Analyzing Active Managers' Commitment to ESG: Evidence from United Nations Principles for Responsible Investment

Forthcoming, Management Science

48 Pages Posted: 29 Apr 2020 Last revised: 29 Nov 2021

Date Written: March 17, 2020

Abstract

The United Nations Principles for Responsible Investment (PRI) is the largest global ESG initiative in the asset management industry to date. We analyze what happens after active US mutual funds sign the PRI, to assess whether they exhibit ESG implementation. We find that PRI signatories attract a large fund inflow but we do not observe improvements in fund-level ESG scores or fund returns. We consider a battery of ways to proxy for funds’ ESG incorporation (e.g., entry/exit, screening, engagement, voting for pro-ESG proposals), but fail to observe evidence of meaningful follow-through, on average. Next, we explore cross-sectional fund characteristics and find that only quant-funds exhibit small improvement in ESG performance versus other funds, mainly through buying high-ESG-performing stocks. Furthermore, we note that PRI signatories are not superior performers in ESG issues prior to signing, relative to non-PRI funds, but PRI affiliation tends to be widely advertised on company websites, marketing materials, and fund documents. Overall, a reasonable reader may perceive our findings as consistent with PRI funds’ greenwashing. We note, however, that what we uncover is based only on outcome-based measures and may miss some actual efforts of signatories.

Keywords: ESG, SRI, UN PRI, Asset Manager, Mutual Funds, Greenwashing

JEL Classification: G20

Suggested Citation

Kim, Soohun and Yoon, Aaron, Analyzing Active Managers' Commitment to ESG: Evidence from United Nations Principles for Responsible Investment (March 17, 2020). Forthcoming, Management Science, Available at SSRN: https://ssrn.com/abstract=3555984 or http://dx.doi.org/10.2139/ssrn.3555984

Soohun Kim

College of Business, Korea Advanced Institute of Science and Technology (KAIST) ( email )

85 Hoegiro Dongdaemun-Gu
Seoul 02455
Korea, Republic of (South Korea)

Aaron Yoon (Contact Author)

Northwestern University - Department of Accounting Information & Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

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