The United Nations created the Principles for Responsible Investment (PRI) seven years ago to encourage the integration of sustainability into how investors make investment decisions and engage with their portfolio companies. General counsels and governance professionals at U.S. companies, however, have paid scant attention to it.

They've largely ignored the principles for three main reasons: first, because it has never been clear what relevance the UN could have to capital markets; second, few U.S.-based funds signed on; and third, investors almost never mention the PRI when they engage with companies. So it simply hasn't been worth the time for U.S. corporate leaders to care.

As of October this year, though, all that may be changing—even if most corner office dwellers are, at least for now, unaware.

Up to now, an institutional investor signatory to the principles had to do little more than cough up a fee each year and make some anodyne statement that it complies. Going forward, though, signatories will have to fill out a detailed, 34-page online questionnaire. By next spring, a good chunk of the resulting information will be disclosed to the public. Asset owners and asset managers alike will have to undertake this arduous review.

Privately, institutional investors are grumbling about it, although none of them will want to suffer the embarrassment of getting de-listed from PRI for lack of compliance. Equally, none will want to be exposed for taking the principles lightly in comparison with rivals or peers. For fund managers, penalties could materialize in the form of lost clients—particularly European asset owners who, in general, are more dedicated to integration of sustainability concerns into the asset management discipline. For some asset owners, the consequences could be grist for critics. Imagine, for example, being an elected fiduciary grilled by constituents and opponents for neglect of risk.

Consider another recent change that could alter corporate views on the PRI: the number of large financial asset managers that have adopted the principles. Sure, a paltry 21 U.S. asset owners have signed on to the PRI. Just 7.7 percent of members in this category are based in the United States, and most are the usual public sector activist funds, such as CalPERS and CalSTRS. No surprises there.

If you look at asset managers, however, the story is wholly different. A record 126 mainstream, U.S.-based managers have now put their name to the PRI—and they include Blackrock, Capital Group, Franklin Templeton, Goldman Sachs Asset Management, MFS, PIMCO, State Street, T. Rowe Price, Wellington, and many others. Add to that some 633 asset-manager signatories based abroad, and it represents huge pools of capital holding U.S. equity. Through these financial giants the PRI could gain real influence. In fact, if you are an institutional fund manager, being affiliated with PRI is becoming the new normal.

Beyond PRI

It's not just PRI, either. Measures to compel mainstream investor activism are already cropping up elsewhere. Just last month Britain's National Association of Pension Funds (NAPF) issued its “Stewardship Disclosure Framework,” which asks asset managers to reveal how they go about engagement with portfolio companies. The NAPF isn't shy about what it's after: The Association pitches the initiative explicitly as a way to spur active ownership—and, not so explicitly, to ward off legislation and regulation that might mandate the same.

Expect reporting requirements from PRI and similar groups to catalyze a meaningful uptick in voting, engagement, and focus on sustainability from mainstream funds, as soon as the 2014 proxy season.

The Framework, it explains, is “a simple way for pension funds to see how asset managers apply their stewardship responsibilities. It will be invaluable both when funds are assessing prospective managers and when they are holding their current managers to account for how their funds are being managed on their behalf.” Aiming to prove their engagement bona fides, J.P. Morgan Asset Management, Aviva Investors, Threadneedle, and Legal & General—all with major stakes in U.S. as well as U.K. equity—have already filed NAPF Framework submissions. You can see J.P. Morgan's here.

So expect reporting requirements from PRI and similar groups to catalyze a meaningful uptick in voting, engagement, and focus on sustainability from mainstream funds, as soon as the 2014 proxy season. Fewer and fewer fund managers will wish to be viewed as indifferent.

Expect More ESG Engagement

How will you be affected? To forecast, let's look at the principles themselves. The first three (of six) are the ones most relevant to public companies. Principle 1 commits funds to integrate environmental, social, and governance risk factors into investment analysis—that is, into decisions a fund makes about which companies to buy or sell, or how to behave as owners in voting or engagement. Most funds don't do much explicit ESG integration now.

Under Principle 2, signatories pledge to be active owners and incorporate ESG issues into their ownership policies and practices. Most funds vote, but engagement is limited to a subset of investors and companies. Moreover, mainstream funds have been slow to accord sustainability concerns the same gravitas as corporate governance issues. And under Principle 3, funds are to press portfolio companies to integrate and report on ESG factors through channels such the Global Reporting Initiative. Still, few funds beyond the usual suspects raise sustainability today in conversation with boards and management.

The PRI's new reporting framework will compel asset managers to describe in detail just how they fuse responsible investment approaches into their trading and asset allocation decisions—including whether they focus on governance and pretty much ignore the environmental and social aspects of ESG, as many U.S. funds do now. This means that if institutional investors haven't brought ESG analytics into investment yet, they will now, either through in-house research or by buying advice from outside providers.

It also means that company disclosures on governance and climate and labor relations risks, for instance, will form a bigger blip on some investors' radar screens. Boards may have to ask themselves whether it remains most prudent to corral such information into a separate sustainability report, or to really commit to integrated reporting. Moreover, expect intermediaries offering ESG profiles of companies—whether France's Vigeo, or the  United Kingdom's EIRIS, or the United States' GovernanceMetrics International—to gain clients and clout.

Asset managers will also have to outline just how they act as voters and engagers once they own a stock. It won't be sufficient to simply report an annual voting record, as mutual funds do now under the SEC's NPX form. The PRI release will compel signatories to provide more detail, including on whether and how engagements take place. And, of course, investors will have to show how they press companies to undertake integrated reporting.

Behind the scenes, then, the PRI's effort to raise the volume of investor voice will almost certainly spur rising assertiveness among your institutional investors beginning in 2014. The time is right to test your readiness.

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