Global evolution of responsible investment

Finding a balance between developed and emerging markets

Responsible investment has its roots in the US and European markets since the 1970’s which explains why responsible investment is centred around western civilization and there may be a bias over practices more common in less advanced markets.

Moving forward into 2021, the PRI’s network includes more than 3,700 signatories and over 90% of them are based in developed markets. Therefore, it makes sense that leadership, new ideas, and the regulatory agenda to come from institutions based in those markets. But at the same time, it is important to consider that responsible investment is a global imperative and it’s gaining more relevance in Emerging Markets (EM) now. For instance, 9% of PRI’s signatories represent EM, they are also the fastest growing number of signatories, with Latin America and China leading the way. Similarly, 115 strategic targets are based in EM, representing 26% of PRI’s growth goals. EMs also have large asset owners with 9 of the top ten sovereign wealth funds being based in EM representing US$4.6 trillion of AUM.

Influence of developed markets on responsible investment

With PRI expanding its operations globally, we can see that the influence of developed markets is both indispensable and inadequate in helping us to think through the actions that are required to consolidate responsible investment in coming years in emerging markets nations. Here are a few examples:

• A recent study by specialists at Dutch investment manager Robeco and the Erasmus School of Economics found that US-based signatories of the PRI “consistently” supported fewer ESG proposals at US companies than their non-signatory peers. The study didn’t focus on emerging markets, where investors have started to become aware about the importance of either developed ESG proposals or why they should support them.

• In 2018, the PRI created a set of minimum requirements for investors. Existing and future asset owners and investment manager signatories who fail to meet these requirements over a two-year period, following extensive engagement with the PRI, will be delisted. Some critics (based in Europe) would argue that the current minimum standards are inadequate or that the membership with PRI is being used to greenwash the image of investment managers without the need to change their behaviour. However, in emerging markets, the current minimum standards are not only adequate, but it is extremely important to support the work of new signatories that are in the early stages of their responsible investment journey since joining PRI.

These examples show why developed markets’ influence is important, but they should not be the only consideration. As signatories invest globally bringing the emerging markets along requires striking the right balance.

The PRI’s objective is to have more investors in developed and emerging markets integrating ESG factors and following our mission that an economically efficient, sustainable global financial system is a necessity for long-term value that benefits the environment and society. This mission will only be achieved if we find a balance between developed and emerging markets’ expectations on what should be considered better responsible investment practices.

This blog is written by PRI staff members and guest contributors. Our goal is to contribute to the broader debate around topical issues and to help showcase some of our research and other work that we undertake in support of our signatories. Please note that although you can expect to find some posts here that broadly accord with the PRI’s official views, the blog authors write in their individual capacity and there is no “house view”. Nor do the views and opinions expressed on this blog constitute financial or other professional advice. If you have any questions, please contact us at [email protected].