One in 10 of the signatories to a UN-backed responsible investment initiative have been placed on a watchlist for failing to show they are taking their commitment seriously enough, amid wider criticism of the body itself by investors.
The Principles for Responsible Investment will put 185 of its 1,967 signatories on notice in the next fortnight after an annual audit suggested they had not demonstrated a minimum standard of responsible investment activity.
The body did not disclose the identities of those on the list but said it included members of various sizes and across all regions. Just under a fifth of those falling short are asset owners, with most of the rest being asset managers.
“It was pretty representative of the signatory base,” said Fiona Reynolds, chief executive.
Signatories to the PRI, which was established in 2006, commit to six principles designed to embed environmental, social and governance considerations into mainstream investing and hold companies they invest in to account on ESG failures.
They must file an annual report to the organisation detailing their progress. But the PRI has decided to implement a more rigorous set of minimum requirements, including an obligation that at least half a fund manager’s assets be covered by a responsible investing policy and for there to be explicit commitment to the issue by senior managers.
Those on the watchlist, who will be contacted privately, have two years to make improvements or face being delisted and publicly identified.
“Two years sounds like a long time but it’s got to be measurable,” said Ms Reynolds, who stressed that the PRI would work with signatories on improvements, and delisting was a final resort.
However, some investors have criticised the PRI, arguing that it needs to be more stringent in its oversight.
“We think it should be more demanding of its membership,” said Andrew Newington, chief operating and investment officer at Actis, the $9bn emerging markets investment group.
“The institution needs to make sure people aren’t gaming it,” said Steve Waygood, chief responsible investment officer at Aviva Investors, who was involved in founding the PRI.
He said it could not be ruled out that some signatories used it as a figleaf rather than having a genuine commitment to ESG investing, but stressed that the organisation was “tough enough for now,” and that excessive ejections would be counterproductive.
One head of responsible investing who did not want to be named went further, saying the PRI had “lost its way a little bit because its tried to cater to so many needs and interests”.
“Everyone’s a signatory now — that’s a good thing, but [also] a bad thing,” the person said. The PRI is hardening its stance partly at the behest of its signatories following a consultation in which the majority of respondents indicated they were in favour of a tougher approach.
Ms Reynolds said the PRI recognised it was time to place signatories under greater scrutiny. “I do not think we have lost our way,” she said, stressing that membership grew at its fastest rate last year. She conceded that a minority of signatories might regard the PRI as a figleaf. “That’s why we need to tighten up our requirements.”
Delistings occur each year for reasons including companies being acquired by entities who are themselves also signatories, although mostly because they fail to report in the annual PRI audit. In the year to March 2017, 79 companies were delisted, and 103 in the same period a year earlier.