Key take-home messages:

• Investors with over USD 4 trillion under management have signed up to the UN-PRI.
• The UN-PRI is not about ethics; it is about increasing investment returns by better understanding the impact of non-financials on different asset classes.
• The two asset classes to which the UN-PRI most obviously applies is equities and property.
• The UN-PRI does not set “responsible investment” criteria; it is designed to expand the amount of research, and number of asset management mandates, that explicitly incorporate environmental, social and governance (ESG) issues.
• If it is implemented as intended, asset owners will require their asset managers to consider ESG issues in their investment analysis and decision-making.
• The UN-PRI symbolises the shift in the investment community away from treating ESG issues as a niche product (SRI) towards incorporating ESG issues into mainstream financial analysis.
• ESG issues will remain only one, relatively minor, element guiding investment decisions. Evidence of the impact of the UN-PRI will not show up in investments or divestments; it will appear in the increase in investment and research mandates incorporating ESG issues.

02 May 2006: Paris, France

For anyone still unable (or unwilling) to decipher the signs that investors are taking a more mature approach to the threats and opportunities presented by Corporate Responsibility (CR) and sustainable development, on 26 April 2006 the United Nations used capital letters to make it clear: UN-PRI.

On 26 April 2005, Kofi Annan, UN Secretary General, launched the United Nations Principles for Responsible Investment (UN-PRI) at the NewYork Stock Exchange. At that time, over USD 2 trillion of assets signed up to the UN-PRI, including asset owners like CalPERS, the Canadian Pension Plan, Munich-Re, Storebrand, the Norwegian Government Pension Fund, Universities Superannuation Scheme (USS) and the BT Pension Scheme.

The following week in Paris, at the European launch, institutional investors representing a further USD 2 trillion of assets became signatories, bringing the total to 39 asset owners valued at over USD 4 trillion.

The UN-PRI is the latest – and potentially most significant – in a string of sustainability-related initiatives by the financial services industry that includes the FTSE4Good and Dow Jones Sustainability Index, the Equator Principles, the Enhanced Analytics Initiative, a series of national and regional Social Investment Forums and a still growing roster of ethical investment funds and socially responsible investment products.

Although the UN-PRI is not asset class-specific, its signatories recognise that they are likely to be phased in over time, starting with application to equities and property portfolios. Working groups have now been established to look more closely into issues related to Responsible Investment in Emerging Market Equities, and Responsible Property Investment. There are questions as to how the principles would apply to currency, bonds and other types of assets.

What does this mean for companies?

The clear message to companies is that the mainstream investment community understands that environmental, social and governance issues are core-business issues and can have an impact on financial performance, especially in the medium to long term. The important word, of course, is can. Different investors with different investment strategies will reach different conclusions on how important ESG issues are. But the key fact is that many more will be looking at these issues.

One of the challenges for companies will be to anticipate the kind of information that asset managers and analysts will need. Although a number of companies offer ESG data-collection and data-crunching services, the raw data rarely gives the kind of forward-looking, business strategy-specific insights that analysts will be looking for. Not all companies in the same sector have the same strategy, and therefore not all are exposed to the same risks from ESG issues.

As with any other kind of information that the markets are interested in, all things being equal, those companies that communicate best will be best regarded by the market. It might just be time for Investor Relations managers to get to know their Corporate Responsibility managers.

Notes to Editors:

Tom Rotherham, Head of Corporate Responsibility at Radley Yeldar, attended the European launch of the UN-PRI in Paris on 2 May 2006. Tom had been a member of the Experts Group that over 12 months advised the UN and institutional investors on the development of the UN-PRI.