Principles for Investors in Inclusive Finance (PIIF): Report on Progress 2014

In this report we analyse data from both indirect investors, who invest through fund managers and other intermediaries, and direct investors, who invest directly into retail institutions which provide financial products and services to the end client.

Indirect investors

Implementation of the PIIF among indirect investors is low

• Around 60% of indirect investors in inclusive finance take the PIIF into account in due diligence and monitoring, this number drops to around 40% who do so in contracts and mandates.

Direct investors

Investors support broadening the range of services offered, and client groups covered, by investee retail institutions but few collect data on this

• 73% of respondents support the provision of voluntary savings and 63% voluntary insurance products but only 50% and 33% respectively measured how many of their investee retail institutions offered such services.

The Client Protection Principles are universally accepted among investors but few encourage implementation by retail institutions

• 90% include client protection in investment policies. This number drops to 63% who include this in covenants in loan agreements and in financing or shareholder agreements, and to 53% who encourage investees to apply for certification.

Investors are taking action to ensure fair treatment of the retail institutions they’ve invested in, but formalisation and consensus around best practice is lacking

• While investors reported that they maintain ongoing dialogue and support for investees to ensure their fair treatment, typically less than half have formalised such practices in written policies and procedures.

Social performance is key to investment decision making but more can be done to incentivise improvement

• 94% of direct investors include such criteria when assessing retail institutions and 82% in portfolio management. Less than half of investors incentivise investees on social performance, however.

Investors recognise the importance of governance and environmental issues

• 85% assess the board composition of retail institutions pre investment; and 73% board compensation. However, these figures on governance are lower post-investment. On the environmental side, 91% of investors integrate environmental considerations or use environmental exclusion lists in their investment decision process.

Investors disclose information aligned with industry standards and encourage investee retail institutions to be transparent to clients.

• Three quarters of the respondents provide clients and/or the public with information aligned with industry standards such as the MIV Disclosure Guidelines and the Impact Reporting and Investment Standards (IRIS). 85% of investors encourage investee retail institutions to be transparent about pricing and 76% about other terms and conditions.

There is collaboration between investors but less so between investors and investee retail institutions

• 88% of investors support PIIF, with many also supporting other collaborative initiatives. Few, however, encourage their investees to take part in these initiatives, with the exception of the Smart Campaign on client protection.

Conclusion

While the results of this snapshot on industry practices are encouraging the missing element is the depth of implementation of these practices.

Top level support is important but indirect investors, such as pension funds, need to oversee these investments more robustly by formalising expectations into contracts with their fund managers and then monitoring against these over the lifecycle of the investment.

The focus for further implementation should be around improving the range of services, upgrading governance practices of investee retail institutions, broadening and deepening the integration of environmental issues and the formalisation of fair treatment practices. Overall, investors can support their investee retail institutions and encourage them to join in collaborative industry initiatives.