Annual Report. of the PRI Initiative The PRI is an investor initiative in partnership with UNEP Finance Initiative and the UN Global Compact

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Annual Report of the PRI Initiative 2010 The PRI is an investor initiative in partnership with UNEP Finance Initiative and the UN Global Compact Contents Foreword from UNEP and UN Global Compact 1 Chairman
Annual Report of the PRI Initiative 2010 The PRI is an investor initiative in partnership with UNEP Finance Initiative and the UN Global Compact Contents Foreword from UNEP and UN Global Compact 1 Chairman s end-of-term report 2 PRI year in numbers 4 The Initiative in 2010 and beyond 6 Driving real change together: The Clearinghouse 8 Universal Owner Project 13 Supporting signatories in implementing the Principles 14 Other implementation support services 16 Funding change: Financial aspects of the Initiative 20 The Principles and how to sign up 21 About this report This Annual Report captures the activities of the PRI Initiative, created to promote the adoption and implementation of the Principles for Responsible Investment by investors globally. The content covers the year from our last report, published in July 2009, although the accounts of the Initiative refer to the financial year April 2009-March This report should be read with its sister document the Report on Progress 2010, which captures the progress of signatories in implementing the six Principles. For more information on responsible investment visit the PRI s YouTube channel at Foreword from UNEP and UN Global Compact PRI Annual Report Foreword from UNEP and UN Global Compact It is remarkable that in just four years, around US$ 22 trillion of assets have been signed up to the Principles for Responsible Investment (PRI). This is more than 10% of total global capital markets and it sends a powerful message from mainstream institutional investors to the rest of the market: The business of responsibility must become the responsibility of business. That message can no longer be ignored. As the global population increases from six to nine billion people, with finite and declining natural resources, sustainable development becomes less of a choice and more of an imperative. Achim Steiner To meet this challenge we will need all partners UN, governments, companies, investors and civil society to work together and overcome the barriers preventing the private sector from taking the social and environmental impacts of their operations and investments into consideration. The PRI Initiative and its signatories demonstrate that effort. For example, PRI signatories have this year worked with the UN Global Compact to improve corporate performance on issues such as water management, sustainability reporting and corruption prevention. They also worked with colleagues at the UN Environment Programme Finance Initiative (UNEP FI) and other partners to call for measures to create a low carbon economy at the Copenhagen negotiations in December Many more examples of investors working together to address environmental, social and governance (ESG) issues can be found throughout this report. Georg Kell The PRI shows that a significant proportion of the global market is now ready to invest in activities and companies that positively contribute to global growth, good governance and achieving international targets such as the Millennium Development Goals. The United Nations is committed to supporting these market participants and making the next decade an age of responsible business. Achim Steiner United Nations Under-Secretary-General and Executive Director, United Nations Environment Programme Georg Kell Executive Director United Nations Global Compact 2 PRI Annual Report 2010 Chairman s end-of-term report Chairman s end-of-term report It is over four years since I had the great privilege of joining the PRI Board and becoming the Chair of the Initiative. This year I hand that baton on to a new chair. In the four years of my tenure, it has been heartening to see how many global investors have responded positively to the emergence of the PRI. From around 50 original signatories, the PRI Initiative has grown to around 800 and stretches to every continent. In addition to the growth in signatories, we are also starting to see concrete progress in how mainstream investors are integrating ESG issues into their day-to-day investment practices and collaborating to drive real change. For example, the number of signatories that have participated in collaborative engagements with companies through the PRI s Engagement Clearinghouse (see p.8) has increased from 77 in 2007 to 230 today. Many who have worked with me will know my passion for the sea, where, even when caught in a storm, it is important not to lose sight of your ultimate direction. Investors who have ridden the waves of the financial markets in the last few years will have taken this lesson to heart. Despite these turbulent years in the global markets, it has been important that the focus of the PRI Initiative remains the same: To support signatories in implementing the Principles across their entire portfolios. Led by our signatories and UN partners, the PRI Initiative is providing a range of support activities such as the Engagement Clearinghouse, monthly webinars on emerging issues, country networks, the annual Reporting and Assessment survey, and work streams on property, private equity, small funds and the Millennium Development Goals. These activities all help investors to put the Principles into practice in their local markets and embed responsibility into daily investment business. Chairman s end-of-term report PRI Annual Report The Initiative moves up a gear After four years, the PRI has now come of age as an organisation and, going forward, the Initiative s five-year strategic plan, which the Board announced last year, encompasses the next stages of development. We are clear on what our vision is: To enable our signatories to drive real change in the way investment decisions are made and managed. Many challenges remain. These include finding ways to integrate ESG issues into alternative asset classes such as hedge funds and fixed income, establishing processes that move the market towards long-term performance targets, improving the flow and quality of ESG research, and working smarter with policy-makers, particularly in the developing world, to ensure capital markets reward sustainable investment. These are ambitious goals, but with support we hope investors will take up these challenges, and the result should be better-managed companies with long-term and sustainable operations, leading ultimately to better investment returns. I am honoured to have experienced, and have thoroughly enjoyed, my time as Chairman of the PRI Initiative. I would like to offer special thanks to our partners at UNEP FI and the UN Global Compact, to our Executive Director James Gifford and to all past and present members of the Board and PRI Secretariat, all of whom have been inspiring and a pleasure to work with. Yours faithfully Donald MacDonald Chair of the Principles for Responsible Investment and Trustee BT Pension Scheme 4 PRI Annual Report 2010 PRI year in numbers PRI year in numbers Canada 35 USA % of signatories published their annual PRI assessment survey in full 28 webinars and a total of 980 attendees this year 46% of signatories have extensive internal processes to implement responsible investment (in listed equities in developed markets) Mexico 1 Caymen Islands Puerto R 1 2 Ecuador 1 66% of asset owners put specific ESG considerations into their contracts with investment managers, up from 63% last year As a CIO it is important to manage risk in a holistic way and not just rely on traditional financial methods. Responsible investment in the form of ESG analysis and engagement is therefore an important part of the toolkit when it comes to risk management as it provides the necessary comfort to all stakeholders, in particular the owners of the assets that sustainable returns will be generated in the long-term. Being part of the PRI s global network helps us to work with peers and asset owners to develop best practices and new methods in this area. Dr Dan Matjila, Chief Investment Officer, Public Investment Corporation South Africa Locations of PRI signatories: 45 countries Growth of signatories and AUM this year From 557 signatories and US$ 18.5 trillion in July 2009 to 784 signatories and almost US$ 22 trillion in July Jyly 2009 Aug 2009 Sept 2009 Oct 2009 Nov 2009 Number of signatories Dec 2009 Jan 2010 Feb 2010 March 2010 April 2010 May 2010 June 2010 July 2010 Assets Under Management ($trillion) The PRI year in numbers PRI Annual Report Finland Iceland 3 Sweden 16 Norway 24 5 ico St Vincent and the Grenadines 1 UK Ireland 95 Belgium 2 5 France 60 Spain Luxembourg 13 2 Germany 12 Denmark 23 Nigeria 1 Slovakia Lichenstein 43 Netherlands 1 Austria Italy Estonia 2 40 Switzerland Israel 2 2 Turkey United Arab Emirates 2 Pakistan 1 India 3 South Korea 17 Vietnam 2 5 Hong Kong Thailand 4 Malaysia Singapore 6 2 Japan 14 Brazil 42 1 Indonesia Mauritius 1 South Africa 29 Australia 113 New Zealand 21 Most active signatories on the Clearinghouse this year (by number of initiatives joined and/or led) Boston Common Asset Management 30 F&C 20 Co-operative Asset Management 19 Robeco 17 APG 16 Calvert 16 Northwest & Ethical Investments 16 PGGM 16 bcimc 15 Walden Asset Management 14 Aviva Investors 13 Batirente 13 CalSTRS 13 Hermes 13 Henderson Global Investors 12 Paxworld 12 Trillium Asset Management 12 USS 11 General Board of Pension and Health Benefits 10 LAPFF 10 Mn Services 10 6 PRI Annual Report 2010 The Initiative in 2010 and beyond The Initiative in 2010 and beyond The PRI has now become a global standard of best practice within the investment industry. More and more pension funds are asking their investment managers to invest responsibly, and participation in the PRI is becoming the way that most are choosing to demonstrate this. However, responsible investment is still very much in its infancy in many organisations, regions, asset classes and investment approaches. In 2009, the PRI Board developed a new five-year strategy based on expanding the PRI s implementation support activities, services to signatories and global outreach. The key elements are outlined below. Principles are important, but they are only valuable if they drive real change in the market. The PRI has now moved from its initial phase of exploration and awareness-raising towards a more service-oriented organisation that will not only promote the principles, but provide concrete support to signatories to help them implement responsible investment in an efficient and effective way. Signing and implementing the PRI is now the primary way in which investors demonstrate to clients, beneficiaries and stakeholders that they are taking ESG issues seriously and doing so within a mainstream, fiduciary context. James Gifford, Executive Director Supporting signatories in their implementation of the Principles As outlined in other parts of this report, the PRI Initiative is currently providing a range of implementation support activities, including: n Access to in-depth information and tools on implementing the Principles n Facilitation of collaborative investor activity through forums like the PRI Clearinghouse and regional working groups. n Webinars, events and discussions across a broader range of emerging issues. n Updates to keep signatories abreast of the latest trends, ideas and best practices in responsible investment. n Reporting and assessment process. n Opportunities to link with other relevant groups such as academics, policy makers and NGOs. More information about the PRI s implementation support programme is contained throughout this report. Setting up in the UK The PRI is a collaboration between investors and two UN initiatives: UNEP Finance Initiative and the UN Global Compact. Since its launch in 2006, it has been administered under the Foundation for the Global Compact in New York. With a growing Secretariat in London, two new UK entities have been established: PRI Association and PRI Foundation. PRI Association now conducts most of the operational activities of the Initiative. PRI Foundation is a registered charity in the UK, and will be used for fundraising and the public-benefit elements of the PRI work programme. The PRI Board, elected from within the asset owner signatory body plus two UN representatives, has been renamed the PRI Advisory Council. This group then appoints the members and boards of PRI Association and PRI Foundation. A strong partnership with the United Nations The Executive Directors of UNEP and the UN Global Compact sit on the PRI Advisory Council in an ex officio capacity. The PRI Initiative will continue to be a strong partnership between investors and the UN, with many joint activities. We are also delighted that in December 2009, the PRI Initiative was acknowledged by the UN General Assembly in its resolution Towards Global Partnerships. We are also thankful for the continuing support of Secretary-General Ban Ki Moon. The Initiative in 2010 and beyond PRI Annual Report Introduction of subscription fees When the PRI was launched in 2006, it was decided that initially, the fees should be voluntary to be as inclusive as possible. For the first five years, voluntary fees have been sufficient to allow the Initiative to establish itself and set up the core implementation support programme. Around one third of signatories contribute financially to the running of the Initiative. In 2009, the PRI Board decided that if the Initiative is to truly fulfil its potential in mainstreaming responsible investment globally, this would require additional resources, and we should therefore move to a mandatory fee model. It was also felt that the PRI had grown to the point where we were delivering a strong value proposition to signatories and it was reasonable to ask for a contribution from all signatories. The fee will be scaled depending on fund size, with a range of bands starting at 330 for small organisations to 6,600 for large funds. The introduction of this fee structure will ensure the Initiative has a strong financial footing into the future, enabling the delivery of considerably more implementation support activities, signatory services, and regional activities. Greater transparency from 2012 We have seen rapid growth in the number of signatories willing to publish their full responses to the PRI annual survey, with 190 signatories publishing in 2010, up from just 70 in 2009 and 35 in It is core to Principle 6 of the PRI that investors report on how they put the Principles into practice. From 2012, increased transparency requirements will be introduced as part of the annual PRI survey process. A consultation will take place in 2011 to determine what form this should take. Signatories will not be asked to disclose data that are commercially sensitive in nature. At PGGM we report both quantitative and qualitative data such as our responsible investment policies, voting and engagement activities, exclusions and integration of ESG factors in our investment activities. Transparency about our investment activities and our implementation of the six Principles of the PRI is important to PGGM. Although it takes time and resources, it generates positive feedback and helps people understand what can and cannot be done by an investor. Else Bos, Chief Institutional Business, PGGM Moving towards 2014 All these changes aim to provide the Initiative the robust foundation needed to expand its services to signatories and its influence as a global agency driving responsible investment within the market. In the coming months and years, signatories can expect the PRI s activities to grow in three directions. n Within portfolios The PRI Initiative will be applying considerable additional resources to supporting implementation across asset classes such as fixed income, private equity, property, infrastructure and ESG-themed investments. The Initiative will also be exploring responsible approaches to passive investments, quant funds and hedge funds. n Within the industry The PRI Initiative will also enhance our collaborative activities, bringing together investors globally to collaborate on company and policymaker dialogue through the PRI Clearinghouse, Academic Network and Public Policy Network. n Across regions Responsible investment needs to be adopted by the mainstream in all countries with established capital markets. The PRI will expand its country networks to deliver in-depth support in local language and within the local context. In summary, the PRI Initiative is in a strong position going forward, and we believe these changes will deliver better services to signatories, more in-depth coverage of issues and the faster adoption of responsible investment across global markets. 8 PRI Annual Report 2010 The Clearinghouse Driving real change together: The Clearinghouse The Clearinghouse is a private online forum where signatories can work together to improve company behaviour, encourage better public policies or work to address systemic issues. In the last year it has facilitated 85 investor engagements on a range of ESG issues. Using the Clearinghouse and joining forces with other shareholders often gives us extra clout that makes a company we are engaging with really sit up and take notice. Christopher Ailman, CIO, California State Teachers Retirement System Why investors use it? ESG issues are often too big and too complex for any one investor or any one company to deal with alone. Encouraging companies to separate the chair and CEO role, reduce carbon emissions, protect human rights in a supply chain or establish governance systems to deter corruption often requires shareholders to work together and pool knowledge, resources and influence. The Clearinghouse is a place where a trustee or manager can put ideas forward, find a common position and take action together. By working with other like-minded investors, signatories can create a stronger and more representative shareholder voice, which companies tend to respond to. Shareholder engagement with companies can also be time-consuming and expensive, especially for smaller funds that do not have dedicated resources, and by combining efforts with peer signatories, active ownership can be more affordable and more effective. Collaboration is not always simple and the PRI Clearinghouse team supports signatories by offering an administrative back end. The team helps develop engagement strategies and work plans to ensure shareholder engagements are simple to participate in and as effective as possible. 223 signatories used the Clearinghouse this year. Number of companies contacted at least once on ESG issues as a result of a Clearinghouse-facilitated engagement this year: 2,235 Number of companies involved in more in-depth investor dialogue as a result of a Clearinghouse-facilitated engagement this year: 330 Number of postings on the Clearinghouse To find out more about some recent collaborations go to /08 08/09 09/ The Clearinghouse PRI Annual Report Case study: Investors focus on different type of liquidity The ESG issue: Water scarcity In many parts of the world, population growth, urbanisation, and climate change place significant pressure on water supplies for communities and business. Nearly two-thirds of humanity is expected to live in water-stressed regions by To help address this water challenge, the UN Global Compact initiated the CEO Water Mandate, a project to help companies improve water management and, through the PRI Clearinghouse, investors have been asked to use their influence as shareholders to persuade companies like Nike to endorse the CEO Water Mandate. The investor view: Robeco Asset Management Robeco has been a PRI signatory since December 2006 and actively encourages good corporate responsibility and governance in the companies in which they invest. Robeco sees water scarcity as an issue of emerging importance and therefore encourages companies to report on their water policies, practices and usage to be aware of their risk exposure from potential water shortages, new regulations, reputational issues
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