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

The United Nations Principles for Responsible Investment (PRI) is the largest global environmental, social, and governance (ESG) initiative in the asset-management industry to date. We analyze what happens after active U.S. 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 on average follow-through. Next, we explore cross-sectional fund characteristics and find that only quant funds exhibit small improvements in ESG performance versus other funds, mainly through buying high-ESG-performing stocks. Furthermore, we note that signatories are not superior performers in ESG issues prior to joining the PRI 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. This paper was accepted by Brian Bushee, accounting.