PRI: Use your investments to create a more sustainable world

Investors can drive business sustainability 

Who has the most power when it comes to influencing or driving businesses to become sustainable?

Governments obviously have a lot of power. The regulations that they bring about can make businesses more sustainable if the regulations are good enough. But there are certain limits to what governments can do. 

Employees have a lot of power too, although often they are prevented from using these powers to drive business sustainability by their ever-increasing workloads. Other stakeholders like vendors, distributors and the like can often cause some changes, especially if they care about sustainability throughout the value chain.

But the stakeholders who have the most power when it comes to driving sustainability in business are the investors and owners.

Most of the largest businesses in the world are publicly traded, meaning their performance has a direct impact on how they are valued. Investors, whether they are individuals or institutions, and their money is what helps most of these large businesses grow.

And if these investors choose to only invest in sustainable businesses, that will drive sustainable business transformations for all businesses that rely on investments. Every type of business, from startups to large corporations will have to include sustainability as part of their bottom line.

One could say that at that point, sustainability makes sense to these businesses, financially speaking.

And for these investors, especially for institutional investors like index funds and investment banks, having a system or guideline to follow will be key in helping them make responsible investment decisions that drive business sustainability.

Principles for Responsible Investment (PRI) is an organization that strives to do just this.

About the PRI 

PRI was launched in 2006, with only 100 signatories who committed to the principles. Since then, the number has grown consistently, with as many as 4000 signatories today committed to using the principles in their investments.

It has grown in partnership with two UN organizations, namely the UN Environment Program Finance Initiative (UNEP FI) and the UN Global Compact (UNGC).

The signatories of the PRI now represent a majority of professionally managed investments in the world today. And they have gained such wide acceptance since they were created and developed by investors, for the use and benefit of investors, as well as the overall global financial system.

They drive investors to take action to drive business sustainability, by following 6 principles that each signatory is expected to follow. The intention is not to force investments solely for the sake of sustainability. Rather, the goal is to encourage investors to actively use their power to drive sustainability wherever they can.

Collectively, the investors who have become signatories and have committed to these principles represent over $103 Trillion in total asset value.

How will the PRI principles drive business sustainability?

Each of the principles, if followed, will help investors drive sustainable action in the businesses they have invested in. A more detailed overview of the principles is available from the PRI themselves. Here, we will not go into the smaller details of the principles. Rather, what we will look into is how the principles can help investors and owners drive business sustainability. 

Principle 1: We will incorporate ESG issues into investment analysis and decision-making processes

This principle ensures that the investors consider ESG (Environmental, Social and Governance) issues while making investment decisions.

Any business that wants to attract investments from a signatory of the PRI will need to eliminate its sustainability issues. Failure to do so will significantly damage their chances of procuring investments. This, the decision to refrain from investments in businesses with significant ESG issues can drive sustainable business transformation.

If all investors follow this principle while making their decisions, sustainability immediately becomes a priority for a large number of businesses. 

Principle 2: We will be active owners and incorporate ESG issues into our ownership policies and practices

The owners of a company, especially if they control a large stake, have significant power over the overall strategy of the business.  

The owners and their agents (Board of Directors) represent the most powerful part of a company’s governance. And by taking an active interest in aligning the company’s they invest in with solving ESG issues, they can drive sustainability in business.

Active owners who exercise their voting rights and take part in the governance of a business can convince the executives in charge to include ESG issues among the priorities. This is how they can drive business sustainability with Principle 2.

Principle 3: We will seek appropriate disclosure on ESG issues by the entities in which we invest

Disclosure is an important part of business sustainability, especially when it comes to communicating sustainability to the stakeholders.

But since most businesses who have ESG issues also carry associated risks, they may choose not to disclose them as part of their annual reports. Disclosure or reporting of ESG data is, unfortunately, not mandatory in most markets.

However, active owners and investors who follow the PRI can drive businesses to implement proper disclosure of ESG information. The principle calls for ESG disclosure to be integrated into the company’s annual reports. 

Principle 4: We will promote acceptance and implementation of the principles within the investment industry

This principle calls for the signatories of the PRI to encourage other investors as well as the service providers they work with to integrate the principles into their activities as well.

By reconsidering relationships with service providers that fail to meet the ESG expectations, the signatories to the PRI can cause significant action. There is also the fact that the expertise of institutional investors can be used for policy development. This means the signatories can drive sustainability in these businesses directly or through influencing policies.

Principle 5: We will work together to enhance our effectiveness in implementing the principles

There are always challenges and issues that emerge in business and investing. While most of these challenges can be met effectively by the investors and businesses on their own, some may require collective action.

Developing and supporting initiatives that support collaboration among investors is expected to be key to the effective implementation of the principles. By supporting other investors, the signatories can help them take action to drive business sustainability.

Principle 6: We will each report on our activities and progress towards implementing the principles

Simply joining the PRI as a signatory should not be enough. The investors who join the PRI are expected to report on their activities and how they integrate ESG issues within their investment practices.

The actions that the signatories take to comply with each of the above principles, like taking part in active ownership or supporting other investors, are all expected to be part of the report. They shall also disclose how they are progressing towards implementing the principles within their investment decisions as well as ownership activities.

This principle also promotes active communication to the relevant stakeholders on how the signatories are driving business sustainability, and how they tackle ESG issues.

How does PRI drive sustainability communication in business?

Communication is an important part of the sustainability efforts of every business.

Informing the relevant stakeholders of the relevant ESG issues and the steps the business has taken to solve these issues form the crux of this communication. And while there are several frameworks and guidelines that give structure to the communication of sustainability, there are few that mandate it.

Any business that has investors or owners who are signatories to the PRI will have significant pressure on it to integrate sustainability reporting within their annual reports. Reporting, disclosing and actively communicating the sustainability efforts will become key to these businesses.

Principle 6 specifically mandates reporting from the investors as well. And since much of their activities, especially when it comes to active ownership, comes from the businesses they are invested in, it is likely that this will require these businesses to report their sustainability as well.

The principle also suggests using reporting to raise awareness of ESG issues and their importance among a broader group of stakeholders. 

This has the power to make every business take sustainability communication and reporting far more seriously and can drive significant action over time.

What should you do if your business has a PRI signatory as investor/owner?

If your business has an owner or an investor that is also a signatory to the PRI, it is likely that you will see greater involvement from them in your governance activities.

There will be increased pressure on your business to integrate ESG principles into your strategy, reporting, communication and other business activities. And it is in this case, that you should use the services of experts in sustainability, for it to make complete sense.

We, at SUSTINARO, believe in sustainability that makes sense. We focus our expertise on sustainability communication, and effective communication is preceded by effective action. Do both, and take your important steps towards becoming a sustainable business.