Sustainability Digital – Sept 2021

PRI signatories outperform non-signatories

Asset owners that are PRI signatories had higher returns and lower costs than non-PRI signatories over a five-year period according to analysis by CEM Benchmarking.

Analysis of the PRI signatories in the CEM database in the five-years leading up to 2018 showed that not only did being a PRI signatory not hurt performance, but those funds performed better than their non-signatory peers with a 52 basis points difference net of fees.

CEM has 340 funds in its database, 68 of which are PRI signatories. The research compared the performance and costs between the PRI and non-PRI signatories, with being a PRI signatory a proxy for funds that implement responsible investment.

The analysis found that PRI signatories had higher average total fund net value added than non-signatories: 0.53 per cent for PRI signatories versus 0.01 per cent for non-signatories over the period. 2018 was chosen for the completeness of the data set.

Kam Mangat, vice president at CEM and one of the co-authors of the research, said that on average the funds that were PRI signatories were larger in size and had more internally managed assets than non-PRI signatories.

PRI signatories in the database on average manage 35 per cent of their assets internally, compared to 11 per cent for non-PRI signatories. Previous CEM research has shown that funds with internally managed investments have lower costs.

Value added by large institutional investors the research which examined this attributed 12 basis points of return to the “characteristics of large and internal”.

Mangat said when an adjustment was made for this it leaves a 40 basis points outperformance by PRI signatories versus their non-signatory peers.

“There has been a lot of talk about whether ESG really impacts performance, and the initial indication is that it doesn’t negatively impact performance,” Mangat said. “It doesn’t hurt performance, but we want to be cautious in making that statement because we only looked at a five-year period and ESG is long term in nature and so we need a longer time frame to be definitive on ESG investing.”

Lower costs

Further, being a PRI signatory did not increase total fund cost. In fact, on average, PRI signatories were lower cost than non-signatories on both an absolute basis, and relative to a benchmark that adjusts for each fund’s size and asset mix differences.

The average total investment cost for PRI signatories in 2018 was 44.8 basis points compared to 52.1 basis points for non-PRI signatories.

Again, Mangat said that implementation style was a reason for the reduced cost, because the PRI signatories had a larger share of internal investments.

“There is also a governance angle to it,” she said. “The PRI signatories were larger asset owners and had more internal investing and they also probably have the capabilities and capacity to build out ESG investing and have a better governance discipline.”


Regional differences

PRI signatories had a higher five-year average net return in USA, Canada, and the UK. In the Netherlands, PRI signatories had lower returns, but this is due to larger fixed income allocations and investments focused on their liabilities.

Mangat said there was further research to be done.

“When we take a step back and look at what we have done we are only using being a PRI signatory as a proxy. How those funds are implementing ESG could be very different across the board, we don’t know how they are implementing it beneath that headline of being a signatory.”

PRI signatories made up 20 per cent of the 2018 CEM database and accounted for 60 per cent of total AUM in the 2018 CEM database.

Broken down regionally, the US was an outlier. Only 18 per cent of the PRI signatories were from the US. But US funds made up 58 per cent of the non-signatory funds.

    Daniel Thelesklaf

    Excellent analysis by

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