Jane: [00:00:00] Hello and a very warm welcome to the LSEG Sustainable Growth podcast, where we talk to leading experts about topics that cross over sustainability and finance. I'm your host, Jane Goodland, and this week I had the honour of talking to David Atkin, CEO of the UN supported Principles for Responsible Investment, perhaps better known as the PRI, which is the world's leading proponent of responsible investment. Before taking the helm of PRI in 2021, David led large asset owners such as CBUS, which is one of Australia's largest industry superannuation funds. But he's no stranger to PRI, as he served as a non-executive Director on the board of PRI from 2009 to 2015. But before we listen to the conversation, a quick reminder to follow us so you don't miss any future episodes. And also, don't forget to rate us on Spotify, Apple Podcasts, or any other platform you use. Right, let's get into the conversation and hear what David had to say.
Jane: [00:01:02] So Hello, David. Thank you so much for coming and joining us on the LSEG Sustainable Growth podcast. It's great to have you here today.
David: [00:01:10] Thank you. Jane, terrific to join you.
Jane: [00:01:12] Right. So, let's get started because, as I mentioned in the introduction, this is, your second stint with PRI because in fact, you were, on the board as a non-executive director when PRI was a lot younger, I must say, back in 2009 to through to 2015. So, my question to you is, what drew you back to PRI in your current role now? And also, what have you been up to in between?
David: [00:01:40] So yes, it's been fascinating to come back to the PRI and see how it's grown and become such a part of the industry. If you'd said to us in the early days, that the PRI would become so significant in the investment community, we would have said you were dreaming, but we are where we are now. What drew me back was, really, I mean, I've always seen an important part of my role is leading teams, leading organisations through change. And I've always had a strong interest in the whole responsible investment, ESG, sustainable finance space. And so, the remit of this job is to ensure that the PRI stays relevant to our signatories as we move into our next phase of work. We've got a whole lot of resources internally that we are working with, as we identify what we need to stay relevant. And so, for me, it was a perfect combination of my subject area interest and also my expertise as a CEO, taking organisations through growth and change, and making sure that the organisation stays successful as it continues to demonstrate value to its membership base. So, for me, those things came together in this opportunity.
Jane: [00:02:48] But you've been at superannuation schemes in the interim, right?
David: [00:02:52] Yes. So, I've spent 25 years working in the pension world in Australia, superannuation industry, leading, CEOs in three different organisations, primarily with CBUS, which is the Construction and Building Super Fund for 13 years. And I also had a short stint as a deputy CEO of AMP capital. So, an asset manager. So again, a good blend of experience between in an asset owner environment, but also in an asset manager listed environment. So, I think that's relevant coming into this job given that’s part of the breadth of our membership base.
Jane: [00:03:26] Yeah, absolutely. I mean, you've got thousands and thousands of supporters and signatories now, and many of those are indeed asset owners, and the investment managers that they work with. So, PRI was launched about 18 years ago based on my rudimentary maths, launched in 2006. And as you mentioned, it's been incredibly successful when you think about kind of how it's become so synonymous with the investor movement around responsible investment. And also, I mean, can give me some latest figures, I guess, on the membership size. But why has it got so much support from the investor community?
David: [00:04:06] Yeah. So, I think, it has been a bottom up response, from the investment community who've recognised increasingly that, when it comes to thinking about risk and value creation, there's a whole lot of information that hasn't been available to investors. And these are around environmental, social and governance, factors. And so, we've seen this bottom up response from the investment community that said, no, no, no, it's really important that, we understand these externalities, we understand these issues that are not presently on the balance sheet, but eventually do get onto the balance sheet. Increasingly, they are being seen to be on the balance sheet. And so, by taking a broader view about what creates value and what creates risk, then investors are in a better position to be able to serve their particular constituencies. So that idea has continued to resonate. As we've started to see the impact of climate change. And as we start to see social dislocation and as we've started to see more and more examples of poor governance or good governance that is value enhancing. And so we've now got to a point where, over almost 5,500 signatories around the world, 100 countries that we have signatories in, have signed up to the principles. It's about 120, 130 US trillion. And that's more than half the institutional capital in the world that have signed up to the six principles. And it's not a fad because, the industry would have moved on to other things by now if this thematic was not seen to resonate. I think what we've begun to understand is as we've got more and more into it, we've recognised the complexity, but also that, there is a lot of work to be done because effectively, what we're doing in the industry is replumbing the way finance works, we're reimagining the balance sheet. We've identified that there's a whole lot of, as I said, externalities not on the balance sheet. And so, we need new frameworks, new information, new ways of thinking to be able to better capture that information so that investors can make better decisions for their respective consumer bases.
Jane: [00:06:16] And I think one of the things that's particularly impressive is the fact that the PRI has been going for 18 years, and the principles are still, as they were drafted in the very first launch, which is really quite incredible, when you think about how much has changed in that period of time. So, you know, I think obviously they were drafted with a very clear mandate in mind, with a clear audience in mind, with fiduciary duty very much baked in, absolutely at the very heart of what they're trying to achieve. And it really has stood the test of time because they remain unchanged. And they remain very relevant to today, don't they? So, I mean, it's really impressive, those numbers you shared in terms of the membership and the assets that they represent. It's huge.
David: [00:07:00] I couldn't agree more. I think those early leaders that did the work, we have a lot to thank for because it's been enduring, as you say. Now that's not to say that the world hasn't changed. And the and the environment that we're operating in is very much more complex but the basic ideas of fiduciary responsibility, as you say, but understanding risk better and understanding the issues that actually create value or destroy value, across the ESG spectrum remain as valid as they were in 2006 when the when the principles were launched.
Jane: [00:07:35] So you mentioned, obviously that the world has changed. And yes, indeed it has. Let's think about that for a moment. From what the world was like, the investment world was like in 2006 when the PRI were first launched with the backing of the United Nations to now, very, very different situations. But how can you sum up that change? And from your perspective, looking back over that 18 year period, what are the key differentiators between the beginning and where we are today? And why does responsible investment play an important part in it?
David: [00:08:09] Yeah. So, this was initially a niche idea, a niche part of the industry. And what we've seen, however, is that increasingly every year, as more and more asset owners and more and more asset managers start to apply the approach of integrating ESG into their investment decision making processes, they've seen the value, and they've gone deeper and deeper into issues. So, it sort of started with governance. Well, certainly from my experience in the Australian context. I mean, what really brought investors into this space was the value destruction from the shareholder. From a lot of the corporate collapses around the turn of the century, where it was clear that there was a misalignment between shareholder needs and the way particular companies were being run. And so that led to investors should have more of a say and more of a voice, be engaging more with companies about what was good governance. And now we've seen moving into the E space very strongly, climate being the most clear and obvious, but now into the nature and biodiversity piece, but also recognising that, if you're thinking about social license issues to operate, this is often a very important issue for companies that they get blindsided on and it's important that companies understand their place in communities, and they don't lose their social license to operate. There are many examples where that has occurred. So increasingly we've become more and more sophisticated, better information. But what we've also seen is, in addition to this bottom up thematic from the investment community, we've now started to see top down architecture being put in place by regulators because it's now effectively mainstream. It's quite reasonable that regulators around the world are wanting to make sure that there is appropriate architecture in place to ensure that claims people are making are accurate and correct. But also, increasingly, we're seeing governments and policy makers understand that capital has a very important role to play to deal with these broader systemic risk issues. And I think that's probably the other thing that I would say is that we've got a much better understanding about system risk now than we did 20 years ago. And we've got a lot of work to do, but I think we've joined the dots, and I think there is a clear pathway for investors to work with regulators and the community to address these systemic risks and make sure we're protecting the value that we create for our various beneficiaries.
Jane: [00:10:42] So let's talk about regulation. As you've just mentioned. And we're seeing much, much more regulation coming into this space from product labelling, disclosure, taxonomy, you know, you name it, let's go on. But given that PRI is a voluntary initiative, investor led and really trying to, I guess, drive best practice. Is there an inbuilt tension between what you guys are trying to do and then the introduction of regulation, which has varying degrees of success, shall we say, and works at a different pace, perhaps, that voluntary organisations or voluntary initiatives like your yours have. So how do those two things kind of work together or not.
David: [00:11:30] Look, there is a tension there, there's no doubt about that. And, you know, there's always this concern about overregulation or under regulation. And so, getting the balance right is not easy. It's certainly true that we're operating in a system that codifies the way we all work. How we create trust in the community. That information that's in front of them is understood and accepted. And so, as we've started to identify that there is missing information, it's important, therefore, to make sure that there is a floor put in place around comparability around these systemic risk issues, for example, and that there's comparability between companies and industries, around how they've identified ES and G issues in the way they then make decisions. So, the PRI has got a really interesting role to play here, because we recognise that it's completely reasonable that regulators are wanting to step in and make sure that there is appropriate rules for our part of the industry. Greenwashing is part of that focus. But at the same time, it's also, important to recognise that regulators and policy makers don't necessarily understand how the investment world works. And so, sometimes policies are poorly constructed because they don't understand the problem, or sometimes it's poorly constructed because they don't understand the practitioner's perspective and actually implementation how to implement something. So, the PRI has got a very important role to play here, to bring a practitioner's perspective in the formulation of this regulation. And we've got the advantage because we operate globally, that we can identify best practice. We can identify where it hasn't worked as well because there hasn't been a proper conversation or proper feedback provided by signatories or by investors. And increasingly, as we, work with our signatories, they say the policy is one of the most important roles that the PRI can play. To bring that international perspective, to bring that practitioner's perspective. And, the other thing that I would say, however, is that we also need to be careful that as regulation is put in place, that it doesn't stifle innovation and it doesn't stifle learning. Now, there is a difference between misselling a product and a product that fails because, we didn't quite work it out correctly. But I worry that some of the regulation is so focused on the greenwashing aspect that investors are now beginning to get reluctant to try new things because they don't want to be caught out. But I think as I said, there's a difference between deliberately misselling with a product that fails, and it's through failure that we learn and that we innovate. And there's still a lot of innovation that's required in our industry for us to successfully achieve our objectives.
Jane: [00:14:34] Yeah, I mean, we're certainly not out of a to do list In the sustainable and responsible investment field, there's still much, much more to do. So, let's talk about that a bit. You're in the last year of PRI strategic plan, which is running from ‘21 through to ‘24. So, tell me about what some of the key focus areas have been over that period, because that's obviously under your tenure. What have been the key things that you've been up to?
David: [00:15:00] Yeah, part of my tenure. But the sort of three key aspects of the last three years has been around responsible investment, sustainable markets and a prosperous world for all. And so, in the responsible investment space, we've been continuing to provide tools, case studies, best practice, a range of, ways in which, we've helped individual institutions become better responsible investors. On sustainable markets, we've identified that there needs to be improved policy settings to enable, addressing issues like climate change and just transition issues, increasingly now, nature. We've been focusing on ESG incorporation into financial policy, regulation, and prosperous world for all again is coming back to the actual issues that are impacting the world. So again, climate, nature, human rights and having specific initiatives around stewardship that enable signatories to work together on common areas of interest, to seek to influence companies around those sustainability issues. So that's the sort of broad framework, Jane, that we've been working on in the three year strategy plan.
Jane: [00:16:15] And so in terms of thinking about how things have changed even just over the last three years, obviously your signatory base has gone up, and responsible investing has become very much more mainstream, if you like. So, what's the role of PRI now? So, what's what are you thinking about your key focus should be.
David: [00:16:37] Really good question. And I mean look I've been in the job for two years. And in that two years the world's changed incredibly. I mean, we've had the Russian invasion of Ukraine. We've had a cost of living crisis and energy crisis. We've had increasing evidence of the world's climate changing and the social dislocation. so, the geopolitical environment is a lot more complex. We've seen the anti ESG politicisation in the US. Although pleasingly, I'd say that's pretty much contained to the US. Although it's obviously something that is a watching brief for us. Also, the challenge for us is we subscribe to a big tent approach, which is that we want signatories to be able to begin their learning curve, to become better responsible investors. And so, with five- five and a half signatories, how do we do that? What we've learned is that people love the idea of the PRI being this global organisation that is a depository of knowledge this experience that you can tap into, the convening power of the PRI, this network. But at the same time, they've said to us the PRI needs to better understand that the local context in which signatories work in matters that it will determine their priorities. So, what investors will be working on in say, Japan will be different to Latin America, which will be different to the UK, etc., etc.. So the PRI needs to better tailor our programs of work around regions and their needs. We've also seen, I think, an interesting shift and we did a changing world consultation with our signatories over the last 18 months, which was very deep. And one of the things that we asked people was, how would they describe themselves as responsible investors? And we gave three different definitions. The first was around integrating ESG risks into your investment processes. The second was around doing that but identifying sustainability outcomes. And the third was doing those two things but taking action on sustainability outcomes. And what we saw from the results was that it was 30, 30, 40%. So, 40% believing taking action on sustainability outcomes is what being a responsible investor is. We then asked that question, based on the future, what do you think it will become? And it went from 40% to 60%. And for asset owners, it was 70%. So, there's a couple of things about that. One is the PRI, the signatory base have different views about what being a responsible investor means. And we need to support each of those different approaches. But also, it tells us that, taking action on sustainability outcomes is increasingly being seen as part of your fiduciary responsibility as investors. And so, we need to make sure that we are supporting that shift as well.
Jane: [00:19:31] And, David, can I just jump in when you say taking action on sustainability outcomes? What do you mean by that?
David: [00:19:38] So, if you, for example, if you viewed climate as being an important material risk to your ability to deliver returns. Well, first of all, yes, you need to start, being able to mitigate that risk. But if you think that also the way you invest can actually assist you meet returns, but also address that systemic risk, then you're more deliberative in looking for opportunities for you to invest in the climate transition to enable the economy to transition. So, it's being more deliberative in the way in which you invest, not just, from a risk point of view, but from an opportunity perspective, so that's the best example to give.
Jane: [00:20:16] Exactly. I should imagine also that includes not only your investment strategy in a proactive sense, but also potentially if you're an equity investor, then thinking about engagement with companies as well. Right?
David: [00:20:32] Correct, and there are a series of initiatives that the PRI is involved with, which brings signatories together to work on that sort of engagement, that stewardship. So, when we shared responsibility with other network partners, Climate Action 100 is the perfect example. Advance, which is our human rights engagement collaboration. And Spring, which is our nature, our most recently launched initiative, which brings signatories together to engage with companies on nature and biodiversity. So that's one of the things that's very important about the PRI, its ability to bring signatories together, to engage with companies, to try and influence companies in the way that they perform and provide value to shareholders.
Jane: [00:21:18] So, David, thinking forwards, beyond today, I know that you are looking to set out your next three year plan. I think it's three year plan. Right. So, tell me a bit more about that. What will be the focus of that and when will we see it?
David: [00:21:31] We've been doing a lot of work with our signatories over the last 18 months to better understand their needs in a changing world. And, you know, some of the things we heard around that was that, the PRI is plays a very important role bringing this global knowledge base together. But we need to better understand the local needs of signatories and be able to prioritise those local needs better. We need to recognise that the reporting requirements are changing. We're seeing more and more mandatory reporting around the globe. And so, our own reporting and assessment needs to adapt to that, we need to recognise that there is more than one way to be a responsible investor, and we should tailor our programs based around the particular approaches that our signatories take. We need to support better our ecosystems and other partner groups that we work with. There are some projects that we should be leading, and there are other projects that we should be getting behind and amplifying. And so, I think this is very important for us to be a very good partner to work with, but to use our 5,500 signatory base to promote other people's good work. So, this is another theme that came out, and then strengthening the whole policy work that we're doing to ensure that we're seeing harmonisation, that we're influencing the regulators to better understand the practitioners needs. And so, these are going to be the emphasis for us in the next strategic plan. Probably the only other element that I would mention is in addition to sort of better supporting re ecosystems, also recognising that there's more work to do in the emerging markets, we need to get stronger linkages between the North and the South and between developed and developing markets. And the PRI has got a very important role to play here in making those connections and supporting emerging markets to begin their own journey as responsible investors. And I can say that as I've travelled around the globe a lot in the last two years, there is a very strong level of interest in emerging markets to responsible investment, and they want to be connected to the international community. So that's a role that the PRI can play. So, they're some of the things that will be made up in our strategy for the next three years, which will be going out to consultation in the next few weeks on, and then we'll sign that off with the board in June.
Jane: [00:23:50] Great. I mean, it sounds very sensible, and I think it shows that, you talked at the top of the conversation around relevance and making sure that the PRI is always relevant to the signature of the needs of the signatory base. So, it's great to hear about the fact that you've listened to signatories, what they need. And, you know, this has become a lot more complicated, right from the early days of a small number of signatories, probably very similar in nature in terms of an asset class exposure to now, a global, like you said, a hundred countries represented. With all very different approaches. So, I mean, it really is fabulous the extent to which you've managed to maintain that relevance going forward. So, I very much look forward to the plan coming out. And, particularly about how, we as LSEG can support, the PRI, in its mission. .
David: [00:24:45] Just watch this space. But we'll be providing some communication out to the signatories very soon on the consultation, on the strategy. But hopefully we've understood the issues and we've got the right program. And we can become even more important and valuable to our signatories in the next phase of our work.
Jane: [00:25:02] And then in terms of your kind of the policy engagement, obviously you've said that members have kind of articulated the value they place on PRI's role in that. And I agree, it's really important. And I know that one of the areas that we're looking at, in fact, LSEG and PRI are partnering on is the call to action for governments around the world to adopt the ISSB disclosure standards at pace, by 2025. So, do you want to talk about a bit about why corporate disclosure is so important from a PRI perspective?
David: [00:25:34] Yeah, absolutely. So, if we go back to the views that I expressed around the balance sheet. I mean, what we know, in fact, there's this study, Ocean Tomo study that's been going for the last 40 years or so that looked at the S&P 500 companies in the 1970s, and you could see that 80% of the value, of companies was tangibles and 20% intangibles in the 1970s. Roll that forward. It's now reversed. When you look at the value, 20% is the tangibles, the sort of obvious balance sheet and 80% is research and development, social license to operate, brand, employee, it's much broader. So, that's the first thing. So then, we've now seen increasingly voluntary efforts to address how to make better decisions around the balance sheet, and that takes you so far. But in the end, investors are really looking for comparable data. And we only get that if there is agreed standards around sustainability that enables investors to look company by company, industry by industry, country by country. And so, what's really important, I think development, is that we've seen, ISSB established, and we've seen these voluntary frameworks start to come together. And npow, those standards are beginning to be issued and we are, strongly encouraging countries to adopt the ISSB standards, because that will enable investors to properly assess risk and value in companies around the globe. And I think will enable improved decision making and improve outcomes. So, we're delighted we've been able to join together, in calling countries to adopt, the ISSB standards and to encourage investors and companies to start adopting the reporting processes that are now being issued by ISSB. I think it's very exciting. And I also think that everything's connected to everything. But I think we're now starting to see, so TCFD has come into those ISSB standards, and TNFD in time will no doubt start to come into those ISSB standards as well, which I think is very important because investors increasingly recognise you can't solve the climate issues unless you actually start properly factoring in nature information into your investment decision making as well.
Jane: [00:28:03] Yeah.
David: [00:28:04] So there's now a framework in which these things can come together.
Jane: [00:28:07] I think it's really important as well that the investors and corporates also show support for the adoption of ISSB, because actually, like you said, everything is connected to everything. And actually, this is a place and a development that if we get this embedded consistently across as many countries and jurisdictions as possible, we stand a chance of having a consistent language for the financial sector to talk and communicate about sustainability. And effectively, that's the thing that's absent currently. And we really do need that common language.
David: [00:28:44] And this is so important because investors are generally global. They're operating across multiple jurisdictions. And so, if there is an international standard that is in place, then that just makes the frictional cost of deciding where an investor wants to deploy their capital in a much reduced. So, I think, yeah, it's one of the things that, again, the PRI plays a really important role is harmonisation as much as we can around regulation and around standard setting. So, I couldn't agree with you more, Jane.
Jane: [00:29:19] Great. I think we've probably run out of time, David. It's been fascinating talking to you, and I'm so excited about PRI’s future role, and it's absolutely got a critical role to play going forward. And long may the success of PRI last. So, thank you so much for coming and talking to us today. And good luck for the plan that you are going to be putting out soon.
David: [00:29:41] Thanks, Jane.
Jane: [00:29:44] So that's it for this episode. What a fascinating chat that was. Big thanks to David for sparing time to be with us on the LSEG Sustainable Growth podcast. If you've got questions, comments, or someone you'd like us to talk to, then do get in touch by email at fmt@lseg.com. That's all from me but watch out for another episode very soon.
