Do Responsible Investors Invest Responsibly?
Review of Finance (Forthcoming), Swiss Finance Institute Research Paper No. 20-13
European Corporate Governance Institute – Finance Working Paper 712/2020
60 Pages Posted: 23 Feb 2020 Last revised: 9 Sep 2022
Date Written: May 25, 2021
We study whether institutional investors that sign the Principles for Responsible Investment (PRI), a commitment to responsible investing, exhibit better portfolio-level environmental, social, and governance (ESG) scores. Signatories outside the US have superior ESG scores than non-signatories, but US signatories have at best similar ESG ratings, and worse scores if they have underperformed recently, are retail-client facing, and joined the PRI late. US signatories do not improve the ESG scores of portfolio companies after investing in them. Commercial motives, uncertainty about fiduciary duties, and lower ESG market maturity explain why US-domiciled PRI signatories do not follow through on their responsible investment commitments.
Keywords: ESG, SRI, PRI, socially responsible investing, sustainability, institutional investors, greenwashing
JEL Classification: G15, G23, G30, M14
Suggested Citation: Suggested Citation