PRI showcases leading examples of ESG integration by institutional investors

LONDON, 14 February 2013

New reports highlight innovative use of environmental, social and governance (ESG) information in investment analysis and show how pension funds and other asset owners can incorporate ESG into their selection, appointment and monitoring of investment managers.

The Principles for Responsible Investment (PRI), a global investor initiative in partnership with UNEP Finance Initiative and the UN Global Compact, today released two new reports demonstrating how investors are integrating ESG information into their operations. 

  • Integrated Analysis: How investors are addressing ESG factors in fundamental equity valuation.
  • Aligning Expectations: Guidance for asset owners on incorporating ESG factors into manager selection, appointment and monitoring.

They provide an overview of the breadth and quality of analysis being undertaken by institutional investors and will help asset owners determine whether their managers are addressing them in line with their expectations. 

Integrated Analysis 

provides evidence that ESG factors are now being integrated into fundamental equity analysis. Analysts are adjusting earnings forecasts, growth estimates and discount rates to reflect ESG data. Nearly 20 case studies from some of the world’s leading brokers and research providers, including Cheuvreux, Citi, Société Générale and UBS, show how understanding the impact of ESG factors on sales, costs and long-term return on capital can enhance investment decisions.   

“Successful investment requires a thorough analysis of risk and reward and ESG issues are critical to the assessment of both,” said Neil Brown, Chair of the PRI’s ESG Integration Working Group and SRI Fund Manager at Alliance Trust. “This report shows unequivocally that integrated analysis can be done and is being done by some of the world’s largest financial institutions.”

Challenges remain, however. Short-term valuation tools cannot always capture ESG issues that will impact companies over longer timeframes. Acquiring consistent, comparable, audited information also remains a hurdle to integrated analysis.

Aligning Expectations 

offers guidance to asset owners on how to integrate ESG factors into their selection, appointment and monitoring of managers. Through its collaborative network, the PRI has drawn together a wide variety of examples illustrating different investment strategies and styles:  

  • London Pensions Fund Authority (UK), Catholic Super (Australia) and CalSTRS (US) show that asset owners are becoming increasingly sophisticated in ensuring that their managers meet their ESG expectations.
  • RobecoSAM (Netherlands), PGGM (Netherlands) and Co-op Asset Management (UK) show how investment managers are rising to the challenge of integrating ESG factors into their investment decision-making. 
  • The guide includes resources to enable asset owners to include ESG expectations in requests for proposals, questionnaires, monitoring and discussions with managers, as well as sample clauses for manager agreements.

 “Asset owners’ beliefs and expectations about how ESG issues should be managed and disclosed to best contribute to portfolio returns vary across asset classes and over time. The incentives and behaviour of investment managers are often not fully in line with these,” said James Gifford, Executive Director of the PRI Initiative. “Ensuring these interests are better aligned is a fundamental requirement for the delivery of a sustainable financial system, and is central to the mission of the PRI. We know that a growing number of the PRI’s asset owner signatories are exerting their influence and asking their managers to embrace integrated analysis to ensure they discharge fully their fiduciary duty to clients and beneficiaries, and the PRI stands ready to support them with this new guidance and examples of leading industry practice.”

Copies of both publications are available to download from the PRI website.

For more information, contact:

Matthew McAdam
Head of Communications, PRI
+44 (0) 207 749 5141