A technical guide for asset owners and investment managers.
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Executive summary
A responsible investment policy guides an organisation onasset allocation, investment decisions, how stewardshipis carried out and how it reports on its activities, ensuringconsistency and longevity.
It allows investors to outline what they do and why they doit – for example, how they view environmental, social andgovernance (ESG) risks and opportunities and system-levelsustainability issues or how they interpret their fiduciaryduties in relation to ESG incorporation or active ownership.
Client and beneficiary demand has grown, regulation hasdeveloped and there is an increasing understanding of thefinancial materiality of ESG issues, and a focus on real-worldoutcomes. These factors have all contributed to responsibleinvestment practices evolving rapidly in recent years, movingfirmly from niche to mainstream.
As a result, investment managers’ and asset owners’ policieshave also progressed and are being updated to reflectnew practices and areas of focus. These documents havedeveloped from simple statements to sophisticated multi-pagedocuments and websites with a wealth of detail.
This guide aims to highlight what investors should considerbefore writing or updating a policy, what they could includeand what reporting, monitoring and reviewing a policy mightlook like in practice.
It draws on previously published guidance, the ReportingFramework and associated minimum requirements of beinga PRI signatory, and where relevant, highlights examples ofleading practice that readers can use to inform their owndocuments.
Developing and updating a responsible investment policy
Considerations before writing
Before developing (or updating) a responsible investmentpolicy, asset owners and investment managers shouldconsider:
- the purpose and audience it will serve;
- its structure and scope;
- relevant sustainable finance regulations;
- how it will fit with – and reflect – their fiduciary duties,investment strategies and beliefs; and
- the resources and stakeholder buy-in needed to write,approve, and implement it.
Organisations should also identify if they already havepolicies on certain operational issues, such as stock lendingor conflicts of interest, and how these will exist alongside aresponsible investment policy or be incorporated into (andreplaced by) the latter.
As investors increasingly recognise that long-term financialreturns largely depend on the viability of environmentaland social systems, they should consider system-levelundiversifiable sustainability issues such as human rightsand climate change.
Investors should then consider how – in line with theirfiduciary duties – their investment and stewardship activitiescan address these systemic risks by developing mitigationstrategies using their levers of influence, ensuring theirinvestment beliefs, strategy and policy documents overallreflect the approach they take. Finally, undertaking a peerreview can help align with leading practice.
What to include
There are many components that asset owners andinvestment managers can choose to include in theirinvestment policies, and these will vary in detail dependingon their level of responsible investment experience,mandates, and whether the policy is an all-encompassingdocument or something that complements other policiesand statements.
An introduction can provide context around how a policywas developed, its governance, purpose, scope and thebeliefs, objectives, and stakeholder, client, or beneficiaryneeds that underpin it. It can also set out an organisation’spositions on core ESG issues, such as human rights andclimate change, how issues interact with each other, andhow the organisation wants to contribute to creating asustainable financial system.
A section on investment guidelines and objectives can beused to explain broadly how an organisation will incorporateESG considerations within its investment processes,including any specific targets it has and what it needs to doto achieve them.
Investors may choose to outline their ESG incorporationapproach(es), such as screening, ESG integration orthematic investing, in more detail.
Investors should also cover how they approach stewardshipin their responsible investment policy, including how thiscontributes to their responsible investment objectivesand beliefs, and any sustainability outcomes that they arepursuing. Some organisations choose to have a standalonedocument covering stewardship, or specific stewardshipactivities such as engagement.
Reporting
Signatories to the PRI are expected to report on theiractivities and progress towards meeting the Principlesannually, while providing transparency to clients and/orbeneficiaries is considered industry best practice.
As such, asset owners and investment managers canhighlight their reporting practices in their responsibleinvestment policies. Doing so can help ensure that theyare held accountable for implementing their responsibleinvestment policies.
Monitoring and review
All aspects of an organisation’s responsible investmentpolicy need to be monitored periodically to evaluatesuccess and identify underperforming areas. Organisationsshould review their policies annually, and where updates areneeded, they should re-review the What to consider beforewriting a responsible investment policy section, particularlyaround governance, which considers implementation.
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CREDITS |Author: Tom Attwooll, Senior Specialist, Asset owners|Contributors: Toby Belsom, Eilidh Wagstaff, Michal Bartek, Kelly Krauter, Emmet McNamee, Irene Diaz, Sylvaine Rols |Editor: Jasmin Leitner|Design: Will Stewart
