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At least one well-known funds management
identity, when speaking privately about the UN PRI, will pronounce it so as to
sarcastically emphasise the ‘PR’ part. He is saying what at least some of the
industry is thinking. That becoming a signatory to the grandly named United
Nations Principles for Responsible Investment looks great on a press release
and is a nice thing to tell your members or investors, but is fuzzy when it
comes to the actions required, and the outcomes that can be reasonably

They are ‘principles’ not ‘laws’ after all. Sure, the executive
director of the UN PRI did say that six signatories were being kicked out of
the club for not completing an annual survey updating their compliance efforts,
but he was hazy on the reasons and these days, it may just be those six are no longer
going concerns. But those looking for blackand- white rules from the UN PRI are
probably missing the point.

The Principles were only ever meant to be aspirational,
says Fiona Reynolds at the AIST (which is an associate signatory), but the
Association’s undertaking to facilitate discussion on UN PRI soon evolved into
the more concrete outcome of a carbon-neutral CMSF conference. Recognising that
there is still uncertainty as to the benefits of adopting responsible
investment practices, consultants Phil Preston and David Bell
(of Colonial First State
hedge fund-of-funds fame) released a white paper last month which examined how compliance
with UN PRI could boost investment performance.

The returns on ESG-wary
strategies are tricky to quantify, although the ‘G’ bit is easy enough to judge
on a single company basis – what will happen to the share prices of Telstra and
ANZ with McGauchie and Eddington off their respective boards, compared to when
they were on them? The ‘E’ bit, though, is a little harder. “Financial analysts
are well versed in modelling company cash flows based on future scenarios for
input costs; the challenge is to recognise that [in a carbon-constrained world]
energy has become a strategic issue for many companies rather than a fairly predictable cost,”
Preston and Bell

“Financial analysts will require sufficient expertise and discipline to take
such factors into account when making investment decisions. There are good
examples of energy intensive companies reaping benefits by elevating energy
from an operating issue to a strategic issue.” Overall, the pair are saying
that the precise alpha to be gained from UN PRI compliance might never be
calculable – but the alpha is real enough that the concept is worth taking
seriously and skilling up for.


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