The UN Principles for Responsible Investment (PRI) asset owners and investment managers failed to hire enough experts in responsible investments, according to a report from a climate change think tank released on Tuesday (21 March).
The PRI is a voluntary initiative set up by the United Nations to help investors understand the investment implications of environmental social and governance factors and help them incorporate them into their investment decisions.
According to think tank E3G’s Missing in Action report, 33% of PRI asset owners and investment managers signed up to the PRI, do not employ any environment, social or governance (ESG) specialists.
Another 20% of signatories only employ one expert, meaning that more than 500 of top investment companies have one or fewer specialists in responsible investment on their payroll, the report said.
PRI is the world’s leading proponent of responsible investment, managing over €6 trillion in assets.
“Responsible investments,” according to PRI, is an approach to investing that aims to incorporate environmental, social and governance (ESG) factors into investment decisions, to better manage risk and generate sustainable, long-term returns.
Not hiring specialists puts its client’s assets and overall global economic stability at risk, the report said.
“If these companies do not have the capacity to assess climate change risk they are not only putting their own companies at risk, they are locking in investment in a high carbon future that has the potential to cause a global economic crash,” Ingrid Holmes, the director of E3G, said.
Joy Frascinella, head of public relations at PRI, said it’s important to know that many experts are part time or are consultants sought after by the signatories, so those would not show up in the overall percentage.
“The PRI completely agrees that organisations which are not assessing climate risk are potentially exposing their investments to long-term uncertainties. Directly employing expertise is not however, the only way for investment organisations to understand risk,” she stated.
“For example, many asset owners require their investment managers to undertake risk assessments on their behalf or rely on asset consultants or other experts for advice,” Fiona Reynolds, PRI’s managing director, remarked.
“Many PRI signatories have been actively involved in understanding climate risk and taking steps to mitigate that risk. This action has included a wide range of activities including carbon foot printing, divestment, allocations to low-carbon, engagement at a policy level and a company level and in signatories voting their proxies in line with climate action,” she added.
The report also said that by failing to employ ESG specialists, these investors are increasing the chances of an economic shock as “dangerous levels of climate change” continue to unfold.
This put the goals of the Paris Agreement in jeopardy, according to the report. The agreement, signed by 174 countries and the EU, aims to keep global warming below 2 degrees Celsius.
“The globally agreed goal of keeping the increase in the global temperature to well below 2°C can only be met if investors fully appraise and respond to the risks and opportunities posed by climate change,” the report stated
“These investors are at the heart of the solution to avoiding dangerous climate change. Climate change is a global emergency and the investment community must now act accordingly,” Holmes added.
Mike Clark, founder director of Ario Advisory, said in order to drive critical change policymakers and regulators need guidance in order to develop “robust” policies aimed at addressing climate-related risks.