Analyzing Active Fund Managers’ Commitment to ESG: Evidence from the United Nations Principles for Responsible Investment

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.