Creating long-term value requires a sustainable global financial system

10-year Blueprint commitments:

  • address key obstacles to creating the sustainable financial system that long-term investment performance requires;
  • champion changes that would promote long-term investing; and
  • target behaviours, practices and incentives that create short-termism.

Global policy engagement programme

We continue to engage with policy makers around the world, with a focus on the European Union, China, Japan, the US and UK. Our work this year has included engaging with G7 and G20 host governments on aligning financial policy with sustainability; updating our regulation database to cover 650 sustainable finance policies globally and publishing a policy toolkit with the World Bank on how policy makers can contribute to a sustainable financial system.

Signatory engagement with policy makers

Between 2018 and 2020[1], signatories have reported an increase in their engagement with policy makers, from 46% to 51% respectively. As this is considered an advanced responsible investment practice, it was not a formal measure for the 2018-21 strategy period. However, in line with enhancing signatory accountability and fulfilling our ambitious 2021 - 2024 strategy, it will be adopted as a key performance indicator for the next three years.

Policy consultations and briefings

We responded to 52 consultations and published 18 policy briefings in 15 markets, including:

  • five country climate policy roadmaps (EU, UK, US, China, Japan);
  • on the EU sustainable finance strategy, the EU taxonomy and disclosure regulations as well as the EU sustainable corporate governance initiative; and
  • on ESG disclosure in China, green project classification, and China’s climate goals.

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The PRI, UNEP FI, and The Generation Foundation commissioned Freshfields Bruckhaus Deringer to:

  • research how investors in 11 major jurisdictions can manage their fiduciary and impact duties within existing legal frameworks; and
  • make recommendations for policy changes where legal impediments restrict investors from incorporating sustainability impact in their investment decision-making.

The first report from this research found that while there are differences across jurisdictions and investor groups, where investing for sustainability impact approaches can be effective in achieving an investor’s financial goals, they will likely be required to consider using them and act accordingly.

It also provides options for policy makers wishing to facilitate investing for sustainability impact, including changing investors’ legal duties and discretions.

The report’s findings will now form the basis of a multi-year work programme that will include policy-maker engagement and supporting investors via workshops and tools to advance their practice, initially in five of the markets studied: the EU, Australia, Canada, Japan, and the UK.

Read about this work here.

European Union

The EU Taxonomy

The EU’s Sustainable Finance Taxonomy takes an important step towards ensuring that capital markets contribute to a low-carbon, resilient and resource-efficient economic transition, which we supported throughout its development by participating in the European Technical Expert Group on Sustainable Finance.

This year we coordinated a practitioner group of 40 signatories that tested the taxonomy on a real portfolio, resulting in a series of case studies and a report that provide guidance on its implementation.

PRI Chief Responsible Investment Officer, Nathan Fabian, has also become chair of the EU’s Platform on Sustainable Finance, established in October 2020.

Our work has been guided by three priorities:

  • engaging in debate about financial services legislative reform so that the EU continues to lead with innovative, progressive financial services policy to encourage the financial system to support inclusive, equitable economies;
  • advancing policy reforms related to ESG data disclosure;
  • engaging member state governments in France and Germany to effectively implement the EU sustainable finance strategy and support further policy reforms in aligning capital markets with sustainability outcomes.

We published Investor priorities for the EU Green Deal, providing recommendations on how investors can scale up their contribution to the EU Green Deal, responded to a Multiannual Financial Framework (MFF) and Next Generation EU position paper and updated an investor briefing on the Sustainable Finance Disclosure Regulation, explaining the reporting requirements and providing guidance on the identification of principal adverse impact.

US

Our work has focused on three major areas:

  • establishing mandatory, standardised corporate ESG disclosures;
  • supporting and protecting investors’ rights to be active owners and utilise proxy advisory firms for impartial voting advice; and
  • amending fiduciary duties to require consideration of ESG factors for lasting change.

We responded to proposed rulemaking by the Securities and Exchange Commission (SEC) and Department of Labor (DOL), including:

We also published several reports and briefings, including our US Policy Priorities for 2021, in advance of President Biden’s inauguration.

The Biden administration has worked quickly to address the health and economic crisis, with a focus on climate solutions and equity across federal agencies, presenting opportunities for responsible investment growth. We expect several sustainable finance policy developments across agencies and in Congress during the next fiscal year, as the US looks to recover from COVID-19 and progess on climate change.

China

Our work has focused on:

  • Corporate ESG disclosure
  • Responsible investment guidelines and regulations for asset owners and investment managers
  • Climate policy recommendations that contribute to China’s carbon neutrality goal

Our consultation responses on Listed Companies Information Disclosure Regulation and Guidelines on Investor Relations Management of Listed Companies recommended that the China Securities Regulatory Commission develops a mandatory, standardised disclosure framework to provide investors with comparable, investment-grade ESG data, as this remains the biggest barrier for sustainable investment in China.

We also engaged regularly with Chinese policy makers and standard setters on the importance of stewardship, with discussions now underway on the introduction of China’s first stewardship code.

UK

This year, we prioritised advancing regulation and guidance for actors throughout the investment chain on reporting against the Task Force on Climate-related Financial Disclosures (TCFD) recommendations. We responded to several consultations relating to TCFD for pension funds and listed issuers and helped organise a roundtable relating to the Financial Conduct Authority’s TCFD proposals for investment firms. Several staff members also acted as secretariat for the PRA-FCA Climate Financial Risk Forum’s Disclosure Working Group.

More broadly, we advocated for international harmonisation with the UK’s approach to corporate reporting and its formulation of a green taxonomy, sharing insights from our Taxonomy Practitioners Group.

We launched our first climate policy briefing in June 2020 and engaged with policy makers on real-economy climate policy and the role investors can play in supporting a green transition, particularly with respect to the transport sector.

Japan

This year we published out first Sustainable finance policy briefing on Japan’s sustainable finance policy framework, as well as recommendations on further policy reforms to the national sustainable finance strategy, stewardship and corporate governance, ESG and climate disclosures, and asset owner regulations.

We have been engaging with financial and climate policy makers to support this work, including through letters to ministers and engagement on the G7 and G20 and Japan’s role on multilateral policy reform.

Other jurisdictions

We have responded to consultations and engaged with policy makers in Singapore, Australia, Canada, Hong Kong, South Africa, Russia, Peru, India and Israel, on sustainable taxonomies, ESG disclosure policies and ESG integration for pension funds, among others.

Our policy toolkit, published with the World Bank, provides additional material we use when engaging with policy makers and regulators on sustainable finance policy reforms in markets where we do not have policy staff on the ground.

Sustainable retirement systems 

The design of private retirement systems often undermines the ability of plan boards and managers, acting on the behalf of workers and savers, to be responsible investors, active stewards, and allocators of capital to economic activities with desirable social and environmental outcomes.

To address this, we have started building a knowledge base for policy makers, industry participants and academics to foster further debate about how retirement systems can be designed to deliver financial security for participants while not undermining healthy social and environmental outcomes.

This year we published reports examining the private retirement systems of Australia, the UK and the US, as well as a paper comparing the three markets. We will expand the research to analyse more countries and will further develop proposed interventions in collaboration with national and international partners, including policy makers, academics, and industry groups.

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References

[1] 2021 data not available due to issues experienced with the Reporting Framework tool. For more detail, see Showcase leadership and increase accountability.