The UN Principles for Responsible Investment (PRI): What Are They?

A worldwide organization called the UN Principles for Responsible Investment (PRI) seeks to encourage the inclusion of environmental, social, and corporate governance (ESG) considerations when making investment decisions.

As of March 31, 2021, the PRI, established in April 2006 with assistance from the UN, has about 4,900 financial institutions participating. These organizations take part by endorsing the six PRI guiding principles and then submitting periodic reports detailing their achievements.

Recognizing the UN’s Responsible Investment (PRI) Principles

The organization’s basic tenet is that ethical investors should consider environmental and social concerns since they are significant elements. For instance, proponents of the PRI argue that ignoring a company’s environmental effects while evaluating its suitability as an investment is unethical and financially reckless. On the other hand, many investors have traditionally considered social and environmental effects as negative externalities that may be disregarded when making investment choices.

The PRI proposed six fundamental principles to counter this long-standing mindset, which signatory businesses must abide by. These six guiding concepts are listed on the organization’s website and are as follows:

First principle: ESG concerns shall be considered while analyzing investments and making decisions.

Principle 2: We shall integrate ESG concerns into our ownership rules and practices and be active owners.

Principle 3: We shall ask the companies we invest in to disclose ESG problems appropriately.

Principle 4: We’ll work to get the investing sector to adopt and apply the principles.

Principle 5: We shall collaborate to improve how well we apply the principles.

Principle 6: We will provide an update on our actions and development in applying the principles.

The companies agreeing to sign these six principles manage assets under management (AUM), totaling more than $121 trillion. This includes the Government Pension Fund of Thailand, the Norwegian Government Pension Fund, the Canada Pension Plan Investment Board, and the California Public Employees’ Retirement System (CalPERS), among other well-known early signatories who assisted in the program’s inception.

An illustration of the UN’s Responsible Investment (PRI) Principles

Manulife purchased Standard Life, a financial services firm, in 2015. Standard Life, a PRI signatory, evaluates new risks and possibilities in the automotive supply chain using ESG criteria, especially regarding new anti-pollution laws that the EU is considering.

The corporation decided to modify its investments in that industry and revise its value estimate of LG Chem, the producer of lithium-ion batteries, after assessing the possible effects of this new regulation on different automakers and component suppliers. They believed the higher pollution requirements would hasten the switch to electric cars and raise the global demand for batteries, contributing to this upward revision.

Conclusion

• An organization devoted to encouraging environmental and social responsibility among investors worldwide is the UN Principles for Responsible Investment.
• The voluntary disclosures made by participating members, or “signatories,” are the foundation of the UN Principles for Responsible Investment.
• Signatories to the UN Principles for Responsible Investment now oversee approximately $121 trillion in assets globally, and many of the most significant and most potent investors are among them.