocks for the short-term – difficult to believe those managers would modify their actions because of ESG factors which are beyond their investment horizon!

    Like

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