Asset managers’ commitment to environmental, social and governance factors in their investment processes may be shakier than meets the eye, according to new research.
Soohun Kim at Georgia Institute of Technology and Aaron Yoon at Northwestern University used United Nations Principles for Responsible Investment to empirically assess how asset managers perform on their commitment to ESG investing.
PRI, a 2006 initiative by international institutional investors, calls for responsible investment and active ownership. PRI signatories commit to incorporating ESG issues into investment analyses and decision-making processes.
Kim and Yoon found that signatories experience a large fund inﬂow, 4.3% per quarter in the six quarters after signing, compared with the six months prior to signing.
This increase in fund ﬂow happens regardless of prior ESG performance.
However, PRI funds on average do not exhibit improvements in fund-level ESG scores after signing.
The researchers used datasets from MSCI, Sustainalytics and TruValue Labs to determine whether signatory asset managers changed their portfolio holdings to incorporate ESG factors. Their analysis found that managers’ ESG scores were the same after they signed as they were before, regardless of the dataset used.