Most asset owners are failing to implement effectively their commitments to responsible investing, according to a new report.

The UN’s Principles for Responsible Investment unit (UNPRI) says institutional investors are not paying enough attention to environmental, social and governance (ESG) issues when formulating investment strategies and issuing mandates to external managers.

Even though many asset owners have made commitments to responsible investment by becoming signatories to the PRI, most have yet to ensure these commitments are effectively implemented. 

UNPRI said there were inconsistencies in investment practices across different asset classes, high-level statements on ESG issues were often missing from investment beliefs, and responsible investment commitments were not embedded in investment mandates.

Fewer than half of PRI asset owner signatories include specific guidelines on environmental and social issues and in many cases investment mandates lack detail on asset owners’ specific expectations of their managers in respect of ESG factors.

“This creates a multiplier effect throughout the investment market, said Fiona Reynolds, managing director of UNPRI. "Weak implementation of responsible investment by individual asset owners sends signals to the investment market as a whole that responsible investment is not a priority for asset owners. 

“In turn, this limits the willingness of investment consultants and investment managers to focus on responsible investment and ESG issues in their products and in their advice.”

UNPRI said asset owners must be more assertive in articulating their commitment to sustainability in their investment beliefs, integrating these into mandates and proactively engaging with their investment managers. 

The number of asset owners implementing responsible investment practices includes strategically important asset owners such as Japan's Government Pension Investment Fund, said UNPRI. 

There are 1,500 signatories to the principles globally, including 305 asset owners and 989 investment managers. Asia-Pacific institutions’ adoption of the PRI code is strongest in Australia and New Zealand, which have 43 asset owner signatories between them.

But the region as a whole is lagging. Nine institutional investors in Japan and Korea’s $430 billion National Pension Service are signatories, but the only other participants in the rest of Asia (excluding Australia) are the Indonesian Biodiversity Foundation and Thailand's Government Pension Fund. 

Bryan Thomson, chairman of the PRI Policy Advisory Committee, said: “If we, as asset owners, want investment markets to take responsible investing seriously, then we must start by demonstrating our commitment. Signing up to the PRI or adopting a responsible investment policy, while important, is not enough. Responsible investment must be central to our investment beliefs and processes.

Not all asset owners are failing the test. The PRI said responsible investment was deeply ingrained in certain institutions’ investment processes. 

But even an institution with well-established ESG principles, such as New Zealand Superannuation Fund, highlights challenges. Anne-Maree O’Connor, head of responsible investment at NZ Super, said: “It took us time to integrate and align our ESG beliefs with other beliefs, such as those relating to diversification and whether investment skill leads to outperformance.”

She added that NZ Super was still researching how best to integrate ESG issues into allocations to hedge funds and other funds that use derivative-type instruments.