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PRIs faced with the problem of "greenwashing

Published on July 16, 2020 by Pierre Belhache - 3 mins reading time
Banking watch Environment

Since their launch in 2006, the Principles for Responsible Investment (PRI) have grown exponentially. They have met with widespread success, with 3,000 signatories and over $100,000 billion in assets under management. However, they are confronted with the problem of greenwashing, i.e. a commitment that is declared but not applied. To counter this risk, the organization has decided to reinforce the minimum criteria introduced this year.

PRIs, a showcase for attracting capital

Launched in 2006 by the United Nations, the 6 Principles for Responsible Investment aim to encourage investors to take environmental, social and governance (ESG) issues into account when managing their portfolios. They are aimed at three types of potential signatory: asset owners (e.g. pension funds and insurers), investment managers (e.g. investment management companies serving institutional markets) and professional services partners.

It now appears that some signatories are using the PRI as a showcase to attract capital. As a reminder, greenwashing is the practice of flaunting one's commitment to the environment without any real impact. A recent study showed an average 4.3% increase in quarterly fund inflows following the signing of the PRI on a panel of 480 funds held by 82 American fund managers. However, there was no average improvement in ESG ratings. The authors of the study therefore concluded that some investors had succumbed to the temptation of greenwashing.

A strengthening of the minimum criteria imposed on PRI signatories

Since 2018, PRI has adopted 3 criteria that signatories are required to meet. They must have a responsible investment policy covering more than half of assets under management. They must appoint an employee responsible for implementing this policy. Finally, this policy must be supervised by a member of the Executive Committee. Noting that certain minimum criteria were not being met, the organization decided to exclude several signatories in August 2020. " No more than 10% of signatories will be excluded," said Marie Luchet during a videoconference. The PRI manager for continental Europe points out that other reasons may lead to exclusion: non-payment of dues and failure to publish reporting.

The minimum criteria imposed on signatories to the Principles for Responsible Investment will be reviewed this year. Marie Luchet points out that "the aim is not to exclude members but to help them improve, and the PRI philosophy is not to punish but to support". The organization works with them for 2 years through dialogue and commitment before making its decision.