How can passive managers interpret Principle 1?
The Principles were drafted by large, mostly public, pension schemes, many of which apply passive management to a large proportion of their funds. Principle 1 of the PRI, relating to the incorporation of ESG issues into investment decision making was not meant to apply to passively managed funds in their stock selection processes. During the drafting process, it was made clear that passive management is consistent with the Principles, and that passive managers’ responsibilities are largely exercised through active ownership activities. The PRI annual Reporting and Assessment survey reflects the aspirational nature of the Principles, in that if a signatory indicates that it is passively managed, the questions on active management and ESG integration into stock selection disappear from the survey and are not counted in the totals. There is therefore no risk that passive funds will score less highly on this survey simply because of their indexed holdings.
