Donald MacDonald is the Chair of the Board for the Principles for Responsible Investment (PRI), a United Nations-led aspirational set of principles seeking to integrate social, environmental and governance issues into investment decision-making that now has signatories representing more than US$13 trillion in assets. He is also Director of the Trustee Board for the British Telecom Pension Scheme (BTPS), of which he is a member and current pensioner. Mr. MacDonald has a background in the UK telecommunications industry and the trade union movement.
1) What are, in your view, PRI’s successes? What challenges lay ahead?
PRI’s reach is clearly a success: Asset owners from around the world are recognizing the need to integrate extra financials in the investment process. There are now more than 300 PRI signatories representing over US$13trillion assets under management. Signatories are more concentrated in some geographical areas than others, but PRI’s membership is global.
Our prime success is that the PRI is serving as a vehicle for responsible investment activity motivated by the exercise of fiduciary responsibility. The organization provides an unparalleled ability to network, to share experiences, best practices, and most importantly, to provide a system for collaborative engagement.
2) Where would PRI like to be in one year? In five years?
The PRI needs to demonstrate that it can change existing investment practices. We need to empower signatories and help them develop their capacity through networking, and demonstrate their ability to integrate environmental, social and governance (ESG) considerations into investment analysis and decision-making. There is now sufficient weight within the organization to deliver change, and the “PRI in Person” meeting taking place this June in Seoul will showcase engagement successes and exemplify best practice.
Over the next year, we plan to consolidate the work we have begun, including the introduction of new work streams on alternative asset classes such as private equity and, in collaboration with UNEP-FI, on responsible property ownership. We will also be establishing a PRI academic network to encourage academic research in areas relevant to ESG integration. We also need to secure an income base ensure capacity as an organization.
Our five-year strategic objective is to be viewed as a global champion of investor-led responsible investment initiatives – basically, delivering on the six principles.
3) The international trade union movement has come out in support of PRI, and developed a guidance note to assist trustees in implementing them. As a member-nominated trustee yourself, how do you view the role of the labour movement relative to the PRI?
We welcome the support of the global labour movement – and the worker capital it represents. This support is clearly very important: Trade unions have an obligation, through their member-nominated trustees, to deliver best value pensions but also to exercise active ownership. The relationship between capital and labour has evolved considerably in the pensions sector, and a very collaborative approach now exists. It is very important that workers and their representatives are actively involved in the good management of their pension schemes. We invite trade union pension schemes to take part in the good work of the PRI.
4) Do you think that PRI is a useful tool for member-nominated trustees to raise issues of importance to workers and their trade unions related to the investment of workers capital?
Clearly, the PRI provides a useful framework for trustees: there is a commonality of interest here. Consider the universal ownership issue: the health of workers’ pension funds depends on healthy economies, avoidance of wars, the secure production of foodstuff, access to clean water, etc. There is a circular relationship between investments and the globe: if the world is unhealthy, our pensions are unhealthy. Trade unions have a very unique role in this respect: Trade union members are the beneficiaries of pension funds but also supply the labour that manufacture goods and provide services.
The PRI can be used as a vehicle for corporate engagement in many areas of interest to the labour movement, such as supply chain issues, gender, labour rights, etc. PRI signatories, in turn, need to be aware of their responsibilities in areas of key concern to workers, such as labour rights, health and safety, child labour etc.
5) PRI’s lack of explicit reference to authoritative international standards of corporate behaviour (ILO, OECD) is frequently mentioned as a drawback in trade union circles. How do you respond?
The ILO and OECD instruments are of a different nature: they are, by nature, inter-governmental organizations mandated to set standards that are enforceable through legal action. The PRI is different: it is an investor-led initiative. Members are motivated by the proper exercise of fiduciary responsibility, by the belief that ESG risks can be material, and can impact the long-term returns for members’ beneficiaries.
To be effective and raise standards in the capital markets, you have to be pragmatic. The PRI pushes for the integration of ESG considerations in investment decision-making. Given the wide range of extra financial issues out there, this process has to be generalized and indicative to be valuable for asset owners. The Principles are clearly aspirational, but underpinned by a clear assessment process.
6) Among ESG extra financial considerations, social issues – including labour and human rights issues – are analytically the least developed, and certainly the least integrated into investment decisions. Is this changing? Is further applied research needed? How can this be promoted?
My personal view is that pension funds that ignore the legitimate interests of stakeholders are almost by definition not exercising their fiduciary duty in ESG issues. Some institutional investors do not like interference from external organisations, and actively dislike speaking with not-for-profits or trade unions. This is a mistake: well researched information from trade unions, NGOs, and other stakeholders can be very valuable. Similarly, corporations can learn from engagement processes, and learn to become more responsive. There are some successes in this area, certainly in Europe, and increasingly in North America, I believe.
Further expertise on social issues is being developed. Supply chain issues and labour standards feature quite prominently within the PRI Clearinghouse, for instance. The results of these initiatives are not public, although a lot of our signatories will publish information regarding their engagement process after the fact (including my own pension scheme, British Telecom Pension Scheme.)
7) Can PRI be applied to alternative asset classes, such as private equity? How?
A work stream to encourage responsible investment in private equity is currently being developed within the PRI. This is a very difficult area, owing to the lack of disclosure and transparency. PRI is working with several private equity partners to develop some best practices, although clearly much work remains to be done
Trade unions have applied political pressure to push private equity firms to act as responsible employers. This is not fundamentally incompatible with the private equity model: The best private equity deals have factored in labour and environmental considerations, which shows that there is some scope for understanding between the parties. However, unions should have a much richer approach to the private equity discussion through their worker capital, by engaging with their pension fund trustees who are investing in this asset class.