Policy, structure and process

Report Contents

Overview

• This guide provides a quick summary of how an investor can develop and implement a responsible investment policy and related processes.
• It covers how to embed responsible investment into an organisation’s structure and processes – starting with the investment policy.

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The PRI defines responsible investment as a strategy and practice to incorporate environmental, social and governance (ESG) factors in investment decisions and active ownership.

This guide will first take you through the following steps to embed responsible investment into organisational structure and processes:

POLICY	TARGETS	TRAINING	ESG TEAMS AND COMMITTEES	INVESTMENT CONSULTANTS	MONITORING AND REPORTING	REVIEW
The purpose of a policy and its key components	Turning policy commitments into concrete goals	Identifying skills gaps and staying abreast of latest development	Standalone ESG and investment teams versus integrated teams	How to align external help with the policy	Monitoring progress towards targets and reporting that information to stakeholders	Evaluating successes and failures

Policy

Responsible investment can be integrated into investment policies in many ways, including high-level public statements, codes of business practice, a standalone responsible investment policy or by embedding responsible investment considerations into an organisation’s main investment policy.

INTEGRATED INVESTMENT POLICY	STANDALONE RESPONSIBLE INVESTMENT POLICY
Investors can develop their core investment policy to cover all long-term factors, thus aligning responsible investment decisions with mainstream policy considerations.	Not all investors areready to incorporate their responsible investment objectives into their core investment policy. Developing a separate responsible investment policy can be a good place to start.

A policy has many purposes, including:

• serving as a starting point to discuss the organisation’s position on ESG issues with external and internal stakeholders;
• clarifying how an investor interprets its fiduciary responsibilities to beneficiaries and clients;
• guiding external asset managers on how they should handle ESG issues;
• demonstrating the organisation’s responsible investment approach to regulators, clients and other stakeholders.

Writing a policy

There is no one-size-fits-all approach to writing a policy; it must reflect the organisation’s unique attributes, goals and purpose, and avoid generic or boilerplate language. However, most policies include the following components:

• Purpose: Why the policy has been developed and how the organisation defines responsible investment
• Scope: Whether the policy applies to all assets under management, or certain geographic regions or asset classes
• Legal and regulatory factors: The legal and regulatory requirements or fiduciary responsibilities guiding the organisation
• Responsibilities: The individual(s) accountable for achieving the policy’s commitments
• Implementation: How the organisation plans to fulfil the commitments and monitor progress
• Engagement: How the organisation will encourage investees to improve ESG risk management and develop more sustainable business practices
• Reporting: How the organisation intends to report on progress
• Review: How and when the policy will be reviewed

Implementing the commitments set out in a policy requires an investor to have appropriate systems in place throughout the organisation.

Targets

Policy commitments should be backed up by specific quantitative or qualitative targets, with deadlines where relevant. They can be grouped into organisational changes or portfolio impacts. Typical areas to cover include:

• staff training;
• company engagement results;
• reducing the portfolio’s carbon footprint.

Training

Training on responsible investment can raise awareness of a policy internally and ensure that staff have the information and tools required to meet the stated policy commitments. The PRI Academy, an online platform, offers the Getting Started in RI, Foundations in RI, Advanced RI Analysis and RI for Trustees courses, both for individuals and across organisations.

Explore PRI Academy

ESG teams and committees

The way a company chooses to include ESG staff in its organisation will depend on a range of factors including the organisation’s resources, business model, client base, existing responsible investment expertise and team structure. Two common approaches are to have a standalone ESG team or to integrate ESG knowledge into an investment team – or a mix of both.

Integrated responsible investment teams versus standalone ESG teams

INTEGRATED RESPONSIBLE INVESTMENT TEAMS	STANDALONE ESG TEAM
Portfolio managers and investment analysts analyse ESG issues and integrate their findings into overall investment analysis and decisions, as well as handling engagement activities. This approach often relies more heavily on external data, research and analysis.	A standalone ESG team conducts the ESG analysis and engagement activities, which the investment teams integrate into overall investment decisions. These approaches tends to involve more bespoke research and analysis. Standalone ESG and investment teams should work closely together, meet regularly and communicate proactively.

For investment managers, ESG committees overseeing the integration of ESG into investment and business decisions might involve internal or external experts, with a mix of investment, research, leadership and risk management expertise, as well as client managers. This ensures all organisational perspectives are considered when implementing the policy.

Investment consultants

Asset owners should ensure that the service they receive from their investment consultants, whether covering specific assignments or the full-service suite, are aligned with their own responsible investment objectives, strategies and policies.

This involves assessing issues such as:

• Alignment: Are the investment consultant’s ESG-related principles aligned with those of the asset owner?
• Senior-level commitment: Are the investment consultant’s senior management team and the business as a whole committed to ESG investment services and responsible investment?
• Capabilities: Does the investment consultant have the systems, resources and experience it needs to support the implementation of the asset owner’s ESG-related principles?

Monitoring and reporting

Monitoring progress and reporting to stakeholders can be done through a variety of organisational, fund and investment-level mechanisms. Reporting may need to be tailored to specific audiences, such as clients, trustees, employees, regulators, civil society and the media.

Examples of tools for reporting responsible investment activity:

PRI Reporting Framework - PRI signatories are required to report on their responsible investment activities annuallyGlobal Reporting Initiative (GRI) Standards including G4 Sector Disclosure for financial services - a global standard for sustainability reporting  

ORGANISATIONAL LEVEL
PRI Reporting Framework - PRI signatories are required to report on their responsible investment activities annually	Global Reporting Initiative (GRI) Standards including G4 Sector Disclosure for financial services - a global standard for sustainability reporting	Task Force on Climate-related Financial Disclosures (TCFD) - a framework for translating nonfinancial information about climate change into financial metrics

FUND LEVEL
GRESB to assess and benchmark the ESG performance of real assets	EU taxonomy to provide investors with a definition of whether an economic activity is sustainable

INVESTMENT LEVEL
Sustainability Accounting Standards Board (SASB) industry standards - defining material ESG issues by sector	GRI Standards and G4 Sector Disclosures	IRIS’s catalogue of ESG and impact metrics

Review

A policy must be reviewed regularly to measure success and determine whether it continues to reflect the organisation’s investment beliefs. For example, there may be new approaches to responsible investing that could be incorporated, or the organisation may have expanded into a new asset class that the policy does not yet cover. If targets have not been met, it is important to evaluate what went wrong and why, and introduce measures to ensure future success. PRI signatories can evaluate their responsible investment progress through PRI Reporting, including benchmarking their performance against their peers.

For organisations that are looking to increase their responsible investment commitments, the PRI Leaders’ Group offers examples of investors at the cutting edge of responsible investment, to encourage others to improve their performance and share their own examples of good practice. Where the Leaders’ Group recognises organisational excellence on a particular theme, the PRI Awards showcase examples of individually excellent projects.