Global changes occurring in the environment, in society, and the way businesses operate have impacted and molded investment decision-making processes, embracing more mindful and conscious practices. This shift towards conscious investments has brought forth new mindsets or principles that can usher in a more sustainable economy.
The United Nations Principles for Responsible Investment (PRI) aims to encourage and promote responsible investing through the integration of sustainability and ESG in investment decisions. The PRI leads global efforts to better understand how ESG can impact investments and also provides support for its network of signatories committed to incorporating ESG into their decisions by observing the Six Principles for Responsible Investment.
The six principles, developed by investors, summarize the actions fellow investors can do to embrace ESG into their practices. By becoming a signatory of the PRI and following these principles, investors can take part in building a more sustainable future through sustainable financial systems.
The first principle cements ESG into investment strategies, transforming it into a key business element and acknowledging the gravity of sustainability and ESG into the performance of an investment portfolio. Principle 1 kickstarts the practice of responsible investing across the company, equipping investors with guidelines, policies, tools, and resources.
Across this principle, multiple activities can be done to incorporate ESG issues into investment processes. This first includes acknowledging ESG issues in policies and statements and considering it as an essential factor in investing. To further incorporate sustainability, the company can also invest in technology that analyzes ESG-related metrics and supports critical financial decisions.
Besides getting the support of top management and utilizing new resources, incorporating ESG into investing also requires the support of multiple internal and external stakeholders. This can be done by understanding current capacities and adding room to train and educate investment professionals on sustainability and ESG, and by working with external service providers such as consultants, financial analysts, research firms, and rating companies to consider ESG in their practices. By integrating ESG into investment practices and risk management early on, an investment company can flesh out smarter and informed decisions.
Responsible investing doesn’t end with sustainability and ESG integration. It is a continuous practice that needs to be strengthened and embraced internally across the investment company. Investors need to be active owners and sustainability practitioners. Through active ownership, an investor holds great responsibility in strengthening sustainability.
Active ownership entails participation and engagement in ESG-related activities, decision making, policy and standard setting, and in voting. Here, investors are to engage in dialogue with companies and investors on ESG matters. Having conversations and making ESG relevant in spaces for discussion and engagement, embeds responsible investment in day-to-day practices and interactions.
Transparency, reporting, and accountability is essential when practicing sustainability. By accurate reporting, investors are able to make more informed decisions. This requires the participation and compliance of their investment portfolio companies.
Given the complex reporting landscape with its various metrics and standards, investors need to set a standard for sustainability reporting. They can adopt a global reporting standard such as the GRI or the ISSB and ask companies to include ESG factors into financial reports. To further strengthen the adoption of ESG into their investments, investors can also seek information on their plans to adopt global norms and codes of conduct aligned with sustainable development.
Principle 3 brings attention to the need for transparency and through working with companies and calling for accurate reporting, investors can help accelerate progress and global standardization on sustainability reporting.
In this principle, responsible investing becomes a collective effort among investors, extending the practice across the industry. Spreading the principles for responsible investments and the importance of ESG across other practitioners can create a sustainable financial ecosystem and cement ESG into everyday practices.
To apply the fourth principle, investors can integrate the principles into proposals, mandates, and procedures. When working with service providers, investors can communicate and set ESG expectations and rework with them and redevelop their relationship in the occurrence of failed expectations. Implementing the principles also entails the support of ESG integration in regulations and practices, leading to a global transformation within the industry and turning responsible investing into the new standard.
Adopting ESG and practicing responsible investing continuously evolves and changes along with the progress towards sustainable development. Thus with the complex environment, responsible investing and its practices may be challenging to understand and embrace by some investors.
Principle 5 asks for investors to work together throughout this journey in responsible investing. Through connecting with each other and sharing practices and resources, investors can enhance practices and develop new standards and systems geared towards sustainability. Engaging in dialogue and working together to address concerns within the industry can steer rapid change into current practices, continuously improving towards sustainable development.
The last principle ensures investors remain transparent in reporting progress in implementing the aforementioned principles. Signatories are to disclose how they apply ESG into their investment practices and ownership activities, and their progress related to the principles. Signatories can also communicate ESG issues and requirements they seek from service providers. Lastly, through reporting about their progress and achievements in responsible investing, investors can spread awareness and promote new and sustainable investment practices to their stakeholders.
Awareness is the first step in reshaping corporate behavior. Through sharing the impact of practicing responsible investing to shareholders, investors can influence others to make the change and integrate ESG into their practices and decisions.
Embracing this new standard in investing requires participation across an investment firm and extends itself to investment portfolios and other services. Continuously practicing supporting this new way of investing leads to a chain reaction, a global spread not just within investors but to other companies and organizations as they respond to the calls for sustainability led by PRI signatories. The Six Principles for Responsible Investment sets a path towards informed decision making for global sustainable development.
At Keslio, we are deeply passionate about sustainability, equipping us with the expertise and extensive network needed to guide clients through their sustainability journey effectively and efficiently. Our expertise is particularly valuable for companies looking to embed sustainability practices into their businesses and investors looking to integrate ESG and impact into investment portfolios. To learn more about how Keslio can assist your organization on its sustainability journey, please don't hesitate to get in touch with us.
