PRI Universial Owner Project

PRI Universal Owner Project : Addressing externalities through collaborative shareholder engagement

PRI signatory Trucost has been appointed to undertake phase one (environmental focus) of the PRI / UNEP FI Universal Owner Project.

The Project is currently being conducted in three phases:

Phase One: Literature review: “Materiality of Externalities”
This literature review phase is split into a three part - three emphasis project to fully reflect the Environmental, Social and Governance issues of responsible investment. There will be three distinct projects to address the E,S,and G aspects.

Phase one is environmentally focused; this RFP has just been awarded. Phase two and three will represent two different projects focusing on Social and Governance respectively. PRI and UNEP FI will be releasing the Requests for Proposals for these two projects later this year.

To see the first released Request For Proposals (RFP) for Phase One please click here. Please note that this RFP has been awarded.

Phase Two: Dialogue between economists and engagement experts
Based on the findings from Phase One, the Project will seek to facilitate a one day meeting to bring together selected economists and shareholder engagement experts to discuss the results of the literature review.

The meeting will workshop issues which appear to be good candidates for collective shareholder engagement. It will be convened and organised by the PRI Secretariat.

The goal of this workshop will be to begin to build a consensus on the most important externalities that investors should address, and what type of collective investor action would best address them. Addressing externalities can also include dialogue with public policy makers to improve regulatory frameworks.

Phase Three: Publication
Based on the work conducted in Phase One and Two, the Project will produce a concise report by October / November 2010 with recommendations for collective investor action on a range of externalities, backed by a strong economic rationale for taking such action.

This report would prioritize and, ideally, quantify the externalities, providing a powerful business case for investors collectively to address these issues through collaborative shareholder engagement, targeting both companies and regulators.

Rationale for the Project

Institutional investors own an increasingly large proportion of global assets. For example, U.S. institutional investors’ ownership of 1,000 largest U.S. companies was 76% at the end of 2007, which was an all time high. Pension funds, which, by their nature, have a longer-term investment horizon, continue to account for a large proportion of institutional investor assets.

Institutional investors, including pension funds, insurance companies and many investment management company are often highly diversified across asset classes, sectors and geographies, and many funds use indexing as an important part of their investment strategies. PRI signatories collectively represent more than US$18 trillion in assets. Given such large diversification, returns to these funds (and PRI signatories
overall), are more closely correlated with the performance of the economy as a whole than to any particular company or sector. Therefore by investing broadly in capital markets these funds ultimately internalize both negative and positive externalities that are generated by companies and their ESG practices. This ‘universal ownership’ combined with the long-term horizons of many investors provides a strong rationale for investors to work together to improve the performance of the economy (through addressing externalities), as a whole an important part of fulfilling their obligations to their members, beneficiaries, clients and customers.

The aim of the project is to explore how the most economically harmful environmental, social and governance externalities involving corporations can be identified and then reduced through collaborative shareholder engagement by the owners of these corporations. Some of the issue areas the project could consider include:

Greenhouse gas emissions
Biodiversity and ecosystem services
Resource use and efficiency
Water use
Food security
Corruption
Education
Health/social issues

This list is by no means final or exhaustive and should only be considered as an inidication of potential issue areas included.

Background on the organisations

The United Nations Environment Programme Finance Initiative (UNEP FI) is a global partnership between the United Nations Environment Programme (UNEP) and the financial sector. UNEP FI works with over 170 financial institutions who are signatories to the UNEP FI Statements, and a range of partner organizations to develop and promote linkages between the environment, sustainability and financial performance.

The Principles for Responsible Investment (PRI) is a partnership between UNEP FI, the UN Global Compact and institutional investors. The Principles for Responsible Investment were developed in a UN-backed process with institutional asset owners during 2005 and launched in April 2006 by UN Secretary-General Kofi Annan. They are a voluntary, aspirational set of best practices for the incorporation ESG issues into investment decisions and management. Currently the PRI has over 470 signatories with assets under management of over US $18 trillion.

The PRI in Emerging Markets and Developing Countries is a project funded by the Swedish International Development Cooperation Agency, implemented by UNEP, and managed by UNEP FI. The goal of the project is to promote responsible investment in emerging markets and developing countries through the PRI global framework.

For more information on the UNEP FI and the PRI, please visit www.unepfi.org and www.unpri.org