There are 1,000 PRI signatories in the USA, with more than half of them filing their first report with the Principles for Responsible Investment (PRI) this year. With this influx of filings, the importance of accurately portraying one’s Responsible Investment program (RI program) cannot be understated. The SEC will review your ESG documentation during their regular examination, while investors will assess the quality of your RI program verse your peers. Even the smallest misunderstandings and clerical errors during PRI reporting can cost you time, money, and investors.
Though it is optional for new signatories to file during their first year, investor pressure or the desire to anonymously self-assess the RI program causes most new signatories to file. Another option some signatories choose is to complete the PRI report but not file it with PRI. This allows signatories to benchmark themselves without formally reporting.
When investment managers become PRI signatories, they commit to six principles (Principles), including reporting on their Responsible Investment (RI) activities and progress. Reporting includes:
- Disclosing how ESG issues are integrated within investment practices.
- Disclosing proxy voting, engagement, and related policies.
- Detailing communication with LPs about ESG issues and the Principles.
- Reporting on progress and achievements relating to the Principles using a comply-or-explain approach.
PRI Reporting Framework
Reporting is done using PRI’s online Reporting Tool, which is only available during the live reporting period. The Reporting Tool is rules-based, where questions are linked and dependent on previously answered questions. The reporting is based on a series of common areas applicable to all signatories and seven asset-specific modules. Within each module, questions are asked that are mandatory or voluntary to answer. Only mandatory answers are considered for scoring purposes.
Three months after signatories submit their PRI report, they receive a Transparency Report and an Assessment Report. The Transparency Report is publicly available and includes responses given to non-private responses.
The Assessment Report is private, and scores and rankings of signatories are based on their respective peer groups. This report can only be shared with other signatories and is often requested by LPs who use it to rate RI programs.
An integral part of the PRI reporting is the grading of RI Programs. Grading is effectively done on a curve where most signatories score around the average. The rationale is to use grading to highlight those firms with superior programs while giving most firms something to strive for.
Scoring is relatively straightforward, with all questions assigned a maximum score of 100. Then each question is weighted, which gives the signatory a raw score. The raw scores are also summed by modular, giving you your modular raw score.
Using signatory raw scores, PRI calculates the median raw score. The median raw score is average based on all PRI signatories that responded to the assessed module and asset class/sub-strategy. The median score is shown on the Assessment Summary Scorecard published by PRI. This is where signatories compare their raw score to the median raw score of all applicable signatories.
Using a “black box” formula, PRI assigns a 1-5 star rating to each module, reflecting the quality of the PR program versus their peer group. The star scoring is meant to represent PRI median scores at the modular level.
There is a “compare peer group” function that enables signatories and LPs (with permission) to compare scores between signatories based on the following categories:
- Signatory type (Asset Owner or Investment Manager);
- Geographic region; and
- Size by AUM band.
Furthermore, the median peer score will change based on the customization of the chosen peer group (i.e., the selected peering categories).
PRI Reporting signatory questions were released in January 2023, giving Signatories four months to prepare input. During these four months, Signatories are expected to formulate and review their responses for eventual submission into the Reporting Tool. The live reporting period begins in May and will be available until August 2023, during which time the PRI signatories can report on RI activities. During September and October, data analysis, testing and generation of reports will occur until November/December, when the Signatory’s Transparency and Assessment reports are released through the data portal.
Accurately portraying your Responsible Investment program (RI program) is more important than ever. The SEC will evaluate the correctness of your ESG statements which includes PRI reporting during their regular examination cycle and investors can now assess your ESG program by comparing your PRI score to your peers. Mistakes in reporting can lead to SEC comments to a deficiency letter or additional investor scrutiny.
Outsourcing your PRI reporting to experienced professionals will save you time and minimize mistakes that can cost you time, money, and investors.
Want to explore PRI reporting options or learn more about the requirements and timeline? Contact our team of ESG professionals for a free consultation today.