The United Nations Principles for Responsible Investment (UN PRI) was launched in April 2006 and has become the de facto global initiative requiring institutional investors to incorporate the inclusion of Environmental, Social and Corporate Governance (ESG) issues into investment analysis and decision-making processes as these can have a material affect on company valuations over the long-term. At Element Investment Managers we had already incorporated ESG issues as an integral part of our investment process from 2001 and it was a natural step to align ourselves with a global body setting out common guidelines such as the UN PRI.
As highlighted by the then UN Secretary-general, Kofi Annan, at the launch of the UN PRI in 2006:
“One of the main problems has long been the troubling disconnect between corporate responsibility as a broadly stated management imperative, and the actual behaviour of financial markets, which are too often guided primarily by short-term considerations at the expense of longer-term objectives.”
The behaviour of financial markets subsequent to the above quote with world markets falling into a credit crisis as a result of speculative leverage in the pursuit of short-term gains at the expense of long-term objectives reinforces our view that in order to be able to outperform, our investment philosophy must be focused on the long-term. In addition, we need to hold management of the businesses we invest our clients’ money accountable for their actions.
The UN PRI emphasizes that as institutional investors, we have a duty to act in the best long-term interests of our beneficiaries. In this fiduciary role, we believe that environmental, social and corporate governance (ESG) issues can affect the performance of investment portfolios (to varying degrees across companies, sectors, regions, asset classes and through time). We also recognize that these Principles may better align investors with broader objectives of society.
As signatories to the UN PRI, where consistent with our fiduciary responsibilities, Element Investment Managers has committed to the six UN PRI principles as set out below:
- We will incorporate ESG issues into investment analysis and decision-making processes.
- We will be active owners and incorporate ESG issues into our ownership policies and practices.
- We will seek appropriate disclosure on ESG issues by the entities in which we invest.
- We will promote acceptance and implementation of the Principles within the investment industry.
- We will work together to enhance our effectiveness in implementing the Principles.
- We will each report on our activities and progress towards implementing the Principles.
The adoption of the UN PRI was a natural evolution of the work that Element Investment Managers had already included in its research and decision-making processes since 2001. We launched the “Element Principles” in November 2004 under our former name and these defined the key areas of performance that we expected from the companies that we invested in on behalf of its clients.
These were as follows:
Communication and disclosure
Financial and economic performance
Respect for shareholder’s rights
Meeting stakeholder obligations
Embracing the challenges of their business environment in which they operate