Investors seeking to align their portfolios with environmental and social values may find it difficult to navigate the growing landscape of sustainable investing. But the United Nations-backed Principles for Responsible Investment (PRI) offer a structured starting point.
Launched in 2006 by the U.N. Environment Programme Finance Initiative and the U.N. Global Compact, the PRI serves as a voluntary framework to help institutional investors incorporate environmental, social and governance (ESG) factors into their investment and ownership decisions. As of 2024, more than 1,500 institutions have signed on, representing approximately $121 trillion in assets under management.
What the Principles Say
The PRI outlines six guiding principles. In signing, investors commit to:
- Incorporating ESG issues into investment analysis and decision-making.
- Integrating ESG factors into ownership policies and practices.
- Seeking ESG-related disclosures from portfolio companies.
- Promoting ESG adoption across the investment industry.
- Collaborating to improve ESG implementation effectiveness.
- Reporting progress on ESG integration and engagement.
These principles reflect a growing consensus that ESG factors can materially impact long-term financial performance across asset classes and sectors.
“As institutional investors, we have a duty to act in the best long-term interests of our beneficiaries,” the PRI states. “We believe that ESG issues can affect the performance of investment portfolios.”
Screening and Selection
PRI-aligned strategies often employ positive and negative screening. Negative screens may exclude industries such as alcohol, tobacco, firearms, gambling and pornography — sometimes referred to as “sin stocks.” More advanced screens might avoid holdings tied to abortion services, fossil fuels, human rights violations, or noncompliance with international environmental protocols.
Positive screens focus on companies with strong corporate social responsibility, ESG reporting, diversity and inclusion, board transparency or sustainable supply chain practices. These screens reflect the investor’s desire to support firms with responsible operations and long-term resilience.
The PRI framework is especially useful for managers seeking to balance risk, ethics and fiduciary responsibility. While ethical standards differ globally, investors generally view poorly managed ESG risks as indicators of broader financial vulnerability.
Beyond Compliance: A Vision for Progress
The PRI does not operate for profit or answer to any government body, but it maintains close alignment with U.N. goals. It encourages responsible investment to enhance returns and reduce risk — not for its own sake, but to strengthen financial systems and society.
In 2023, the PRI launched a new initiative called Progression Pathways — a step-by-step roadmap that allows signatories to scale and customize their ESG strategies. The initiative was developed in response to signatory feedback, with 95% of respondents agreeing that ESG implementation should evolve over time.
“Expectations in the market and among regulators have advanced and at times diverged,” said David Atkin, CEO of PRI. “These new frameworks will empower us to develop targeted guidance, tools, reporting and accountability standards.”
The pathways offer two potential models: one based on clarifying the investor’s purpose, and the other centered on prioritizing sustainability issues such as climate, biodiversity or labor rights.
Participation in these pathways is voluntary, but adoption may help investors better communicate progress, refine strategy, and maintain credibility with clients and stakeholders.
Does ESG Hurt Returns? Not According to the Data
Some skeptics question whether ESG integration may drag on performance. But research suggests the opposite.
In the six quarters after a firm becomes a PRI signatory, it sees an average increase in fund inflows of 4.9%, according to a 2020 Forbes analysis. That uptick reflects investor perception of PRI membership as a positive signal — a sign that the firm is committed to transparency, accountability and sustainability.
Principle 1, which requires ESG integration into analysis, and Principle 3, which emphasizes ESG disclosure from portfolio companies, both serve to strengthen fundamentals and potentially reduce reputational risk.
“This disclosure can heighten the company’s attention to ESG issues, thereby improving its performance on them with a benefit to financial performance,” the Forbes article noted.
A Strategic Move for Institutional Investors
Joining the PRI offers investors more than a badge of values alignment — it provides a disciplined structure to engage with ESG risk, drive accountability and potentially enhance portfolio performance.
Signatories include pension funds, insurance companies, sovereign wealth funds, endowments, foundations, family offices, asset managers and service providers. For fiduciaries seeking to balance ethics with financial responsibility, the PRI remains a globally recognized benchmark.
In a volatile market shaped by climate risks, social justice movements and regulatory scrutiny, responsible investing is no longer niche — it’s foundational.
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Resources:
Principles for Responsible Investment, https://www.unpri.org/about-us/what-are-the-principles-for-responsible-investment
Investopedia, Jason Fernando, 2022
3–10. UN PRI official publications and Danielle Cheesbrough, U.N. Global Compact
11–12. Forbes, Robert G. Eccles, “Do Signatories to the Principles for Responsible Investment Practice What They Preach?” 2020