By Bowie Ko, research analyst, PRI


Bowie Ko, reserach analyst headshot

Environmental, social and governance-focused assets are predicted to grow to US$53 trillion by 2025 and will account for one-third of global projected AUM, according to Bloomberg.

Against that backdrop, we have set out how we will implement our three-year strategy in our 2022/23 Work Programme.

From empowering smaller asset owners with dedicated resources and launching a human rights stewardship initiative to exploring how ESG data providers can better support investors seeking to align their portfolios with sustainability goals – we will continue to help signatories be responsible investors.

But what are academics prioritising in their research? This blog highlights the leading research themes and papers to pay attention to this year, selected in collaboration with members from the Academic Advisory Committee. They have been increasingly featured in conferences and academic journals, demonstrating their growing significance.

ESG asset performance

Industry research has strengthened the argument that there is a correlation between ESG rankings and listed equity risk-adjusted returns, and academics are increasingly looking to determine whether and under what circumstances this relationship exists.

Pastor et al. find green stocks have lower expected returns than brown stocks, as investors are willing to pay a premium for greener firms. However, green assets can have higher realised returns when investors’ and consumers’ environmental concerns strengthen.

Pederson et al. demonstrate that risk-adjusted returns depend on which proxies are used for each ESG factor and whether their value is fully priced in the market.[1]

For example, accounting accruals, used as a measure of good governance, are correlated with high future returns, as their relevance to company fundamentals may not be priced into the market.

Conversely, stocks with strong environmental and/or social scores that are constructed using familiar and widely used proxies, such as carbon emissions or exclusionary screening of industries such as tobacco, respectively, showed less correlation with outperformance.

Green banking

COP26 highlighted the role of climate finance in funding the transition to a greener economy. The UN-convened Net-Zero Banking Alliance further emphasised the role of banks, paralleled by growing academic literature in this field.

A study by Kacperczyk and Peydró finds firms with higher scope 1 emissions receive less credit from banks once the latter have committed to carbon neutrality. Although these firms respond by improving ESG communications, they do not significantly reduce their emissions, a clear sign of greenwashing.

On the other hand, Benincasa et al. find that banks react to more stringent domestic climate policy by increasing their cross-border lending to borrowers in relatively less stringent countries. Therefore, global cooperation on climate finance policies is essential to counter the use of cross-border lending as a regulatory arbitrage tool.

Climate disclosures

The formation of the International Sustainability Standards Board has advanced efforts in developing sustainability-related disclosure standards. Similarly, academics are focused on analysing the impact of climate disclosures and determining which metrics should be included.

Downar et al. examine the impact of the Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013. They found that firms in the UK reduced their emissions by 8% relative to European firms, while their financial operating performance did not deteriorate.

Muller proposes basing climate disclosure standards on a new index that weights emissions based on the monetary damage of eight pollutants. The author argues that the multipollutant index provides new insights regarding the relationship between environmental performance and financial outcomes, relative to the standard focus on the carbon intensity of emissions, and that these insights are more likely to affect capital allocation decisions.


The Climate Action 100+ initiative and Active Ownership 2.0 framework provide collaborative and individual avenues for institutional investors to influence their investee firms. There has been increasing academic research examining whether stewardship does lead to change and the effect of divestment strategies on companies’ behaviour.

Serafeim suggests that if divestment causes firms to become privately owned, it could result in a loss of transparency and the ability of investors to engage with management. Engagement, on the other hand, provides an opportunity for investors to implement change.

However, the author also highlights that divestment can raise awareness of the issues at hand and shape market and public perception of targeted firms or industries if engagement efforts are unsuccessful.

Flammer et al. find that shareholder activism can influence greater climate risk-related transparency from firms, in the absence of mandatory disclosures. In addition, these firms achieve higher market valuations after voluntarily disclosing information.

Lack of focus on social issues

Despite the growing academic research on responsible investing highlighted, literature exploring social issues is still lacking. More research on how investors can address social issues and the impact of these actions is needed to further advance responsible investment – in theory, and practice. We will continue to support investors’ efforts to address social issues with existing and potential holdings – from resources on human rights to diversity, equity and inclusion and sector-specific issues.

Visit our curated academic resources

Our top academic resources on responsible investment, curated by the PRI Academic Network Advisory Committee, provide a categorised breakdown of the high-quality papers highlighted in this blog post alongside several others.


This blog is written by academic guest contributors. Our goal is to contribute to the broader debate around topical issues and to help showcase research in support of our signatories and the wider community. Please note that although you can expect to find some posts here that broadly accord with the PRI’s official views, the blog authors write in their individual capacity and there is no “house view”. Nor do the views and opinions expressed on this blog constitute financial or other professional advice. If you have any questions, please contact us at [email protected].