Michael Bailey

Michael Bailey

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 expected.

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 write. “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.

Join the discussion