Pressure from clients and positive PR are more important considerations than moral motives when investment companies sign up to the United Nations’ Principles for Responsible Investment (PRI), according to academic research.
In a paper titled “Sources of Stakeholder Salience in the Responsible Investment Movement: Why do investors sign the Principles for Responsible Investment?”, authors Arleta Majoch and Andreas Hoepner of the International Capital Market Association Centre, and Tessa Hebb from Carleton University, analysed five years’ worth of data from PRI signatories, and quizzed them on their reasons for signing.
The research found that pressure from clients (“utilitarian power”) and the perceived advantages of being signed up to the principles (“pragmatic legitimacy”) were the most important drivers for signatories.
In addition, the reputational benefits of adopting the PRI were noted as an important factor.
Majoch, Hoepner, and Hebb wrote: “Investors recognise the reputational benefit of signing the PRI, as well as the legitimising effect it has on both their organisation in general and on their environmental, social, and governance capacity, resulting from the high degree of legitimacy of the PRI itself on the market.”
But the researchers noted that “moral motives” have become far less important than when the PRI were first introduced in 2005. For the first two years, signatories were primarily those who supported the values encapsulated in the principles, but the authors stated that the moral factor has been “completely superseded” since then by factors such as reputation and client pressure.
They added: “These findings offer an interesting insight into how both the investment industry and the PRI’s place in it have changed between 2007 and 2011. It draws attention to how important branding and image are at an organisational level in the financial industry, and how signing the PRI has been increasingly motivated by such benefits.
“It highlights that ESG investing is a continually developing space where investors are keen to join forces in action, sharing knowledge and exploring ESG themes and strategies. The high degree of salience coming from a variety of sources confirms the PRI’s role as central in this emerging logic.”
More than 1,000 companies and organisations have signed the PRI since its inception. The researchers estimated that the signatories represented more than $45 trillion worth of assets, more than a third of global assets under management.
In April this year Harvard became the first university endowment to sign the PRI. In contrast, a number of Danish pension funds removed their signatures in December 2013 amid concerns that the organisation behind them had governance issues of its own.
The research is available to download here.
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