Original Research

Responsible Investing: The Cost and Performance Differences Between PRI Signatories and Non-PRI Signatories

Kam Mangat, Chris Flynn, Shayan Bokhari

Responsible investing has increasingly become an important part of managing assets.  Pension funds are implementing strategies and processes to ensure environmental, social, and corporate governance (ESG) factors are taken into consideration as investments are made.  But what impact does the integration of ESG factors have on performance and costs?  Many studies have been done on how to best measure the impact of responsible investing on portfolios and it has proved to be a difficult task as performance databases and ESG data sets are often unconnected. In this research, CEM seeks to answer this key question and provide new insights, by drawing upon data from its powerful database and analysis from its team.

Key learnings and findings:

PRI signatories had a higher 5-year average net return in USA, Canada, and the UK. In the Netherlands, PRI signatories had lower returns, but this appears to be primarily because non-PRI signatories in the Netherlands had larger fixed income allocations focused on immunizing their liabilities.
PRI signatories had higher average total fund net value added than non-signatories: 0.53% for PRI signatories versus 0.01% for non-signatories. The benchmarks against which net value added was determined were similar. Most PRI signatories and non-signatories used listed market benchmarks without exclusions.
Being a PRI signatory did not increase total fund cost. In fact, on average, PRI signatories were lower cost at 44.8bps versus non-signatories at 52.1bps on an absolute basis.  We also compared costs relative to a benchmark that adjusts for each fund’s size and asset mix differences which showed PRI signatories were more cost effective by 0.9bps. 
Integrating responsible investing score, such as weighted-by-asset-mix cumulative PRI score with other key metrics can help funds assess how well the fund’s strategy is working.

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