Principles for Responsible Investment’s (PRI) approach to active ownership is a vision for an evolved standard in stewardship that is underpinned by an increase in investors’ ambition and assertiveness. It builds on existing practice and expertise but explicitly prioritises outcomes over processes and policies, and common goals and effort over narrow interests. Consistent with their six Principles for responsible investment, this paper addresses Principle 2 and how it can be evolved for active ownership to achieve full potential.

The mini-guide discusses investor myopia, and the desire for short-term outcomes at the detriment of long-term investment performance. Other problems result when investees optimise for too narrow a scope. For example, externalised costs can have a net negative affect across an entire portfolio. A focus that is excessively narrow can result in poorer economic performance and/or social and environmental harm.

Despite PRI recognising that short-termism is increasingly, but not completely, addressed through a commitment to integration in Principle 1, they recognise that there are problems associated with scope (rather than time), and addressing such issues requires policy beyond integration.

PRI codified active ownership as the second of its six Principles. Since then, they have found that financial regulators and industries have implemented relevant mechanisms to ensure the prominence of active ownership is maintained. Their vision to evolve the standard for stewardship entails three central elements

Outcomes
The PRI will support signatories to take effective action to encourage a focus on pursuing and achieving positive real-world goals. Despite acknowledging that processes and activities such as activity metrics and intermediate goals are still crucial, PRI emphasises the priority of outcomes under the evolved active ownership principle.

Common Goals
This paper stresses the necessity of outcomes at the economy and society-wide level, and particularly collective goals that deliver climate stability, sustainable development and a financial system that supports the real economy. Moreover, this sentiment will be echoed through a reduced focus on risk and returns of individual holdings, instead prioritising the long-term, absolute returns for universal owners.

Collaborative Action
PRI details that in order for the aforementioned policies to come to fruition, it is dependent on active collaboration among investors and service providers. This involves spreading the costs of addressing collective goals and mitigating challenges such as the free-rider problem, where some avoid the costs of addressing collective problems, whilst others become beneficiaries. PRI have also committed to providing practical outcome-focused relationships, such as the Collaboration Platform that supports diverse and competing organisations to work together.

PRI recognise that its signatory base is of a diverse nature and responsible investment commitments are developing at different paces. They have acknowledged that ‘Active Ownership 2.0’ is a higher standard to which signatories should adhere.

1. Systemic risks, such as climate change and inequitable social structures, threaten the long-term position of economies and asset owners' portfolios.
2. Active ownership is the means by which investors most directly influence companies, markets, and economies; and, in turn, society and the environment as a whole.
3. PRI estimates that more than 168,000 investor-company engagement meetings took place in 2018. Climate Action 100+ has now grown to be the largest collaborative investor engagement, with 370 investors and more than $35 trillion in assets under management taking part.
4. Investors’ interest in achieving returns while minimising risks typically results in sharp focus by the industry on companies and other assets in which they invest. However, too sharp a focus can, in aggregate, undermine broader investment, economic and social goals. This paradox is one of the challenges of short-termism.
5. Short-termism impacts are radiated through diversified asset owners and their agents, as systemic impairments to overall returns.
6. While short-termism is increasingly, although not completely, addressed through integration, issues associated with scope (rather than time) warrant
   greater attention. Effectively addressing such issues
   at scale requires more than integration or investment
   business-as-usual can deliver.
7. Active Ownership 2.0 is a vision for an evolved standard in stewardship that builds on existing practice and expertise but explicitly prioritises critical systemic goals and collective effort aimed at concrete outcomes, rather than processes and activities or narrow interests.
8. Effective, collective, goal-oriented stewardship is a powerful tool to bring about meaningful change.