Greenwashing: Evidence from Hedge Funds
65 Pages Posted: 23 Jun 2020 Last revised: 7 Jun 2021
Date Written: May 26, 2020
We find that a non-trivial number of hedge funds that endorse the United Nations Principles for Responsible Investment indulge in greenwashing. Hedge funds that greenwash underperform both genuinely green and nongreen funds after adjusting for risk. Consistent with an agency explanation, greenwashers (i) underperform more when incentive alignment is poor, (ii) trigger more regulatory violations, and (iii) report more suspicious returns. By exploiting regulatory reforms that aim to enhance stewardship and curb greenwashing, we provide causal evidence that relates agency problems to greenwashing and fund underperformance. Investors, however, do not appear to discriminate between greenwashers and genuinely green funds.
Keywords: Principles for Responsible Investment, Greenwash, Hedge Funds, Walk the Talk, Agency Problems, Operational Risk, ESG, Stewardship
JEL Classification: G23, Q56
Suggested Citation: Suggested Citation