Accountability is, of course, at the very heart of investment. Without an accurate accounting of assets and liabilities, commerce is impossible. Investment is impossible. Modern capitalism is impossible. Accountability is the defining force of the modern investment chain. Company management is accountable to its shareholders; investment managers are accountable to asset owners; asset owners to their beneficiaries.
Accountability is also at the heart of responsible investment. The last of the six Principles is, some argue, the most important: it requires signatories to report on their activities and the progress they are making towards implementing the Principles.
For a voluntary initiative such as the PRI, this disclosure is vital. The danger posed to the mission of the PRI is that signatories can hide behind their membership of the organisation, and make little or no progress towards implementing responsible investment.
There is some evidence that this is taking place.
The message from our leading asset owners on this question has been clear: in their responses to our consultation to develop our 2015-18 strategic plan, a significant number questioned the commitment of some investment management signatories to responsible investment. They complained that, even after several years of membership, some had not put comprehensive responsible investment policies, procedures or resources in place. Some asset owners said they no can longer select managers purely on the basis of whether they are a PRI signatory, as this no longer allows them to distinguish between leaders and beginners.
Among leading investment managers, meanwhile, there are some who have invested significant resources in developing responsible investment capacity, but feel they aren’t being recognised by the PRI, or rewarded by asset owners, for their commitment and performance. They are not seeing their responsible investment capability rewarded in the mandate process. This makes it difficult to defend the investments made, or to argue for increased resources.
We also acknowledge the frustration sometimes expressed by investment managers, when rhetoric doesn’t always match reality. For example, some asset owners want their investment managers to invest for the long term, but they also want the right to fire them at a moment’s notice if they don’t perform. Such mixed signals make it impossible for investment managers to deliver the long-term investment products that the market needs.
There is strong support amongst signatories for the PRI to delist signatories who make little no progress, or behave contrary to their commitments to responsible investing.
When it comes to accountability, it is important for the PRI to continue to support and encourage asset owners to take the lead. Asset owners sit at the top of the investment chain. They ultimately control how investments are managed, they dictate how much emphasis is given to responsible investment practices when selecting, appointing and monitoring managers and they provide the revenue needed.