The United Nations’ Principles for Responsible Investing may not be working as intended.

While active asset managers get more money from investors after they sign onto the stewardship code, they don’t show “meaningful improvements” in how they incorporate environmental, social, and governance factors into their investment strategies, according to researchers at the Georgia Institute of Technology and Northwestern University.  

The finding adds to growing skepticism surrounding the effectiveness of the UN PRI, contributing to a body of research from consulting firms indicating that asset managers rarely walk the ESG talk.  

According to the new study, conducted by Soohun Kim from the Georgia Institute of Technology and Aaron Yoon of Northwestern, asset managers on average experience a 4.3 percent increase in inflows per quarter after signing onto the UN PRI.  

But according to the paper, fund returns “significantly deteriorate” in the six quarters after managers sign on. 

All the while, ESG scores at portfolio companies remain flat. The researchers used three ESG scoring data sets: MSCI ESG Ratings, Sustainalytics, and TruValue Labs. Asset managers’ scores remained constant before and after they signed onto the UN PRI. The signees were not any more likely to have high ESG scores prior to committing to the UN principles compared to managers that did not sign on.

“This is an interesting finding because prior ESG performance does not influence a fund to sign,” the authors said in the paper.  

[II Deep Dive: There Are 2,698 Signatories to the United Nations’ ESG Code. Has It Changed Anyone’s Behavior?] 

Some asset management firms say that they continue to hold shares in companies with low ESG scores in order to effect change at those companies via proxy voting, for example. But according to Kim and Yoon’s research, PRI signatories aren’t doing that. The authors analyzed fund and voting data using the CRSP Survivor Bias-Free Mutual Fund Database, Thomson Financial, and the Fama French Database.

They found that active asset managers that sign onto the UN PRI are 30 percent more likely to be silent on environmental issues when it comes to proxy voting than their peers. Consequently, the companies owned by these asset managers are more likely to experience environment-related controversies starting in the third quarter after the managers sign onto the PRI.   

As the researchers put it: “Only a small number of funds improve ESG, while many others use the PRI status to attract capital without making notable changes to ESG.”