'Responsible' investor group toughens code on global members

By Ross Kerber

BOSTON (Reuters) - A UN supported group pushing for "responsible" investment said it has adopted tougher rules aimed at making fund managers deliver on pledges to pay attention to environmental, social and governance (ESG) issues.

The requirements described in recent interviews by leaders of the UK-based Principles for Responsible Investment (PRI) include that signatories adopt policies that describe their approach to responsible investing and that top executives oversee the work. Laggards could be delisted starting in 2020.

The new rules pose a test for U.S. asset managers led by BlackRock Inc, Vanguard Group and State Street Corp . These firms lately have emphasized ESG factors but some responsible investment activists want them to push for further changes at companies whose shares they hold.

 

Once seen as irrelevant by many financial executives, ESG issues have taken on a new importance as a way for asset managers to distinguish themselves to clients.

Currently about 200 of the PRI's membership of 1,873 would not meet the new standards, said Fiona Reynolds, the group's managing director, in a recent telephone interview.

She declined to name specific under-performers but said the general view among members is that "Those that have no commitment to doing anything should not be able to use the PRI brand."

By some measures 2017 was a watershed year for ESG efforts. BlackRock and Vanguard each cast rare votes in support of a measure on climate issues at Exxon Mobil Corp this year, for instance, while State Street Corp drew attention for its boardroom diversity efforts.

Yet all three firms have faced calls to take further steps like backing critical shareholder resolutions more often.

A BlackRock spokesman declined to comment.

A Vanguard spokeswoman said the firm is "actively engaged" with the PRI, and sent a statement from Vanguard Chairman Bill McNabb that "Our PRI membership is a natural extension of the Vanguard mission."

State Street executives said the firm was given the PRI's highest grade, an "A+," in a review of its strategy and governance, the broadest area the PRI evaluated.

All three firms employ ESG specialists and have been publishing more ESG reports and policies, which should help satisfy the new requirements.

Asked if that means those managers are less likely to be delisted than smaller ones with fewer resources to devote, Reynolds said big firms are "not always" the ones with the strongest commitment to ESG practices.

"Size is no guarantee of success," she said.

(Reporting by Ross Kerber; Editing by Andrew Hay)