Redefining and Reinventing Responsible Investment

Rory Sullivan Robert Black and Cora Buentjen

Through 2025 and 2026, we supported the Principles for Responsible Investment's (PRI’s) Future of Responsible Investing (FoRI) Asset Owners group – composed of senior executives from 20 leading asset owner institutions alongside five former PRI Board members – in reflecting on the role and responsibilities of asset owners in the investment system. 

Three main conclusions emerged from this work.

• The first was a reaffirmation that “the core purpose of responsible investment for asset owners is to aid the generation of investment returns for beneficiaries, continuously and reliably over time; this includes investment activities that are consistent with the health, sustainability and resilience of environmental and social systems.”

• The second was a recognition that the world has changed profoundly in the twenty years since the PRI was founded. The investment risks and issues asset owners now face are highly complex, fast-moving and interconnected. Pressures on the natural environment – most obviously in relation to climate change but also nature and biodiversity – are increasingly evident. At the same time, investors have had to respond to the emergence of new technologies and the potential disruption these will cause to many industry sectors. More recently, a fracturing of the global order marked by the rise of new geopolitical risks and growing political volatility has created an additional layer of uncertainty and complexity for investors.

• The third conclusion was confirmation that the core purpose of responsible investment for asset owners is to help asset owners to manage these investment risks in order to deliver on their primary objective. That is, taken to its logical conclusion, responsible investment is central to how asset owners manage the risks and opportunities presented by the changing world in pursuit of their goal of delivering investment benefits while not undermining the health, sustainability and resilience of environmental and social systems.

In its report, FoRI sets out two forward-looking ambitions for responsible investment:

• The first is that responsible investment – including practices such as integrating sustainability and governance-related factors into investment decision-making and stewardship – would become a baseline practice for all asset owner and investment manager activity globally.

• The second was that system-level risks – both those resulting from structural changes such as climate change, AI and demographic change and those resulting from the structure and operation of the investment system itself – would become central to responsible investment, with their identification and management recognised as an integral part of how asset owners fulfil their fiduciary duties.

Chronos Reflections

FoRI’s work represents a significant and potentially transformative reframing of responsible investment, as it puts responsible investment right at the heart of investment practice and decision-making. It, in our view correctly, argues that we need to go far beyond current approaches to responsible investment if asset owners are to respond to systemic risks in a way that aligns with the fiduciary and other duties they owe to their beneficiaries and clients.

FoRI’s conclusions signal a radical change in the way responsible investment is practiced by asset owners. If responsible investment is understood as integral to how asset owners deliver on their objectives, it suggests that responsible investment must also be a core part of organisational risk management. In practice, this means that responsible investment must be both a C-suite issue and must sit at the heart of the investment process.

It also suggests that the scope of responsible investment needs to broaden. Thematically, it suggests that the ‘ESG lens’ (of environmental, social and governance issues) is not enough. Rather the scope is much broader and requires attention to be paid to economic policy, to geopolitics and to development. In terms of organisational scope, it suggests that responsible investment needs to be central to all aspects of decision-making, including strategic asset allocation, policy engagement and portfolio construction.

For those leading responsible investment efforts, this has clear implications. They need to be at the table, sitting alongside the CIO and the Head of Risk, when making decisions. Anything less suggests that asset owners are not effectively accounting for and addressing these risks. At the same time, it also requires these individuals leading responsible investment to ensure they are capable of delivering on these new responsibilities and to understand not only the issues but their relevance to their organisation’s investment objectives. And they need to be able to effectively communicate these to both their internal stakeholders (the CEO, the CIO) and to their external stakeholders (e.g. beneficiaries, regulators). Ultimately, they need to own and lead on these issues, not just see themselves as inputting to the decisions being made by others.

This reinvention of responsible investment is profound, with significant implications for asset owners (individually and collectively) and for the PRI. It is not an easy agenda. It demands a step change in ambition. It demands that asset owners – collectively and at scale – recognise the issues raised by FoRI and signal their intention to respond. And it requires that change is delivered at pace.

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To find out more about how Chronos helps asset owners, and other investors, to plan, implement, report and review their responsible investment performance view our services for investors page

Notes

1.          The summary of findings from the Future of Responsible Investing Asset Owner Group can be found at: https://www.unpri.org/deep-dive?id=the-future-of-responsible-investing