PRI in Person - The Latest in Responsible Investing

Largest Ever Industry Gathering in London attracts 1100

Just back from London and the vibrant Principles for Responsible Investment (or what is usually referred to as the PRI) annual meeting in London called PRI in Person whose agenda was filled with new developments.  1100 Industry Participants attended at the ExCel center in East London (which was repurposed from the old Docklands area of London and used in the 2012 Summer Olympics). 

Among the topics included the release of a landmark new report on Fiduciary Duty entitled "Fiduciary Duty in the 21st Century" making the case that investor responsibility is "not an obstacle to asset owner action on ESG factors" and looks at eight markets (US, Canada, UK, Germany, Brazil, Australia, Japan and South Africa)

Fiduciary Duty typically involves the duties of Prudence (one must invest in a smart way, not take unwise gambles and otherwise act for lack of a better word, prudently) as well as Loyalty (typically to avoid conflicts of interest).

Often investors use such concepts as an excuse not to consider Environmental, Social or Governance risks.  As Steve Viederman argued in our first book on Sustainable Investing (chapter freely available here) back in 2008, it has been approaching the time when Sustainable Investing would become the best way to follow your fiduciary duty, and that not looking at ESG is becoming a breach of those duties.  That day is coming very soon if it isn't already here right now.

There was a fantastic panel on systemic risk, where it was mentioned that the long anticipated final reports and recommendations from the UNEP Inquiry for the Design of a Sustainable Financial System will be released on October 9 during the World Bank and IMF Annual Meetings being held in Lima, Peru.

 As the panel's moderator Nathan Fabian said, if there is one report to read this year, it will be this one - stay tuned for more on that soon.

There were many more sessions beyond these including the rise of Islamic Finance and Sharia investing which interestingly calls for no debt, rather shared ownership as per our JEI Working Paper by Mujtaba Wani earlier this year.

Sadly, as our paper demonstrated, most Sharia implementations involve negative screening, not the intended approach.  Separately, the rise of the sharing economy and calls for shared value arguably start to head in the true direction intended many centuries ago.

An interesting contrast is the expected growth of assets in fixed income and infrastructure, with Trillions of new dollars expected, or actually needed to flow, to enable a transition to a low carbon economy.

Perhaps we need to combine these concepts and build the low energy future through a sense of shared ownership and shared responsibility to the planet, the oceans and all the other things we too often take for granted.  It is interesting to try and pull one common vision from across all of the strategies and constructs in the field.

The need for Investment Beliefs was also championed, by the likes of Anne Simpson of CalPERS who has done excellent work establishing 10 beliefs including establishing that the need to be able to pay future generations of pension fund beneficiaries is an equal responsibility for managers of pension funds as is the primary need to pay current beneficiaries.   Many other asset owners are following suit.

More work is coming from the PRI, including my own work on Climate Change Asset Owner Strategy, first paper here discussing the complications involved with Reducing Emissions in portfolios and across the larger economy.  A framework for action with case studies follows later this year.

The PRI has tremendous momentum now, they next meet in Singapore and will spend the next 12 months building up interest in Asia, as these concepts have mostly taken hold to date in Europe, the US, Canada, Australia and a few other places to date.

Solving for environmental, social and governance challenges is complex and will require a diverse set of parallel actions, not an easy button approach.  Watch for more on these developments in the months and years to come.

We approach a time when it will be a really bad idea financially not to invest in a sustainable manner.

 Keep in mind as well that for all the industry focus on "backtesting," actually, past performances are not the answer.  What is needed as we have long argued is a forward-looking approach to investing with sustainability issues fully applied.

That will be good both for society and your wallet at the same time and I can't wait for this to become the industry standard as a result.  

Those not involved really need to change that pronto for the sake of retaining business, for best performance and to win the millennials hearts and dollars as well.