3. Adoption of principles and codes of conduct that support responsible investment
United Nations Principles for Responsible Investment (PRI)
Following the establishment of the Global Compact in 2000 that aimed at encouraging the private sector to commit for environmental, social and human rights issues with taking seriously their social responsibility, the UN upon the initiative of its Secretary General, invited a group of the world’s largest institutional investors to join a multistakeholder process and develop the Principles for Responsible Investment (PRI). The PRI are aimed at pension, insurance and institutional investors. They are based on six main principles which require investors to consider environment, social and corporate governance issues (ESG) in their management of investment portfolios 1 :
- Incorporating of ESG issues into investment analysis and decision-making processes;
- Becoming active owners and incorporate ESG issues into the ownership policies and practices;
- Seeking disclosure on ESG issues in corporations in which investments have been made.
- Promoting acceptance and implementation of the Principles within the investment industry
- Promoting collective work to enhance effectiveness in the implementation of the Principles
- Reporting activities and progress towards implementing the Principles.
There are 3 categories of signatories: asset owners, investment managers and professional service partners. As of APRIL 2021, there are over 2900 signatories 2 and they all pledged to respect the aforementioned principles. Signing the PRI/Global Compact remains a voluntary commitment to the principles and does not put the signatories under any legal obligation. The only obligation signatories have is to answer the annual questionnaire concerning the measures taken to implement the six principles. In August 2009, the Secretariat dismissed 5 signatories (DeSBAN, Christopher Reynolds Foundation, Foresters Community Finance, Oasis Group Holdings and Trinity Holdings), as they did not fulfil this one and only condition. Such principles for responsible investment are all the more relevant that there has been a growing tendency from pension funds to divest from high risks situations. For example, investors have announced withdrawal from Israeli banks and companies operating in Israeli settlements in the Occupied Palestinian Territoriy (OPT). In January 2014, The Dutch pension fund PPGM that divested from five Israeli banks operating in Israeli settlements 3 . Although it stated its intentions to remain invested in three Israeli banks related to settlements in the OPT, APB, another Dutch pension fund also decided in July 2014 to divest from two Israeli arms companies (Aryt Industries Ltd and Ashot Ashkelon Industries, respectively manufacturing detonators and operating in the aerospace and defence sector) 4 . In Luxembourg, the pension fund FDC decided to excluded investments in the five major Israeli banks, as well as in several top Israeli companies for their involvement in settlements in the OPT. In July 2014, 17 eU Governments (Austria, Britain, Belgium, Croatia, Denmark, Finland, France, Germany, Ireland, Italy, Greece, Luxemburg, Malta, Portugal, Slovakia, Slovenia and Spain) made statements warning companies against doing business with or investing in Israeli companies involved in the settlements in the OPT 5 .
Private Equity Council’s Guidelines
On 10 February 2009, a year after having signed the PRI, the Private equity Council, an advocacy, communications, research organisation and resource centre for the private equity industry, adopted a code of conduct based on the PRI. The Private equity Council requires that all members apply this code of conduct when taking over other firms/companies. The code of conduct expects investors to be more aware of environmental, public health issues, workers’ rights and social issues throughout the evaluation of companies in which the private equity funds invest. The private equity funds finance the purchase of companies which sometimes results in the private equity fund becoming heavily indebted. NGOs and public institutions among which the european Commission, have heavily criticised these funds, as they are accused of having allowed the development of debt bubbles in the financial markets. It is considered today that private equity funds and hedge funds, as well as some other types of funds and financial instruments, need to be more closely regulated.