It is the beginning of a new year. For many firms, that is synonymous with long workhours spend summarizing the achievements of the previous year in the form of an Annual Report. For financial institutions that are a signatory to the UN Principles for Responsible Investment (“PRI”), it also signifies the time of the year they are expected to report to its Reporting Framework (“RF”) to show their progress and accountability towards the Principles. Add that to a list of other external reporting expectations and you might start to understand why management, and sustainability and communications professionals feel overwhelmed.
What information should be made public where? How to tell a unique story while aiming to meet as many external expectations as possible? How to avoid the risk of sending mixed or even contradicting messages through different communication channels? This article will dive into this topic by proposing that the PRI Reporting Framework 2021 be used as a guiding framework to drive the annual reporting content of financial institutions.
An abundance of external commitments and expectations
When a firm is a signatory to the PRI, the chances are that commitments (mandatory and voluntary) to other sustainability frameworks exist as well. Many of which will require their own indicators to be reported by the company on its website and annual reporting suite. On top of that, some will expect participation in regular assessments. Further adding to the complexity, some are international, and some are local initiatives. Some might be broad sustainability frameworks, others (such as the UN Principles for Sustainable Insurance, the UN Principles for Responsible Banking, or GRESB) focus on specific business models and asset classes. Some are driven by investors, some by regulators, some by NGOs. And stakeholders within a group might endorse different frameworks. For example, Blackrock CEO Larry Fink has asked for their holdings to provide a mapping of SASB indicators through his 2021 letter to CEOs, but SASB standards have not been broadly adopted by listed companies yet. Instead, they are often using the GRI Standards as a guiding reporting framework in combination with the TCFD guidance (some regulators have started to commit to making this mandatory for corporates) and the UN Global Compact Principles.
As a result, it can become time-consuming and messy if the signatory doesn’t keep track of all the different expectations and the overlap between them.
Reasons to use the PRI Reporting Framework 2021 to structure your public RI reporting
The new PRI Reporting Framework seems to intend to raise the bar for the finance industry and helps address some of the concerns around greenwashing. It also has more indicators for which the signatories’ response will become publicly available on the PRI website, increasing transparency expectations. In general, the PRI Reporting Framework has the potential to help its signatories in many ways. Not in the least, it offers a roadmap of actionable steps that can inform an RI strategy, irrespective of the RI maturity of the signatory, but it also offers a great guiding framework for a signatory’s public reporting.
With over 3,500 signatories that will sooner or later be required to provide information in the PRI’s annual assessment, it is probably the most standardized framework to translate a firm-level strategy and approach into comparable stakeholder communication. And with the increased level of indicators that will be publicly available through the PRI’s website, it is recommendable to at least align the messaging through the Reporting Framework with any other corporate communications with regards to a signatory’s responsible investment (“RI”) practices. Not only to reduce the so-called “reporting burden” by allowing oneself to copy and paste already created content but also by avoiding potentially contradicting information. For those signatories that are listed, it also reduces the possible grey area between previously non-public and public information so that all shareholders will receive the same information in the easiest obtainable manner.
It is also worth noting that the PRI is expected to announce further expansion of its minimum membership requirements this summer that will be applicable from 2022 onwards. Signatories that will not fulfill minimum requirements after a one-year grace period will be at risk of being delisted.
| RI minimum requirements proposed from 2022 The current requirements are highlighted in italics. | Corresponding to the RF 2021 indicators |
| Publicly available RI policy setting out the overall approach or guidelines on E, S, or G factors, and covers >90% (currently 50%) of AuM | ISP 1, ISP 1.1, ISP 2, ISP 3 |
| Senior-level oversight or RI | ISP 6 |
| Internal/external staff implementing RI | ISP 7 |
| Incorporate ESG in all asset classes that the signatory manages that account for >10% of AuM or >10 billion USD | ISP 5 |
| Require engagement and voting in listed equity | ISP 11-13 |
| Internal verification of the report / C-level sign-off of report / Internal audit of some/all data / Independent audit of some/all data | ISP 52 |
How to use the PRI Reporting Framework 2021 to structure your RI reporting
The case for aligning reporting efforts is clear. The trickier part is to effectively translate “one-size fits all” external frameworks to fit your organisation. Speaking from experience, it is advisable to start by creating an overview with the high-level principles and hang the most important indicators (i.e., the RF’s minimum requirements) and the other public indicators that the signatory can answer underneath them. In the next step, the most recent responses for those indicators are added to the mapping. After that exercise is completed, it is good to review the compiled information. Depending on the intended communication platform, choose the story you want to or need to tell. If, for example, it is for a public integrated or sustainability annual report, start with why the firm has a responsible investment strategy; followed by what the high-level strategy is; then a complete yet high-level summary of your relevant policies; a detailed report of key performance indicators and qualitative description of important achievements in the reporting year; and finally, any ongoing initiatives and outlook for the year to come. In case the firm has multiple business lines and/or asset classes, the exercise is ideally replicated for each.
Do not forget to also map the planned content to any of the other external commitments and expectations, but make sure to interpret these in the context of the PRI Reporting Framework to avoid the risk of reporting the same things in different formats. Choose your main format and stick with it. If there is an assessment aspect to another external framework, explain your approach (as opposed to theirs) by providing context. The good thing is that the PRI often simply requires that an approach is reported but does not define exactly which definition the approach should have. This gives signatories the freedom to pick the approach that makes the most sense for the firm. If done well, using the RF as the guiding framework for your public reporting significantly reduces the time and effort of reporting to the PRI annually by allowing signatories to copy and paste bits and pieces of already produced content.
Using the PRI Reporting Framework “Senior Leadership Statement” to write the CEO/chairman letter
Another new feature of the PRI Reporting Framework is the addition of a “Senior Leadership Statement” (“SLS”). Designed to contextualise the more detailed sections of the report into the firm’s broader RI strategy, this new module will be mandatory to report on (publicly), but the content itself will not be scored. Importantly, it also strengthens accountability at the executive level.
The PRI’s expectation is a statement that includes a short summary of the signatory’s “why” and “what” with regard to RI, an overview of the key achievements in the past twelve months, and an outlook on the future aspirations of the signatory. It should finish with an endorsement of the PRI organisation’s commitment to responsible investment. Except for this last part, this is all content that one expects to see in the CEO/chairman letter accompanying an integrated or sustainability annual report. With that in mind, this is another area where signatories should consider aligning their reporting to the PRI and their own publications.
To date, most organisations that produce annual integrated or sustainability reports will use the GRI Standard 102-14 to guide the content of a senior leadership statement. Table 2 maps the PRI’s expectations for its SLS to the GRI Standard. The expectation for an annual report includes corporate sustainability factors as well as responsible investment practices. Nonetheless, there is a lot of overlap. So much so that the content for the PRI’s SLS can be integrated into a senior leadership letter in an annual report. Or the other way around, the content of the SLS for the PRI submission can likely be extrapolated from the senior leadership letter in an annual report.
Regardless of the approach, the key point is that signatories should identify synergies between different reporting requirements and ensure that the messages align. While doing so, the senior leadership message should focus on being authentic, timely, and relevant.
| PRI Reporting Framework 2021 Module: Senior Leadership Statement | GRI Standards Disclosure 102-14: Statement from senior decision-maker |
| Main objective The Senior Leadership Statement will frame signatories’ reporting by providing an overview of their approach and achievements on responsible investment. It should be signed by the Chief Executive Officer, the Chief Investment Officer or a similarly senior member of the organisation’s leadership. | Main objective A statement from the most senior decision-maker of the organization (such as CEO, chair, or equivalent senior position) about the relevance of sustainability to the organization and its strategy for addressing sustainability. |
| Section 1: Our commitment Why does your organisation engage in responsible investment? What is your organisation’s overall approach to responsible investment? What are the main differences between your organisation’s approach to responsible investment in its ESG practice and in other practices, across asset classes? | Overlapping GRI Standards reporting requirements: Overall vision and strategy for the short-term, medium-term, and long-term, with respect to managing the significant economic, environmental, and social impacts that the organization causes, contributes to, or that are directly linked to its activities, products or services as a result of relationships with others (such as suppliers and persons or organizations in local communities); Strategic priorities and key topics for the short and medium-term with respect to sustainability, including observance of internationally recognized standards and how such standards relate to long-term organizational strategy and success; Broader trends (such as macroeconomic or political) affecting the organization and influencing its sustainability priorities*; other items pertaining to the organization’s strategic approach. |
| Section 2: Annual overview Discuss your organisation’s progress during the reporting year on the responsible investment issue you consider most relevant or material to your organisation or its assets. Reflect on your performance with respect to your organisation’s responsible investment objectives and targets during the reporting year. This might involve e.g., outlining your single most important achievement, or describing your general progress, on topics such as the following: · refinement of ESG analysis and incorporation · stewardship activities with investees and/ or with policy makers · collaborative engagements · attainment of responsible investment certifications and/or awards | Overlapping GRI Standards reporting requirements: Broader trends (such as macroeconomic or political) affecting the organization and influencing its sustainability priorities*; Key events, achievements, and failures during the reporting period; Views on performance with respect to targets. |
| Section 3: Next steps What specific steps has your organisation outlined to advance your commitment to responsible investment in the next two years? | Overlapping GRI Standards reporting requirements: Outlook on the organization’s main challenges and targets for the next year and goals for the coming 3–5 years. |
| Section 4: Endorsement Copy and fill in the statement: “The Senior Leadership Statement has been prepared and/or reviewed by [name], [position] and reflects [organisation’s name]’s organisation-wide commitment and approach to responsible investment.” Copy and fill in the statement: “This endorsement is for the Senior Leadership Statement only and is not an endorsement of the information reported by [organisation’s name] in the various modules of the Reporting Framework. The Senior Leadership Statement is simply provided as a general overview of [organisation’s name]’s responsible investment approach. The Senior Leadership Statement does not constitute advice and should not be relied upon as such, and is not a substitute for the skill, judgment and experience of any third parties, their management, employees, advisors and/or clients when making investment and other business decisions.” Or free text explaining the context of the statement in similar fashion. |
GRI Standard 102-14 ‘Statement from senior decision-maker’
* This GRI requirement is matched to the PRI requirements twice. There is no clear indication that broader macro trends need to be discussed, but this would be inherent to a well-articulated, relevant Senior Leadership Statement on Responsible Investment.
