Act
Use influence to manage impacts towards objectives and targets.
Overview
Once they have set targets, investors
A person, organisation, or country that puts money into an business or other organisation. Source: Cambridge English Dictionary A change in an aspect of people’s well-being or the condition of the natural environment caused by an organisation. Source: Impact Management Platform; Well-being defined as in OECD Well-being Framework A plan for achieving something or reaching a goal. Source: Cambridge English DictionaryInvestor
Impact
Strategy
Capital allocation and investment decisions
Though their investment and financing decisions, investors and financial institutions choose which economic activities and players they are willing to support. One way to adjust the impact of a portfolio is to therefore to adjust its composition.
However, individual assets
Used on this site to refer to a security such as debt or equity issued by an organisation, or a physical asset such as land or a building. Source: Adapted from Investopedia (definitions of 'financial asset' and 'real asset')Asset
As regards investing in, financing or underwriting assets or clients with distinct positive impacts, ‘sustainable’ or ‘green’ taxonomies established by different jurisdictions (e.g. EU, China and others) provide direction to investors and financial institutions.
Engagement
Aside from the capital and insurance they provide, investors and financial institutions can also use their position as a key stakeholder
An entity or individual that can reasonably be expected to be significantly affected by the organisation’s activities, products and services, or whose actions can reasonably be expected to affect the ability of the organisation to successfully implement its strategies and achieve its objectives. Source: Global Reporting Initiative (GRI); OECD Due Diligence Guidance for Responsible Business Conduct; OECD Well-being Framework; Value Reporting Foundation (VRF) Integrated Reporting FrameworkStakeholder
- engagement with current or potential investees or clients (e.g. to negotiate terms pre-investment or pre-loan);
- voting at shareholder meetings;
- filing of shareholder resolutions/proposals;
- direct roles on investee boards and board committees in public markets, or direct control of portfolio companies/assets/properties in private markets;
- and, where necessary, litigation.
Engagement is often the most powerful lever for investors in public markets; particularly when exercised collectively/collaboratively.
In addition, stewardship can be implemented by investors and financial institutions using their influence over other stakeholders. For instance:
- engagement with policy makers;
- engagement with standard
Standard
Rules or guidelines for common and repeated use to which organisations demonstrate adherence with which compliance is not necessarily mandatory in law. Standards are created through a process of multi-stakeholder consultation.
Source: Adapted from ISEAL
-setters; - engagement with benchmark providers;
- engagement and collaboration with other investors or financial institutions;
- establishment of clear and consistent lobbying policies;
- contributions to public goods (such as research);
- public discourse (such as media) that supports stewardship goals; and
- negotiation and monitoring of service providers in the investment chain (e.g. asset owners engaging with investment managers).
Structuring of products and services
Investors and financial institutions can influence the impact of their portfolios through the way they structure their financial products and services.
For example, an asset manager might choose to offer an investment product that specifically targets investments that address climate change or gender equality.
Occasionally, asset managers will structure investment products that offer a lower financial return in order to pursue positive impact in some of the hardest to reach areas where commercially competitive, profitable investments are not viable and hence require additional support. This is often delivered via blended finance solutions.
A bank might choose to design a loan product to meet the funding needs of a specific geography or demographic, and insurers may do the same for their insurance policies. Banks and insurers may also devise products specifically aimed at supporting entities or projects with specific impact objectives
Something that efforts or actions are intended to attain or accomplish. Objectives are SMART if they are: specific, measurable, achievable, realistic and time-bound. Source: Cambridge English Dictionary; Management ReviewObjective
Resources
Active Ownership 2.0
Active Ownership 2.0 is a framework for the more ambitious stewardship needed to deliver against beneficiaries’ interests and improve the sustainability and resilience of the financial system.
Use this resource to:
- Act: Use the guidance to shape sustainability outcomes by engaging in more effective and assertive stewardship activities.
Advance: PRI stewardship initiative for human rights and social issues
The overall objective of the Initiative is to advance human rights and positive outcomes for people through investor stewardship. The Initiative will primarily seek change through investors’ use of influence with portfolio companies. The following three expectations will be set for engagement focus companies:
- Fully implement the UNGPs –the guardrail of corporate conduct on human rights
- Align their political engagement with their responsibility to respect human rights
- Deepen progress on the most severe human rights issues in their operations and across their value
Use this resource to:
- Identify: Select the companies and sectors that investors can engage with, in support of the Initiative’s overall objectives. This includes identifying the sectors and companies where human rights and impacts are most severe.
- Act: Determine where investors within the Initiative can influence (through stewardship) sectors and companies, to advance respect for human rights.
Bridging the gap: How infrastructure can contribute to SDG outcomes
This discussion paper details the current approaches that infrastructure investors are adopting to consider the Sustainable Development Goals as part of their investment approaches.
Use this resource to:
- Identify: Identify outcomes caused by, contributed to and linked to their infrastructure investors, in relation to the SDGs.
- Act: Understand the methods by which infrastructure investors can achieve desired SDG outcomes. Ensure that outcomes in line with the SDGs are integrated into infrastructure investment processes.
Discussing divestment: Developing an approach when pursuing sustainability outcomes in listed equities
This paper sets out how investors wanting to pursue sustainability outcomes may need to adjust how they make a divestment decision or formulate an overall approach to divestment.
Use this resource to:
- Act: Understand how to make a divestment decision or to formulate an overall approach to divestment in order to pursue sustainability outcomes.
Global guidance on the integration of environmental, social and governance risks into insurance underwriting
The first global guide to manage ESG risks in risk assessment and insurance underwriting. It has an initial focus on non-life insurance business—also known as property and casualty insurance business.
Use this resource to:
- Identify: Understand the materiality of ESG risks to various lines of business and economic sectors, including characteristics which might affect the ability to assess and mitigate such risks.
- Assess: Develop approaches to assess ESG risks in non-life insurance business transactions, particularly industrial and commercial insurance business.
- Act: Address the growing concerns by stakeholders across society (e.g. NGOs, investors, governments).
Guiding Principles on Business and Human Rights
The UN Guiding Principles on Business and Human Rights are a set of guidelines for States and companies to prevent, address and remedy human rights abuses committed in business operations.
Use this resource to:
- Strategy: Adopt the standards and practices with regard to business and human rights so as to achieve tangible results for affected individuals and communities, and thereby also contribute to a socially sustainable globalisation.
- Governance: Embed the human rights policy throughout a business’ functions.
- Identify: Understand the responsibility of enterprises to respect human rights, depending on their scale and scope.
- Assess: Implement human rights due diligence.
- Set Targets: Design targets based on human rights due diligence assessment.
- Act: Learn how states and companies can prevent and address negative impacts on human rights by business.
- Monitor: Set up continued human rights due diligence for monitoring purposes.
- Disclose: Make publicly available human rights commitments and processes.
Investing with SDG Outcomes: A Five-part Framework
A high-level framework for any investors looking to shape real-world outcomes in line with the Sustainable Development Goals (SDGs).
Use this resource to:
- Identify: Identify and understand the unintended outcomes of an investors’ investments and their own operations. This assessment involves identifying positive and negative real-world outcomes related to investees’ operations, products and services.
- Act: Explore examples of how investors shape outcomes through investor actions including: investment decisions, stewardship of investees and engagement with policy makers and key stakeholders.
- Set Targets: Move from identifying and understanding unintended outcomes towards taking intentional steps to shape outcomes.
Making voting count: principle-based voting on shareholder resolutions
The paper outlines what voting principles are, why they are needed, how voting principles can align with Active Ownership 2.0 (the PRI’s framework for more effective stewardship), and how they can be developed and applied to govern their use of voting on shareholder resolutions.
Use this resource to:
- Act: Develop and apply high-level principles to govern voting on shareholder resolutions.
Definitions
Investor
A person, organisation, or country that puts money into an business or other organisation.
Source: Cambridge English Dictionary
Impact
A change in an aspect of people’s well-being or the condition of the natural environment caused by an organisation.
Source: Impact Management Platform; Well-being defined as in OECD Well-being Framework
Strategy
A plan for achieving something or reaching a goal.
Source: Cambridge English Dictionary
Asset
Used on this site to refer to a security such as debt or equity issued by an organisation, or a physical asset such as land or a building.
Source: Adapted from Investopedia (definitions of ‘financial asset’ and ‘real asset’)
Stakeholder
An entity or individual that can reasonably be expected to be significantly affected by the organisation’s activities, products and services, or whose actions can reasonably be expected to affect the ability of the organisation to successfully implement its strategies and achieve its objectives.
Source: Global Reporting Initiative (GRI); OECD Due Diligence Guidance for Responsible Business Conduct; OECD Well-being Framework; Value Reporting Foundation (VRF) Integrated Reporting Framework
Standard
Rules or guidelines for common and repeated use to which organisations demonstrate adherence with which compliance is not necessarily mandatory in law. Standards are created through a process of multi-stakeholder consultation.
Source: Adapted from ISEAL
Objective
Something that efforts or actions are intended to attain or accomplish. Objectives are SMART if they are: specific, measurable, achievable, realistic and time-bound.
Source: Cambridge English Dictionary; Management Review
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