Is it difficult to incorporate ESG across asset classes?
In some cases. In new asset classes, for example hedge funds or alternatives, we’re still developing with investors what the practice actually looks like. When people start with responsible investment, they start with their listed equities because it’s easier; they can vote their shares and they can engage with companies. But if you really want to embed ESG across all of your investments, you have to go into the other asset classes. Including environment and social and governance factors is very important within sovereign and corporate bonds as well. So we have a team who works on fixed income and we produce good guides on how to integrate ESG.
I think one of the things that came out of the global financial crisis was: why did some of these investments have such high ratings when, clearly, there were problems? So we’re working on a project with the rating agencies on how they’re transparent about how they incorporate ESG factors. It’s a bit late to be talking about these issues after something’s gone wrong, so we need to do something about them beforehand. That’s a big piece of work we’re doing.
And emerging markets?
I don’t think you can expect of developing markets what you expect of developed markets. We just opened a PRI office in Hong Kong and we merged a responsible investment organisation that was operating in Asia into the PRI. What we’re trying to do in most parts of Asia at the moment is get people to understand responsible investment, because in a lot of cases people don’t. They think it’s all about exclusion rather than engagement.
It’s a kind of education?
So a lot of time is spent educating people about responsible investment. They don’t see that responsible investment is really a risk mitigation tool. Obviously, if you’re in mining, for example, that’s about environment risk, but it’s also a highly dangerous industry so there’s a social risk about workers’ safety. I think a lot of people have in their minds that it’s not about investment issues. So what we have to do in Asia, and in developed markets as well, is educate people about the fact that these are very material, mainstream investment risks.
There are no minimum requirements to join the PRI and each asset owner is coming from a different starting point. Isn’t it better for the quality of the signatures to have a minimum requirement?
We’re not keen on having minimum requirements because we want someone who’s just decided to do this, but is not really sure how, to come and sign the PRI. We help them to work with others to learn and make progress. That’s what we’re there for so I wouldn’t want to stop people from coming. Where else do you go to learn about responsible investment if you don’t come to the PRI? It’s okay to be at different levels, as long as you’re making progress.
How do you ensure signing the PRI is not just a marketing tool for asset managers?
That’s a very important issue. We are looking at the accountability consultation at the moment and that is a key part of it. You’ve got all different size of organisations and people from developed and developing countries. That’s fine. But how do we deal with that issue? That’s something we’re working on at the moment.
Is it your belief some signatories are just using it as a marketing tool?
Absolutely, there are. I’m not going to deny that there aren’t. They’re not the majority, but there are those that do that. That’s one of the reasons why reporting is important. If I’m going to employ a manager all the reports are there to see what they are doing. So in part, asset owners have to take a bit of responsibility. Someone just saying they do responsible investment is not enough. You have to actually do some investigation as well. Dealing with accountability is really important for the PRI in its next 10 years.
