Beyond Green Signaling: Are Institutional Investors Decarbonizing Their Portfolios?

This study examines whether institutional investors decarbonize their U.S. equity portfolios after signing the United Nations Principles for Responsible Investment (PRI). Through portfolio-level difference-in-differences and firm-level ownership regressions, this analysis uses quarterly 13F filings from 2006–2022 to explore how PRI signatories differ from non-signatories in reallocation decisions and ownership influence on firm-level emissions. The portfolio-level findings show that while PRI signatories maintain lower portfolio carbon footprints in US holdings overall, the act of signing PRI does not lead to significant reductions in their carbon footprint over time. European investors’ portfolios even show potential increases in carbon footprint after signing. The firm-level analysis shows a more nuanced dynamic, with the impact varying based on institutions’ investment approaches. PRI signatories classified as quasi-indexers demonstrate superior effectiveness in reducing firm-level emissions through their ownership positions. These results suggest the need for practical frameworks to better align voluntary commitments with measurable outcomes, contributing to ongoing debates on the efficacy of market-based versus regulatory approaches to responsible investing.