Affiliation:
1. College of Business, KAIST, Seoul 02455, South Korea;
2. 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. This paper was accepted by Brian Bushee, accounting. Supplemental Material: The online appendix and data are available at https://doi.org/10.1287/mnsc.2022.4394 .
Publisher
Institute for Operations Research and the Management Sciences (INFORMS)
Subject
Management Science and Operations Research,Strategy and Management
Cited by
115 articles.
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