Four years on, what have signatories to the Principles for Investors in Inclusive Finance achieved?

Karin Malmberg, UNPRI

It’s hard to believe that four years have passed already since the Principles for Investors in Inclusive Finance (PIIF) were launched by Her Royal Highness Queen Máxima of the Netherlands at the Responsible Finance Forum in The Hague in January 2011.

We have come a long way since then. The recent Report on Progress in Inclusive Finance 2014 summarizes data collected from investors on how they have implemented the PIIF. It complements the Transparency Reports which detail each investor’s individual responses.

The results are encouraging. Investors are taking social performance, as well as environmental and governance issues into consideration when making investments. They are engaging in collaborative initiatives, taking different actions to ensure the fair treatment of investee retail institutions and the protection of end clients. Read the report for more details on each of these areas.

Improvement is needed around the level of implementation. For example, 94% of fund managers and other investors who invest directly into retail institutions measure the social performance of investees and include this in investment decision making alongside financial criteria. However, less than half incentivise investee retail institutions to track social performance.

It is the role of those allocating capital to fund managers to ensure that further progress is made. This category of investors include pension funds, insurance companies and other asset owners and fund-of-fund managers. These investors sign the PIIF because it provides them with a framework for responsible investment through which they can assess fund managers.

The data shows that around 60% of these investors take the different issues covered in PIIF into account during due diligence and monitoring, but this number drops to around 40% who do so in appointment through contracts and mandates. We expect that part of the reason is that it can be difficult to embed such issues in contracts and that some investors are reporting on investments made before signing up to PIIF.

A lot has changed since the PIIF were launched however, and many tools now exist for asset owners and fund-of-fund managers. They can use the PIIF and accompanying reporting framework and assessment to review their own practices. They can use the Report on Progress in Inclusive Finance 2014 and the Transparency Reports to inform discussions with clients and stakeholders.

These resources are publicly available and we encourage all those who have an interest in pushing best practice further to use them.

About the PIIF

The PIIF were developed by investors to provide guidance on issues such as transparency, client protection, fair treatment, expanding the range of products and services, environmental, social and governance performance, balancing financial and social returns and collaborating for further standardisation and harmonisation in the industry.

Today 50 investors including pension funds, insurance companies, development finance institutions foundations and fund managers have signed PIIF.

Last year, for the first time, signatories to PIIF reported on how they have implemented the principles. This reporting process was developed and managed by the Principles for Responsible Investment (PRI) Initiative which hosts the PIIF.