PRI signatories outperform non-signatories, report shows

CEM Benchmarking research reveals higher returns and lower costs for signatories

July 30, 2021

Asset owners that have signed up to the Principles for Responsible Investment (PRI) experienced better performance and lower costs than their peers who have not, according to research.

Analysis by CEM Benchmarking found that, over a five-year period to 2018, performance by 42 PRI signatories including pension funds and sovereign wealth funds was 52 basis points higher after fees than non-signatory asset owners in the firm’s database.

In recent years, many large investors have signed up to the PRI’s framework to use responsible investment to enhance returns and better manage risks.

Since the start of this year, 688 organisations have signed up to the PRI, including 47 asset owners, according to their own data.

Signatories to the PRI had a higher five-year average net return in the USA, Canada, and the UK, said CEM. However, this was not the case in the Netherlands where signatories had a lower five-year average net return than non-PRI signatories, which the authors said might be explained by their typically larger fixed-income allocations.

CEM Benchmarking’s Kam Mangat, Chris Flynn, and Shayan Bokhari, who wrote the research paper, 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.”

Funds that have signed up to the PRI also had a higher average total fund net value added (0.53%) than non-signatories, which added 0.01% over the period. On average, the PRI signatories were larger in size and manage 35% of their assets internally, compared to just 11% for non-PRI signatories.

When CEM applied its benchmark cost analysis, it found that signatories were more cost-effective in running their investment programs by 0.9bps, whereas non-signatories were higher cost by 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. This news follows a recent study that found a high correlation between returns and board diversity.