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ESG Special Topic Series (XVI) - ESG Investment: Principles for Responsible Investment

2022.10.18 ZHU, He (George)NI, Tianling (Carey Nee)、SHI,Di


Principles for Responsible Investment (“PRI”) is an initiative led by former UN Secretary-General Kofi Atta Annan that was first launched in 2006. It is co-sponsored by the UN Environment Programme Finance Initiative and UN Global Compact. PRI is committed to co-operating with PRI signatories around the world to achieve sustainable development based on the six Principles for Responsible Investment. Investors should focus on how to build a responsible investment management system, how to screen investment targets and how to implement responsible investment in practice. This article introduces the six Principles for Responsible Investment to provide investors with more information.

I. Introduction to the Six Principles for Responsible Investment and Possible Actions

PRI combines the different factors of Environmental, Social and Governance (hereinafter referred to as "ESG") and proposes ESG concepts and evaluation systems for the first time. PRI aims to provide a framework of investment principles for global investors, to help them understand and integrate ESG into their investment decision-making practices and encourage signatories to incorporate these factors into company operations. This is to reduce risk, create long-term benefits and ultimately achieve sustainable development for society.

Based on a goal of “understanding the investment implications of ESG issues and to support signatories in integrating these issues into investment and ownership decisions,” PRI is working with global signatories to implement the following six Principles for Responsible Investment. Specifically, the PRI signatory investment institutions can implement the six principles initiative by taking into account the following:

Principle 1: Incorporate ESG issues into the investment analysis and decision-making process.

  • Address ESG issues in investment policy statements.

  • Support the development of ESG-related tools, metrics, and analyses.

  • Assess the capabilities of the internal and external investment managers to incorporate ESG issues.

  • Ask the investment service providers (such as financial analysts, consultants, brokers, research firms, or rating companies) to integrate ESG factors into their evolving research and analysis.

  • Encourage academic and other research on this theme.

  • Advocate ESG training for investment professionals.

Principle 2: Be active owners and incorporate ESG issues into ownership policies and practices.

  • Develop and disclose an active ownership policy consistent with the Principles.

  • Exercise voting rights or monitor compliance with voting policy (if outsourced).

  • Develop an engagement capability, either directly or through outsourcing.

  • Participate in the development of policy, regulation, and standard setting, such as promoting and protecting shareholder rights.

  • File shareholder resolutions consistent with long-term ESG considerations.

  • Engage with companies on ESG issues.

  • Participate in collaborative engagement initiatives.

  • Ask investment managers to undertake and report on ESG-related engagement.

Principle 3: Seek appropriate disclosure on ESG issues by the entities invested.

  • Ask for standardised reporting on ESG issues, using tools such as the Global Reporting Initiative.

  • Ask for ESG issues to be integrated within annual financial reports.

  • Ask for information from companies regarding the adoption of and adherence to the relevant norms, standards, codes of conduct or international initiatives, such as the UN Global Compact.

  • Support shareholder initiatives and resolutions promoting ESG disclosure.

Principle 4: Promote the acceptance and implementation of the Principles within the investment industry.

  • Include Principle-related requirements in requests for proposals (RFPs).

  • Align investment mandates, monitoring procedures, performance indicators and incentive structures accordingly, for example, ensure that investment management processes reflect long-term time horizons when appropriate.

  • Communicate ESG expectations to investment service providers.

  • Revisit relationships with service providers, such as financial analysts, consultants, brokers, research firms, or rating companies, that fail to meet ESG expectations.

  • Support the development of tools for benchmarking ESG integration.

  • Support regulatory or policy developments that enable the implementation of the Principles.

Principle 5: Work together to enhance effectiveness in implementing the Principles.

  • Support and participate in networks and information platforms to share tools, pool resources, and make use of investor reporting as a source of learning.

  • Collectively address the relevant emerging issues.

  • Develop or support appropriate collaborative initiatives.

Principle 6: Report on activities and the progress towards implementing the Principles.

  • Disclose how ESG issues are integrated within investment practices.

  • Disclose active ownership activities such as voting, engagement, and/or policy dialogue.

  • Disclose what is required from service providers in relation to the Principles.

  • Communicate with beneficiaries about ESG issues and the Principles.

  • Report on the progress and/or achievements relating to the Principles using a comply-or-explain approach.

  • Seek to determine the impact of the Principles.

  • Make use of reporting to raise awareness among a broader group of stakeholders.

II. Implementing the Six Principles in Practice

To implement responsible investment in practice, we suggest investors establishing a complete investment management system covering areas such as investment policy formulation, investment due diligence and evaluation, investment decision implementation and post-investment management. Specifically, it’s suggested that ESG goals are incorporated in investment policy formulation, investment targets are screened based on ESG criteria in due diligence, evaluation and investment decision-making, and ESG issues are incorporated into the ownership practice of post-investment management.

1. At the system level, investors may screen investment targets by referring to Section I, the relevant ESG international conventions/regulations and other disclosure and rating standards: on one hand, negative screening and ESG due diligence enable investors to eliminate companies that do not conform to ESG standards from the scope of the investment or reduce the investment proportion accordingly; on the other hand, by benchmarking investment targets against their peers, investors will be able to seek out the top ESG performers and increase the investment proportion accordingly. Considering that ESG risks and opportunities vary among different industries, regions and asset categories at different times, several factors should be considered, which may be a challenge for investors. Therefore, investment institutions may involve ESG lawyers, ESG consultants or related technical experts to assist in building a responsible investment management system, including but not limited to incorporating ESG goals into investment policy, the drafting of ESG investment management manuals (covering exclusion lists, investment processes, ESG due diligence and assessment, etc.) and other relevant documents, and deliver training or other means to achieve the implementation of the above management system.

2. At the project level, investors should ensure that investment projects are compliant with the established ESG investment system and incorporate ESG considerations into the transaction documents. Investors should also perform post-investment management, incorporate ESG considerations and achieve responsible investment through active ownership. This is to leverage the rights and obligations conferred by ownership to influence the activity and behavior of the invested companies through, for example, voting, decision-making and communication and participate in ESG practices and the development of the invested companies, to promote their ESG performance.

JunHe’s EHS and ESG Team: JunHe, with over 1000 professionals, is one of China’s largest full-service law firms with a stellar international reputation for providing high quality legal services. As one of the pioneers in the practice area of ESG in China and with one of the largest teams of environment, health and safety (EHS) lawyers in the country, JunHe provides clients with a full range of EHS and ESG legal services. JunHe is sustainability-oriented and provides EHS compliance audit services to enterprises with different industrial backgrounds depending on the specific needs of the clients, either independently or in collaboration with third-party agencies. JunHe relies on different legal and professional compliance teams (including ESG, EHS, antitrust, labor and employment, intellectual property, trade and data, finance and tax, business, criminal compliance and other professional teams related to ESG) to provide ESG due diligence services in supply chain management and M&A matters and cooperates with enterprises and third-party agencies in drafting ESG reports. Based on our experience in serving clients from different industrial backgrounds, we can provide specialized services for the daily operations of enterprises. This includes specialized ESG-related legal and compliance diagnosis, as well as drafting and reviewing ESG-related terms and clauses in contracts with business partners, construction and enhancement of ESG systems, identification of ESG disclosure requirements, green finance, and ESG training.


1. In drafting this article, we refer to the article on the PRI official website “What are the Principles for Responsible Investment?” (https://www.unpri.org/about-us/what-are-the-principles-for-responsible-investment).

2. Please contact us by email: ecoenvpro@junhe.com if you would like to know more about  establishing or improving compliance management systems or ESG management systems. We can also assist in ISO 37301 standard certification and ESG management system counseling including drafting or auditing relevant rules and regulations, conducting due diligence and staff training. 

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