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

Author

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  • Soohun Kim

    (College of Business, KAIST, Seoul 02455, South Korea)

  • Aaron Yoon

    (Kellogg School of Management, Northwestern University, Evanston, Illinois 60208)

Abstract

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.

Suggested Citation

  • Soohun Kim & Aaron Yoon, 2023. "Analyzing Active Fund Managers’ Commitment to ESG: Evidence from the United Nations Principles for Responsible Investment," Management Science, INFORMS, vol. 69(2), pages 741-758, February.
    • Handle: RePEc:inm:ormnsc:v:69:y:2023:i:2:p:741-758
    DOI: 10.1287/mnsc.2022.4394
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    References listed on IDEAS

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    Cited by:

    1. Zehua He & Kexin Hu & Zhongfei Li, 2023. "Drifting from the Sustainable Development Goal: Style Drift in ESG Funds," Sustainability, MDPI, vol. 15(16), pages 1-24, August.
    2. Richard Bofinger & Simon Cornée & Ariane Szafarz, 2024. "When in Rome, Do as the Romans Do: Disclosure Regulation and ESG Fund Management by Social and Conventional Banks," Working Papers CEB 24-003, ULB -- Universite Libre de Bruxelles.
    3. Hongyu Xiang, 2024. "Commitment to the ESG investing and Individual Mutual Fund Investors’ Preference: Evidence from Stated Choice Experiments," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 14(2), pages 1-6.
    4. Ge Ren & Ping Zeng & Xi Zhong, 2024. "Differentiation strategies and firms' environmental, social and governance: The different moderating effects of historical and social performance shortfalls," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 31(1), pages 719-740, January.

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