PRI’s stewardship initiative looks to stimulate investor collaboration on human rights and social issues.
This year is expected to see rising levels of inequality, with drivers including the cost-of-living crisis, wage stagnation and a downgrade in global growth forecasts. A report from British think tank the Resolution Foundation, which aims to improve the standard of living of low- and middle-income families, projected that income inequality will continue to rise year on year and potentially reach a record high of 40.8% by 2027-28.
Investors are increasingly taking responsibility for tackling the issue of inequality, with their awareness growing about how systemic inequality poses risks to their portfolios by limiting productivity, constraining consumer spending, destabilising supply chains and triggering political and social instability.
The Principles for Responsible Investment’s (PRI) Advance initiative looks to address rising levels of inequality, as well as other human rights and social issues.
It is one of several similar stewardship initiatives focused on addressing inequality, including the Taskforce on Inequality-related Financial Disclosures (TIFD), the World Benchmarking Alliance (WBA) and Workforce Disclosure Initiative (WDI).
Nabylah Abo Dehman, Head of Stewardship, Social Issues and Human Rights at the PRI, told ESG Investor that it is of the “utmost importance that investors contribute to fighting increasing inequalities”.
“Not only is it their responsibility but it also makes economic sense as economic inequality contributes to systematic risk to investment returns, and a risk for their beneficiaries and for broader society.”
Some investors have begun to engage with investee companies on the issue of inequality. Last year, shareholders filed a living wage resolution at UK-based supermarket chain Sainsburys and a Church of England Pensions Board-organised summit found the global executive pay system to be part of an “unfair, broken system” with investors becoming more willing to challenge it. In January, investors exercised their leverage to reach an agreement with Apple on workers’ right to organise.
Officially launched in December 2022, the PRI’s Advance is a stewardship initiative – with the support of 220 institutional investors with a combined US$30 trillion in AUM – which seeks to take action on human rights and social issues, with the aim of using collective influence with companies and other decision makers to drive positive outcomes for workers, communities and society.
According to Abo Dehman, the initiative was created for three key reasons: Investors’ own responsibility to respect human rights, the “urgent and systemic nature of human rights issues” and the power of collaboration.
The PRI will support a variety of stewardship tools and a range of activities aimed at addressing human rights, such as engagement at shareholder meetings and public policy engagement, according to Abo Dehman.
Three key expectations have been set for Advance’s focus companies. These are the implementation the UN’s Guiding Principles on Business and Human Rights (UNGPs), the alignment of their political engagement with their responsibility to respect human rights, and deepening progress on the most severe human rights issues in their operations and across their value chains
The pursuit of equality
The PRI will publish annual progress reports to provide investors and other stakeholders with regular updates on the initiative’s progress against its stated objective. These progress reports will be based on the initiative’s assessment framework, as well as reports from investor participants on the progress of their engagements with focus companies and their own level of participation within the initiative, said Abo Dehman.
The PRI will publish the Advance assessment framework methodology later this year, which will be used as the basis to measure progress of the engagement focus companies against the company expectations; and progress of the overall initiative against the objective. This methodology will rely on existing benchmarks and there are no plans to develop an Advance benchmark at this stage, according to Abo Dehman
This assessment framework is still underdevelopment, with the support and input from the initiative’s signatory advisory committee and technical advisory group, he added.
The TIFD is due to make further progress in 2023, with Abo Dehman saying that the taskforce and Advance “pursue similar goals” with “activities [that] are complimentary” in tackling inequality and human rights issues, as well as getting companies and investors to act towards advancing human rights and to seek to reduce their contributions to growing inequalities.
“There is a need to have joint and converging approaches to avoid multiplications of tools and, therefore, we welcome the fact that TIFD is working closely with other organisations who are tackling similar issues through their benchmarks [including the] WBA [and] WDI”, added Abo Dehman.