The United Nations' Principles for Responsible Investment (UN PRI) initiative – long a widely accepted standard in Europe and the US – is stepping up its focus on and activities in Asia, with increasing success.
To help fund its expanding efforts in the region and elsewhere, the UN PRI initiative is in the process of imposing a mandatory fee on organisations that wish to become or remain PRI signatories.
James Gifford, London-based executive director of the UN PRI initiative, says that 85% of current members have either paid or committed to pay the entity-size-dependent annual fee, which he sees as a “fantastic response”.
The big institutional investors are largely responding positively, he adds, and it is mainly smaller service and consulting firms that are dropping off the list. “The larger the organisation, the more likely they are to commit,” says Gifford.
PRI membership provides benefits such as an archive of information about what activities have been taken by other signatories, and help with collaborating on moves to change corporate behaviour.
The charging of mandatory fees will also allow the initiative to have more people on the ground in Asia – currently it has a representative in both Japan and Korea that it put in place last year. Further down the line, the same will be true in other markets, most likely China or Hong Kong, India and Southeast Asia, says Gifford.
“More resources will allow a real push into the Asian market in a way we have been unable to do in the past,” he says. It will enable the organisation to really demonstrate that the issues involved are key to impacting returns, says Gifford, whether they involve labour disputes in the supply chain or food safety, for example.
“An entire industry can collapse because of a governance or corruption scandal,” he says, noting that “traditional socially responsible investing is ethics-based and a retail movement. PRI is very much risk- and opportunity-based and an institutional movement.”
Moreover, Gifford says the strong returns that are possible from responsible investment are clear from the portfolios of the International Finance Corporation (IFC), the private-sector arm of the World Bank. The IFC was a partner with the UN PRI initiative on both its recent events, among others. Its returns are significantly stronger than those of typical pension funds, he says.
“Companies that manage environmental risk and relationships with shareholders and employees well and are well governed are best placed to prosper over the long term,” adds Gifford.
The Jakarta event on June 8 saw involvement from the financial watchdog, Bapepam, as well as institutions including state social security system Jamsostek and fund managers First State Investments and Mandiri Investasi. The forum in Ho Chi Minh City on June 6 incorporated participation from a similarly high level of organisations and individuals, such as the State Securities Commission and asset managers such as Dragon Capital and private equity firm Vietnam Holdings.
Their contributions reflect understanding among the country’s investment community of the growing importance of SRI.
These events followed similar forums organised by the UN PRI initiative in China and Japan late last year. The Xiamen conference featured the Sustainable Stock Exchanges 2010 global dialogue, which is an initiative aimed at exploring how the world’s exchanges can work with investors, regulators and businesses to encourage responsible long-term approaches to investment.
Such efforts are starting to bear fruit in Asia, notes Gifford. Bursa Malaysia, the Kuala Lumpur-based stock exchange, is “very progressive” on environmental, social and governance (ESG) issues, he says, and the Indonesian stock exchange launched an SRI index in 2009. Shenzhen and Shanghai also both have ESG indices, and the Stock Exchange of Thailand is also looking into this area.
A major further boost would come from the support of one of the huge Chinese sovereign funds, such as the National Council for Social Security Fund or State Administration of Foreign Exchange, admits Gifford, and the PRI will be working towards that.
The growing importance of ESG factors and responsible investment in Asia is also reflected by moves over the past 18 months or so by international fund managers – such as BlackRock, BNP Paribas Investment Partners and HSBC Global Asset Management – to put ESG specialists in the region.
Moreover, this week Hong Kong-based ESG and carbon advisory firm RepuTex launched an Asian ESG data service. This provides companies and the investment community with detailed information on the environment, social, governance and workplace practices of the top 1,100 stocks in Asia ex-Japan markets.
This is not the first offering in this space, however. Singapore-based Responsible Research has for several years provided data to investors on ESG practices of Asian companies through its proprietary Asian Sustainability Ranking. This ranks the 750 largest Asian ex-Japan companies by market cap according to their disclosure on around 100 ESG criteria and is updated annually, with the next ranking due out in September.