UN-PRI...Just One More Check Box?

UN PRI278 Asset Owners.  811 Investment Managers. 173 Professional Service Partners.

Everyone’s doing it. To date, 1,262 companies have signed the UN-PRI agreement, pledging to implement the Six Principles for Responsible Investment (view prior post for further detail on Principles).  Seemingly, it bodes well to be a signatory of the UN-PRI…and, more importantly, it is negative to fall behind in this race.  Imagine you are a fund manager with mediocre performance, fighting to win a mandate against two competitors who not only display a superior track record, but they’ve also signed the UN-PRI. Game over. You lose.

So why wouldn’t one sign?  Sure, there is a small fee to sign (of course).  And yes, there is an annual fee for all signatories, calculated on a sliding scale based on total AUM (or number of employees in the case of service providers).  But relatively speaking, the cost of signing the UN-PRI is trivial.

The problem transpires when managers sign the UN-PRI to “check the box”, but fail to implement any real change.  The Six Principles of the UN-PRI are “voluntary” and “aspirational”.  In other words, failure to comply does not result in any legal or regulatory sanctions.  The official UN-PRI website states: “There may be reputational risks associated with signing up and then failing to take any action at all, but the commitments are, for most signatories, a work in progress and a directional focus, rather than a prescriptive checklist with which to comply”.

Humans are innately selfish.  Often, positive or negative reinforcement is a requisite to produce desired behavior.  If ESG-investing has not yet definitively proven to result in long-term outperformance, and there are no negative sanctions accompanied with failure to implement UN-PRI principles, one might contend the incentive is not strong enough to compel managers to change a process.

If the UN-PRI becomes just another check box, is anything truly changing?