Asset owners that have signed up to the UN Principles for Responsible Investment (PRI) experienced better performance and lower costs than their non-signatory peers over a five-year period to 2018, according to analysis by CEM Benchmarking.
The research, which assessed 42 PRI signatories including pension funds and sovereign wealth funds, revealed PRI signatories’ returns were 52 basis points higher after fees than non-signatory asset owners in the firm’s database.
There were variations. For example, signatories to the PRI had a higher five-year average net return in the US, Canada, and the UK, than the Netherlands where signatories had a lower five-year average net return than non-PRI signatories. The report attributed this to the typically larger fixed-income allocations in Dutch pension funds.
On average, the PRI signatories were larger in size and manage 35% of their assets internally, compared to just 11% for non-PRI signatories.
The study also found that signatories were more cost-effective in running their investment programmes by 0.9bps, whereas non-signatories had higher cost of 1bp.
On average, the total fund cost for signatories was 44.8bps versus non-signatories at 52.1bps on an absolute basis.
The authors suggested this may be because asset owners that have signed up to the PRI are more likely to have more internal management, which tends to be lower cost than external management.
CEM has been benchmarking performance and costs for large institutional investors since 1992. It used PRI signatories as a proxy for funds that incorporate environmental, social and governance (ESG) factors into investment decision-making.
Since the start of this year, 688 organisations have signed up to the PRI, including 47 asset owners, according to their own data.
The authors Kam Mangat, Chris Flynn, and , said that while the outperformance of signatories was encouraging, responsible investing is “primarily focused on long-term performance and risks, and we need more data to understand the implications on long-term performance.”
©Markets Media Europe 2021
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