Clearwater’s commitment to the Principles of Responsible Investment (PRI)

It’s no secret that today people are demanding more transparency from the companies they choose to buy from and invest in. That’s why Clearwater has become a signatory to the PRI – the Principles for Responsible Investment.

PRI is an independent initiative that’s supported by the United Nations. Its mission is to foster a community of active owners committed to creating a sustainable financial system that will build a more prosperous world for us all. 

How will signing up to the PRI change our financial system?

By signing up to the PRI, we have become part of a growing global community driving real change. We’re committed to good governance, high integrity, and increased accountability for our actions. 

Furthermore, we’re committed to learning more about responsible investment. What’s more, we will call out the obstacles we face in existing market practice so that we can support the changes needed to ensure that the principles of responsible investment become standard practice in the future.

How will the PRI affect our investments?

The Principles for Responsible Investment (PRI) ask that all financial institutions use ESG criteria in the operation of their business. ESG stands for Environmental, Social and (Corporate) Governance. These three requirements provide a quantifiable measure of a company’s impact using metrics that reflect how well a company is doing compared to its peer group.

Today, socially responsible investors apply these criteria to identify whether the companies they’re looking to invest in are committed to Sustainable Development Goals (SDG), such as ending poverty, protecting the planet and peace and prosperity for all.

How is ESG measured?

ESG offers a way for investors to identify companies that make a difference to the environment and modern slavery while steering clear of those that pose a greater financial risk because of their environmental or social practices. ESG can also highlight how far a company has advanced towards attaining sustainable practice.

We invest in managers who invest in companies that provide sufficient information on each of the three metrics. In this way, ESG data becomes part of the investment process. As a result, all signatories to PRI will consider ESG data when researching companies to invest in, so we can be assured that their approach is of a high standard.

ESG activity is tangible and measurable. However, there are numerous factors to consider within each of the three elements, and they change all the time. Nonetheless, they share one theme in common, they all support positive change.

The environmental factors

Climate change, resource depletion, deforestation, waste, and pollution are the most urgent factors we face as global citizens. We want to ensure that the companies we invest in make the mark by addressing environmental issues and taking steps to reduce their carbon footprint.

The social factors

Today more than ever, investors want to know more regarding how and where their money is invested. That’s why we invest in companies, via the managers we use that are doing the right thing when it comes to human rights, modern slavery, child labour, working conditions, and employer/employee relationships.

The governance factors

Governance factors outline the rules and procedures that corporations and countries follow to allow investors to assess governance practices. Typically, this will include defining rights, responsibilities, and expectations between different stakeholders, focusing on strong leadership and an ethical culture. High-quality governance is critical to success and can result in better investment outcomes for investors.

Will PRI affect investment returns? 

PRI will help create financial markets and global economies that benefit the environment and future generations while enhancing returns and managing risk. Each signatory will achieve this by following a set of principles focused on long-term value creation. These principles are designed to optimise financial, social, and environmental value as our financial world transitions to a more sustainable model. We are comfortable that adopting the PRI will not be detrimental to our returns. In fact, we expect they will be enhanced.

Effecting positive change

Signing up for the Principles of Responsible Investment is important. That’s because the decisions we make today will shape our future. Our commitment reflects our intention to grow our portfolio through sustainable, ethical practice, championing climate action and effecting real-world change.   

For Clearwater, this means that rather than creating a specific ESG investment portfolio, we have applied the principles and approach to our existing portfolios and our wider business. As members of the PRI, our commitment is assessed to ensure that we are meeting the criteria.

If you would like to read more about our commitment to the Principles of Responsible Investment, our PRI policy is available here.

by Gary Lucas.