FEEDBACK SUMMARY SERVICE PROVIDER REPORTING THE 2017 PILOT REPORTING YEAR AND CHANGES AHEAD

Transcription

1 SERVICE PROVIDER REPORTING FEEDBACK SUMMARY THE 2017 PILOT REPORTING YEAR AND CHANGES AHEAD An investor initiative in partnership with UNEP Finance Initiative and UN Global Compact

2 THE SIX PRINCIPLES PREAMBLE TO THE PRINCIPLES 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 governance (ESG) issues can affect the performance of investment portfolios (to varying degrees across companies, sectors, regions, asset classes and through time). We also recognise that applying these Principles may better align investors with broader objectives of society. Therefore, where consistent with our fiduciary responsibilities, we commit to the following: 1 2 ownership 3 the 4 within 5 implementing 6 implementing We will incorporate ESG issues into investment analysis and decision-making processes. We will be active owners and incorporate ESG issues into our policies and practices. We will seek appropriate disclosure on ESG issues by entities in which we invest. We will promote acceptance and implementation of the Principles the investment industry. We will work together to enhance our effectiveness in the Principles. We will each report on our activities and progress towards the Principles. PRI's MISSION We believe that an economically efficient, sustainable global financial system is a necessity for long-term value creation. Such a system will reward long-term, responsible investment and benefit the environment and society as a whole. The PRI will work to achieve this sustainable global financial system by encouraging adoption of the Principles and collaboration on their implementation; by fostering good governance, integrity and accountability; and by addressing obstacles to a sustainable financial system that lie within market practices, structures and regulation. The information contained in this report is meant for the purposes of information only and is not intended to be investment, legal, tax or other advice, nor is it intended to be relied upon in making an investment or other decision. This report is provided with the understanding that the authors and publishers are not providing advice on legal, economic, investment or other professional issues and services. PRI Association is not responsible for the content of websites and information resources that may be referenced in the report. The access provided to these sites or the provision of such information resources does not constitute an endorsement by PRI Association of the information contained therein. Unless expressly stated otherwise, the opinions, recommendations, findings, interpretations and conclusions expressed in this report are those of the various contributors to the report and do not necessarily represent the views of PRI Association or the signatories to the Principles for Responsible Investment. The inclusion of company examples does not in any way constitute an endorsement of these organisations by PRI Association or the signatories to the Principles for Responsible Investment. While we have endeavoured to ensure that the information contained in this report has been obtained from reliable and up-to-date sources, the changing nature of statistics, laws, rules and regulations may result in delays, omissions or inaccuracies in information contained in this report. PRI Association is not responsible for any errors or omissions, or for any decision made or action taken based on information contained in this report or for any loss or damage arising from or caused by such decision or action. All information in this report is provided as-is, with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information, and without warranty of any kind, expressed or implied. 2

3 SERVICE PROVIDERS REPORTING FEEDBACK SUMMARY 2017 DEVELOPMENT OF THE SERVICE PROVIDER FRAMEWORK IN In 2017, the PRI launched an industry-first reporting framework for service providers. Until then, service provider signatories did not have the opportunity to report to the PRI on their business offerings and ESG/RI activities. They have not therefore been held accountable to the Principles in the same way as investor signatories, despite often holding vital roles in the investment chain. Introducing service provider reporting was part of the strategy commitment to transparency and accountability for all signatories. There were three main drivers to introducing service provider reporting: The PRI started an initial research and service provider market analysis in February Interviews with PRI staff and signatories on the initial framework structure laid the groundwork for a public consultation on the first draft reporting framework that same year. Using the feedback from the consultation, the framework was developed further before it was launched for the 2017 pilot reporting cycle. Since then, the PRI has been analysing the data and feedback from signatories to make improvements for the 2018 mandatory reporting year. Allows service providers to demonstrate commitment to the Principles Responds to service providers desire to communicate their ESG/RI activities Gives asset owners more visibility on service provider activities and enables them to understand what service level they can and should expect Feb 2016: Research and market analysis Sep 2016: Public consultation on first draft Apr-Nov 2017: Analysis and development for 2018 mandatory reporting year Apr 2016: Interviewing staff and signatories on initial structure Jan-March 2017: Pilot reporting and feedback cycle 3

4 THE FRAMEWORK MODULES The framework consists of seven modules, three of which are a mandatory reporting requirement and can be completed by any type of service provider. The remaining four modules are specialised for specific service provider business areas 1 (figure 1). These four modules were developed to cover the largest sub-categories of service providers. If service provider signatories do not identify with these, they will still be able to report on their services in the mandatory modules. Figure 1: Reporting Framework modues for service providers. ORGANISATIONAL OVERVIEW (OO) STRATEGY & GOVERNANCE (SG) RELEVANT MODULES ONLY: ADVISORY & CONSULTANCY (AC) ACTIVE OWNERSHIP SERVICES (AOS) REPORTING AND ASSURANCE (REP) RESEARCH AND DATA PROVISION (RDP) Investment consultants, execution and advisory. Activities may include, strategic asset allocation, investment policy development, investment research, manager selection and monitoring. Engagement and/or voting. Activities can be individual or collaborative. Reporting (RI, ESG, sustainability, financial, integrated), assurance, certification Research, assessment, ratings, indices, brokerage CLOSING MODULE (CM) Mandatory to complete Business specific modules - only mandatory if it is part of your core business offering 1 Definitions of each specialised business area can be found here, in the Organisational Overview module. 4

5 SERVICE PROVIDERS REPORTING FEEDBACK SUMMARY PILOT REPORTING CYCLE SUBMISSIONS We invited all service provider signatories to participate in and provide feedback on the 2017 pilot reporting cycle. Out of these, 64 (29%) submitted their report to the PRI. Geographically, responses match the service providers distribution with most participants in the US, UK and Japan. Many signatories are located in the U.S. (44) and UK (38) 3. The majority of service providers categorise their business activity as covering advisory and consultancy (i.e. asset consultants and similar) and the responses matched this categorisation. Figure 2: Submissions by country and region (top three) US UK JAPAN EUROPE NORTH ASIA AMERICA Figure 3: Core business offerings Advisory & consultancy Active ownership services Resporting & assurance 8 9 Research & data provision Other 2 The PRI cut-off date is 5 December each year, at which point we invite all organisations that are service provider signatories at that time to report on the Service Provider Reporting Framework. 3 The US and UK signatory numbers were retrieved in May There are overlaps as signatories can report several different core business areas. A core business offering is the main service that SPs offer to clients that forms an essential part of their organisation s activities. It is also often the main source of revenue and/or profit of an organisation and sometimes the activity the company was originally set up to carry out. 5

6 FEEDBACK FROM SIGNATORIES The PRI collected 180 unique pieces of feedback through the built-in feedback boxes in the online reporting tool. Signatories were able to give their input on an indicatorby-indicator basis. In addition, the PRI received direct input from calls and s. The feedback was in common with themes that emerge from investor reporting, including processes to embed reporting in an organisation/market, i.e. implementation rather than the themes covered or the approach of the framework. The R&A team are therefore well placed to respond to such queries and help organisations to prepare for reporting. Key themes addressed in the feedback were: clarification of wording and terminology; improving user experience of the online tool (e.g. enabling signatories to attach documents to certain indicator responses); clarity of guidance or uncertainty about how to report in certain areas; time and processes needed to retrieve the information required to respond to certain indicators (e.g. when some information had not been tracked within the organisation previously). The PRI asked signatories to indicate to what extent the PRI Service Provider Reporting Framework had captured their implementation of the Principles, with 59 signatories responding: Figure 4: The framework captures my organisation s implementation of the Principles 7 1 IMPROVEMENTS FOR MANDATORY REPORTING IN 2018 With a successful consultation process including broadly positive feedback, the overall approach of the framework will be maintained. Improvements focus on terminology, tweaks to wording, technical functionalities, structure of indicators and clarifying explanatory notes. The changes aim to: More accurately and efficiently capture information on ESG/RI implementation by service providers Enable more data analysis by switching from narrative to multi-selection indicators (based on the commonalities found in responses from the 2017 cycle) Provide more context and nuance through narrative additional information boxes Reduce the amount of indicators NEW SIGNATORY REQUIREMENTS From 2018, service provider reporting requirements will be in line with investment managers and asset owners. This means that the PRI expects service providers to submit their PRI report on an annual basis, in accordance with the PRI Declaration. Failing to submit the report on time can result in delisting. Service providers that are in their grace year period would, as per standard procedure, report on a voluntary basis. REDUCED REPORTING WORKLOAD 12% FEWER INDICATORS IN 2018 The PRI sought to reduce overlaps in indicators and restructure/reword modules where possible, to more efficiently capture information. Coupled with signatory feedback, the PRI was able to cut the total number of indicators significantly To a large extend To a moderate extend To a small extend Not a all These numbers are satisfactory for a pilot reporting cycle, but PRI aims to boost satisfaction levels in upcoming reporting years

7 SERVICE PROVIDERS REPORTING FEEDBACK SUMMARY 2017 These modules will continue to be a mandatory minimum requirement for all signatories to complete. The remaining modules targeted towards a specific set of business offerings were voluntary to report on in From 2018, these modules will be mandatory to report on if they form part of a signatory s core business offering(s): Advisory and Consultancy (AC) Active Ownership Services (AOS) Reporting and Assurance (REP) Research and Data Provision (RDP) Signatories that provide services that do not fit into the four business specialised modules will continue to report on their specific services through OO, SG and CM. PLANS FOR ASSESSMENT OF SERVICE PROVIDERS In 2018/2019, the PRI will review whether to introduce service provider assessment. Factors to consider include sentiment/support, timing and maturity of the framework, and applicability are set out below and informed from the PRI s experience with the main Reporting Framework: The timing is important: introducing assessment before the framework is embedded could mean significant changes to the assessment methodology, reducing year-on-year comparability. The diversity of service providers makes forming peer groups for assessment and comparison purposes a challenge although we also see much diversity among investors. Assessing and scoring framework responses requires a good understanding of industry best practice, what investors should expect from service providers and thus how to score. The motivation for assessing investors is to lead them to PRI resources and guidance. The PRI does not currently offer learning and development material for service providers. A post-2018 review of signatory appetite, feedback from the Reporting and Assessment Advisory Committee (RAAC) and review by the board of the proposed approach will occur before a decision is made on service provider scoring. Possible implementation of an assessment methodology would occur no earlier than the 2019 or 2020 reporting cycle, after the outlined steps have taken place. A further year of research will address many of the above points. Ongoing work by, for example, the PRI policy and research and ESG engagements teams should provide us with more resources to understand market practices. It could also suggest an alternative to assessment. DATA PORTAL ACCESS From 2018, all service provider reports will be uploaded to the PRI s Data Portal for easy access by all signatories. In addition to the multitude of Data Portal functionalities already available to service providers, this will also enable: Quick access to other service provider responses, by making lists of signatories you wish to keep track of. Aggregating specific indicator responses from a customised list of service providers, filtering by region, sign-up date and other factors. START REPORTING IN JANUARY 2018 The 2018 reporting cycle starts on 4 January 2018 and ends 3 April The PRI will reach contact all signatories before then with the necessary information. Signatories can view the updated 2018 Service Provider Reporting Framework on the PRI website as of November January - 3 April April January 2019 LIVE REPORTING PERIOD ONLINE TOOL CLOSED 7

8 The Principles for Responsible Investment (PRI) The PRI works with its international network of signatories to put the six Principles for Responsible Investment into practice. Its goals are to understand the investment implications of environmental, social and governance (ESG) issues and to support signatories in integrating these issues into investment and ownership decisions. The PRI acts in the long-term interests of its signatories, of the financial markets and economies in which they operate and ultimately of the environment and society as a whole. The six Principles for Responsible Investment are a voluntary and aspirational set of investment principles that offer a menu of possible actions for incorporating ESG issues into investment practice. The Principles were developed by investors, for investors. In implementing them, signatories contribute to developing a more sustainable global financial system. More information: The PRI is an investor initiative in partnership with UNEP Finance Initiative and the UN Global Compact. United Nations Environment Programme Finance Initiative (UNEP FI) UNEP FI is a unique partnership between the United Nations Environment Programme (UNEP) and the global financial sector. UNEP FI works closely with over 200 financial institutions that are signatories to the UNEP FI Statement on Sustainable Development, and a range of partner organisations, to develop and promote linkages between sustainability and financial performance. Through peer-to-peer networks, research and training, UNEP FI carries out its mission to identify, promote, and realise the adoption of best environmental and sustainability practice at all levels of financial institution operations. More information: United Nations Global Compact The United Nations Global Compact is a call to companies everywhere to align their operations and strategies with ten universally accepted principles in the areas of human rights, labour, environment and anti-corruption, and to take action in support of UN goals and issues embodied in the Sustainable Development Goals. The UN Global Compact is a leadership platform for the development, implementation and disclosure of responsible corporate practices. Launched in 2000, it is the largest corporate sustainability initiative in the world, with more than 8,800 companies and 4,000 non-business signatories based in over 160 countries, and more than 80 Local Networks. More information: