In early 2005, the UN secretary-general, Kofi Annan, invited a group of the world's largest institutional investors to join a process to develop the Principles for Responsible Investment (PRI).
Individuals representing 20 institutional investors from 12 countries agreed to participate. Five years earlier, Annan had launched the UN's Global Compact (UNGC) as an international initiative to bring companies together to support 10 principles in the areas of human rights, working conditions, the environment and anti-corruption.
Through the power of collective action, the UNGC has sought to advance corporate social responsibility (CSR) so that business can be part of the solution to the challenges of globalisation. In this way, it was hoped that the private sector could usher in a more stable and inclusive global economy. Today, the UNGC comprises more than 3,100 businesses from at least 120 countries, making it the world's largest voluntary CSR initiative.
The obvious synergies between the PRI and the Global Compact initiatives led to the UNGC (and the United Nation's Environmental Programme's Finance Initiative) being asked to partner and mentor the PRI process. The result was the PRI declaration that is open to all institutional investors, investment managers and professional service partners to adopt.
In an increasingly complex and interconnected world, the importance of actively managing environmental risks presents a new set of challenges with far-reaching financial consequences for all corporations. This is true both at the level of companies and at the level of investment portfolios.
The financial industry, perhaps a little later than other corporate sectors, has increasingly come to acknowledge the importance of such issues and signalled its intent to improve their management in core business processes.
Several institutions took an early lead in implementing systems to manage environmental risks in their lending businesses. Other companies started to engage in initiatives aimed at improving accountability and governance or the integration of environmental and social aspects in project financing.
But until the PRI initiative, the international finance industry had not developed a common understanding on ways to improve the integration of Environmental, Social and Governance (ESG) aspects in asset management, securities, brokerage services and the associated buy-side and sell-side research functions.
This was due...