Definition
The UN Principles for Responsible Investment (PRI) is a set of six globally recognized guidelines aimed at promoting responsible investing practices. These principles, endorsed by the United Nations, encourage investors to integrate environmental, social, and governance (ESG) factors into their decision-making processes. By committing to PRI, investors strive to create long-term value, reduce risks, and promote sustainable development across global financial markets.
Phonetic
The phonetics of the keyword “UN Principles for Responsible Investment (PRI)” can be expressed as: “Yuu-En P-R-I-N-S-UH-P-L-Z F-O-R R-I-S-P-O-N-S-UH-B-L In-V-E-S-T-M-E-N-T (Pee-Ar-Eye)”
Key Takeaways
- The UN Principles for Responsible Investment (PRI) is a set of six voluntary guidelines aimed at promoting responsible investing practices and incorporating environmental, social, and corporate governance (ESG) factors into investment decision-making and ownership practices.
- The PRI initiative is supported by the United Nations and its goal is to encourage investors to integrate ESG factors into their investment decisions, which can lead to better long-term investment outcomes for the global environment and society as a whole. By becoming a signatory, investors commit to implementing the principles within their operations and reporting on their progress.
- As the largest global network of investors, the PRI encourages long-term value creation and sustainable markets by fostering collaboration between its signatories and partnering with other organizations to advocate for responsible investing practices. The PRI also provides resources and tools that support implementation of the principles, such as best practice guidance, case studies, and research on ESG issues.
Importance
The UN Principles for Responsible Investment (PRI) is important because it serves as a global framework for investors to incorporate environmental, social, and governance (ESG) factors into their investment decisions and ownership practices. By committing to these principles, investors acknowledge the significance of these issues and their impact on long-term investment performance. The PRI helps investors manage risks and improve returns by fostering greater transparency, accountability, and sustainability in financial markets. Furthermore, it encourages the integration of ESG considerations into investment practices, ultimately contributing to a more stable and inclusive global financial system, aligning investors’ actions with societal values, and promoting the achievement of the United Nations Sustainable Development Goals.
Explanation
The Purpose of the UN Principles for Responsible Investment (PRI) lies in its core aim to create a more sustainable and responsible global financial system. Recognizing the interdependence of economic, social, and environmental factors in long-term financial performance, the UN PRI initiative encourages investors and corporations worldwide to integrate Environmental, Social, and Governance (ESG) factors into their decision-making processes. The initiative equips its signatories with tools, resources, and a platform to identify and manage ESG risks and opportunities effectively. By fostering collaboration and learning among its members, it promotes the mainstream adoption of responsible investment practices, thereby contributing to a healthier, more resilient economy for future generations.
The UN PRI serves as a valuable framework that guides investors and businesses alike in implementing responsible investment strategies. Signatories are encouraged to follow six guiding principles, which focus on aligning investment activities with ESG matters, obtaining appropriate ESG-related disclosures from investments, promoting the mainstreaming of PRI principles within the industry, and promoting high standards of corporate governance. As a voluntary framework, the initiative attracts investors and organizations who seek to elevate the importance of sustainable practices in the finance world. This collaborative approach helps create greater transparency, accountability, and trust among stakeholders, ultimately fostering a financial environment that strikes a balance between profitability and sustainability for the long-term benefit of all.
Examples
The United Nations Principles for Responsible Investment (UN PRI) is a voluntary initiative aimed at promoting the incorporation of environmental, social, and corporate governance (ESG) factors into investment decision-making processes. Here are three real-world examples of organizations or investments guided by the PRI:
1. CalPERS – California Public Employees’ Retirement System: CalPERS is the largest pension fund in the United States and a signatory of the UN PRI. As part of their adherence to PRI, CalPERS has integrated ESG factors into their investment decision-making process. In 2020, CalPERS launched the “CalPERS Emerging Manager Program,” allocating $5 billion to support diverse managers, sustainable investments, and ESG-compliant investment strategies.
2. Norges Bank Investment Management (NBIM) – Norwegian Government Pension Fund Global: NBIM is one of the largest sovereign wealth funds in the world, holding the accumulated wealth from Norway’s oil and gas revenues. It is a signatory to the UN PRI. NBIM practices responsible investing by incorporating ESG considerations into its investment strategy and actively engaging with the companies they invest in. Examples of their sustainable investing approach include divestments from coal power companies and implementing climate change risk assessments for their portfolio companies.
3. AXA Group – Sustainable Investment Strategy: AXA Group is a multinational insurance and asset management firm and a PRI signatory. The company has committed to integrating ESG factors into their investment practices and focuses on aligning its investments with the United Nations Sustainable Development Goals (UN SDGs). AXA has made numerous responsible investments, such as launching a ‘green bond’ fund to finance renewable energy projects and divesting from companies involved in tobacco production. Additionally, the company has established the AXA Research Fund to support academic research on environmental, social, and economic challenges related to long-term investments.
Frequently Asked Questions(FAQ)
What are the UN Principles for Responsible Investment (PRI)?
The UN Principles for Responsible Investment (PRI) is a set of global best practices that serve as a guide for investors, providing them with an outline on how to incorporate environmental, social, and governance (ESG) factors into their decision-making processes. This voluntary framework is endorsed by the United Nations and is aimed at promoting responsible investing to achieve a sustainable global financial system.
When were the UN Principles for Responsible Investment established?
The UN Principles for Responsible Investment (PRI) were launched in April 2006 by the United Nations Secretary-General as an initiative in collaboration with the UNEP Finance Initiative and the UN Global Compact.
How many principles are included in the PRI?
The PRI consists of six key principles that encourage investors to thoroughly consider ESG issues when making investment decisions and engaging with companies.
What are the six principles of the UN PRI?
The six principles are:1. Incorporate ESG issues into investment analysis and decision-making processes2. Be active owners and incorporate ESG issues into ownership policies and practices.3. Seek appropriate disclosure on ESG issues by the entities in which they invest.4. Promote acceptance and implementation of the Principles within the investment industry.5. Work together with other signatories to enhance their effectiveness in implementing the Principles.6. Report on their activities and progress towards implementing the Principles.
Who can become a signatory to the UN PRI?
Any organization that owns, manages, or advises on investment capital can become a signatory to the PRI. This includes asset owners, investment managers, and professional service partners. Both large and small organizations can join to commit to implementing the principles.
Why should an organization become a signatory to the PRI?
By becoming a signatory, organizations send a strong message to stakeholders that they are committed to incorporating ESG factors into their investment decisions and achieving long-term sustainable growth. Furthermore, signatories have access to supportive tools, resources, research, and a global network that can help them effectively implement the Principles and stay ahead in the responsible investment industry.
How does an organization become a signatory to the PRI?
An organization must complete a signatory application form available on the PRI website. The application requires a commitment signed by a high-level executive (i.e., CEO or CIO) to abide by the six principles.
Are there any fees associated with becoming a PRI signatory?
Yes, there are annual fees based on the size and type of the organization. The fee structure is available on the PRI website.
How does the PRI ensure compliance with its principles?
Signatories of the PRI are required to report annually on their progress in implementing the principles. The PRI reviews and assesses these reports, providing feedback to signatories and sharing individual ESG performance results. The initiative also encourages collaboration among signatories to share best practices and challenges, fostering a transparent and accountable environment within the responsible investment community.
Related Finance Terms
- Environmental, Social, and Governance (ESG) criteria
- Stewardship and active ownership
- Sustainable investment strategies
- Transparency and disclosure
- Fiduciary duty and responsible investment
