All Courses are free for limited time.
NISM Professor

Principles for Responsible Investment

Also written PRI · Principles for Responsible Investment (PRI) · UN PRI · UN-backed Principles for Responsible Investment

A United Nations-backed global network of investors, launched in 2006, that promotes integrating environmental, social and governance factors into investment decisions as part of fulfilling fiduciary duty.

In plain language

"ESG" stands for Environmental, Social and Governance. ESG investing needs one shared rulebook. Without it, investors around the world would each apply it their own way. The Principles for Responsible Investment, or PRI, is that shared rulebook. It is a UN-backed global network of investors. It pushes investors to weigh ESG factors in their everyday investment calls.

How it works

The United Nations launched PRI in 2006, on the premise that an ESG approach can affect the performance of investment portfolios and should, therefore, be considered alongside traditional financial factors if investors are to properly fulfil their fiduciary duty. Several established Indian fund houses — the workbook names Kotak, SBI and Avendus among others — are signatories to the PRI network.

PRI membership sits alongside, and is reinforced by, SEBI's own domestic framework: SEBI has introduced a Stewardship Code applicable to all categories of AIFs in relation to their investments in listed equity securities, built around five stated principles: (1) a public policy on stewardship responsibilities, reviewed periodically; (2) a clear conflict-of-interest policy, publicly disclosed; (3) monitoring investee companies; (4) a clear intervention policy, including collaboration with other institutional investors; and (5) a clear policy on voting and disclosure of voting activity, with reporting on stewardship activities running alongside as an additional expectation.

A worked example

Meridian Capital Advisors, the investment manager of a Category III AIF, becomes a PRI signatory in the same year it adopts SEBI's Stewardship Code for its listed equity holdings.

Under Stewardship Code Principle 3, Meridian must monitor its investee companies — so when one of its portfolio companies discloses a governance lapse (a related-party transaction not put to shareholder vote), Meridian's policy under Principle 4 requires it to have a clear intervention approach: it engages the board directly, and under Principle 2 its own conflict-of-interest policy is checked to confirm none of Meridian's own personnel hold a competing interest in the counterparty to that related-party transaction.

At the next AGM of the investee company, Meridian votes against the resolution ratifying the transaction, and under Principle 5 discloses that voting decision publicly — an action that is consistent with both its PRI membership commitments and its domestic Stewardship Code obligations, since the two frameworks point in the same direction even though only the Stewardship Code is a SEBI-mandated requirement.

Why NISM asks about it

Chapter 3, section 3.3.5 (Environmental, Social and Governance), introduces PRI immediately before SEBI's Stewardship Code and its five principles, framing PRI as the global backdrop and the Stewardship Code as its Indian regulatory expression for AIFs. Expect the 2006 launch year and the fiduciary-duty rationale tested as PRI-specific facts, and the five Stewardship Code principles tested as a related but SEBI-specific list.

Common exam traps

  • PRI is a voluntary global network with UN backing, not a SEBI-mandated requirement — the mandatory instrument for Indian AIFs is the separate Stewardship Code.
  • PRI launched in 2006; do not confuse this with the Stewardship Code, which is a SEBI circular applying to mutual funds and all categories of AIFs, introduced later and specific to India.
  • The Stewardship Code has five core principles on policy, conflicts, monitoring, intervention and voting disclosure, with reporting on stewardship activities expected in addition — do not treat "report periodically" as a sixth freestanding principle separate from the workbook's five-principle structure.
  • ESG indices are a separate strand entirely: the workbook notes the first US ESG index (MSCI KLD 400 Social Index) launched in 1990, while Indian ESG indices only debuted in 2012 — dates worth keeping apart from PRI's own 2006 launch.

Check yourself

  1. 1.The Investment Manager should ensure that the first close of a scheme is declared within:

    1. a)6 months from the date of registration of the AIF with SEBI
    2. b)12 months from the date of SEBI communication for taking the PPM of the scheme on record
    3. c)12 months from the date of the first capital call
    4. d)24 months from the date of the final close
    Show the answer

    Answer: (b) 12 months from the date of SEBI communication for taking the PPM of the scheme on record

    First close must be declared within 12 months from the date of SEBI communication for taking the Private Placement Memorandum of the scheme on record. First close represents a commitment by the Category III AIF to proceed with the fund and is a positive signal for other investors monitoring the fund-raising process. The manager then retains the right to accept subsequent contributions and declare subsequent close dates, with the final close occurring not later than a specified period after the first close.

  2. 2.The SEBI (Alternative Investment Funds) Regulations, 2012 define an AIF as a ______ structure.

    1. a)financial
    2. b)NBFC
    3. c)corporate
    4. d)privately pooled
    Show the answer

    Answer: (d) privately pooled

    (This is a sample question from the NISM workbook.)

    "The SEBI (AIF) REGULATIONS 2012 DEFINE THE TERM ALTERNATIVE INVESTMENT FUND AS ONE WHICH IS PRIMARILY A PRIVATELY POOLED INVESTMENT VEHICLE."

    Option (c) corporate is the trap worth understanding. An AIF may be constituted as a trust, company or LLP — the regulation is concerned with how the money is gathered, not with the legal vehicle chosen to hold it.

    The full definition has three elements: privately pooled · funds from India or abroad · for a defined investment policy.

    The "privately pooled" requirement is what justifies the lighter conduct regulation of AIFs relative to mutual funds. A mutual fund takes money from people who may not be able to assess what they are buying; an AIF takes money from those who can — and is correspondingly permitted strategies a mutual fund is not.

  3. 3.Alternative Investment Funds which primarily invest in debt securities of listed or unlisted investee companies are known as:

    1. a)Venture Capital Funds
    2. b)Debt Funds
    3. c)Angel Funds
    4. d)Infrastructure Funds
    Show the answer

    Answer: (b) Debt Funds

    (This is a sample question from the NISM workbook.)

    "DEBT FUND means an AIF WHICH INVESTS PRIMARILY IN DEBT SECURITIES OF LISTED OR UNLISTED INVESTEE COMPANIES OR IN SECURITIZED DEBT INSTRUMENTS as per the stated objectives of the Fund."

    Option (d) is the near-miss worth understanding. An Infrastructure Fund may indeed hold "LISTED DEBT OR SECURITISED DEBT INSTRUMENTS" — but only of "INVESTEE COMPANIES OR SPECIAL PURPOSE VEHICLES ENGAGED IN OR FORMED FOR THE PURPOSE OF OPERATING, DEVELOPING OR HOLDING INFRASTRUCTURE PROJECTS." The sector restriction is what separates it from a general Debt Fund.

    Why private debt counts as alternative at all: "Many types of debt that are private are considered to be alternative investments BECAUSE OF THEIR ILLIQUIDITY AND OFTEN BECAUSE THEY ARE NOT COMMONLY HELD BY TRADITIONAL INVESTORS. EVEN LISTED COMPANIES ISSUE DEBT SECURITIES SUCH AS NCDs AND BONDS THROUGH PRIVATE PLACEMENT THAT ARE NOT AVAILABLE IN THE TRADITIONAL INVESTMENT ROUTE."

    The three sub-varieties to know: ⚠️ VENTURE DEBT (mezzanine financing with an equity upside such as attached warrants) · SECURITIZED DEBT INSTRUMENTS (financing cars, trucks and electric vehicles leased to corporates) · DISTRESSED DEBT (refinancing settlements with banks and insolvency resolution under the IBC).

Where this is taught

Free preparation for NISM Series XIX-B

Related terms

← All terms
Something look wrong? Report it