PRI's new reporting framework – are you ready?

View our PDF here.

On 12 November 2020, Principles for Responsible Investment (PRI) issued significant updates to the reporting framework (RF) for signatories. The new requirements are more focused on "real world" outcomes meaning signatories needs to show how environmental, social, and governance (ESG) factors are integrated into investment analysis and execution. Many firms are now racing to get aligned with the enhanced requirements.

It is compulsory for signatories to report on their responsible investment (RI) activities annually and it is one of the explicit commitments PRI signatories make upon signing the Principles. The new RF is effective for the 2021 reporting cycle, and all current PRI signatories must report on their RI activities by 31 March 2021. PRI's reporting timeline is found below.

Source: PRI, 2021

Why has PRI introduced a new framework?

The new RF is a result of an almost two-year consultation with signatories and stakeholders to further action PRI's 10-year plan released in "A Blueprint for Responsible Investment" (PRI, 2017). In this blueprint, PRI set out 9 key actions – one key action focused on  increasing accountability amongst signatories. PRI committed to define a minimum standard of activity that signatories must achieve; to monitor and engage with those that are not meeting this standard and delist any that fail to do so over a two-year period; and to delist signatories that contravene the spirit of the Principles. Delisting is a last resort if a signatory has not met the requirements after the two-year period.

"There are currently 15 signatories at risk of being delisted for failure to meet the minimum requirements for PRI membership in 2021." (PRI, 2020).

PRI has actioned its commitment to increasing accountability with the release of its latest framework requirements. By adding more accountability, PRI has added more weight to what it means to be a PRI signatory. The changes set a process in place to move signatories beyond simply releasing a policy statement, to showcasing how policies are integrated into investment processes.

Now is the time for action: we’re ready, our signatories are ready and the world’s people deserve a response.” (Fiona Reynolds, PRI).

What are the key changes?

The updated reporting requirements include mandatory questions on processes used for identifying investment outcomes. There are also additional, voluntary questions on how signatories are trying to shape outcomes and how progress at these firms is being measured. The modules have been modified to be simpler, shorter and more consistent – we have highlighted key changes below:

  1. Introduced a Core and Plus model (see below figure).
  2. Reduced the number of indicators and sub-indicators by 50%.
  3. Introduced a Senior Leadership Statement – a new module introduced that includes mandatory but unscored questions that details a firm's approach and achievements on responsible investing.
  4. Key themes collected in Investment and Stewardship Policy (ISP) module to reduce repetition – previously included in the strategy and governance module, the ISP has been expanded to include climate change questions.
  5. Removed largely descriptive indicators and/or geared towards what signatories are doing rather than how.
  6. Updated scoring system – the new methodology moves away from the star-based system to a points-based system. Each core question is assessed out of 100 points and each core question within each module carries a weighting.
  7. Content changes:

a) Climate change – this is now integrated in both the ISP and asset-class specific module, previously climate change content was included as a separate module. There a now core questions for climate that are mandatory to report and are scored. Previously some questions were mandatory to report but voluntary to disclose and were not scored. Several voluntary questions are aligned to the Taskforce on climate-related financial disclosures (TCFD) recommendations.

b) Introduced confidence building measures – focuses on what measures have been taken to verify information disclosed in the PRI report. Previously these questions were part of a closing module and therefore were not scored. The new RF includes ISP core questions around the confidence building measures.

c) Sustainability outcomes - this is a voluntary module with questions detailing sustainability outcomes policy. Questions related to outcomes are also found as core questions in the ISP module, as such these are scored.

 

Ogier Global ESG and Impact Services

Ogier Global's ESG and Impact Services team offers bespoke ESG and Impact design, integration, and implementation solutions.

We support our clients to navigate ESG goals and reporting requirements such as PRI.

We can assist you on your PRI journey by helping you:

  • Understand what information you need to report
  • Collect and review data for submission
  • Translate policy statements into investment actions

Note: if you are a new signatory to PRI you do not have to report in your first year, but it is important to get familiar with the process so you are ready ahead of your future reporting requirements. It is compulsory for signatories to report on their responsible investment activities annually and it is one of the explicit commitments PRI signatories make upon signing the Principles.

Find out more about our ESG and Impact Services here.

About Ogier

Ogier provides practical advice on BVI, Cayman Islands, Guernsey, Jersey and Luxembourg law through its global network of offices. Ours is the only firm to advise on these five laws. We regularly win awards for the quality of our client service, our work and our people.

Disclaimer

This client briefing has been prepared for clients and professional associates of Ogier. The information and expressions of opinion which it contains are not intended to be a comprehensive study or to provide legal advice and should not be treated as a substitute for specific advice concerning individual situations.

Regulatory information can be found at www.ogier.com

ogier.com