Mutual funds' disclosure of `ESG' strategy, prevention of greenwashing, and investor response

46 Pages Posted: 27 Apr 2021 Last revised: 29 Apr 2022

Date Written: April 28, 2022

Abstract

We explore the motivation behind voluntary disclosure of environment, social and governance (ESG) strategy by mutual funds, and investor reaction to the disclosure. We show that there is insignificant difference in portfolio sustainability performance between funds which mention ESG as part of strategy compared to funds that do not, indicating greenwashing. We further show that an exogenous increase in salience of funds' ESG performance among investors discipline managers and decreases their propensity to greenwash. Finally, we document that while investors are attentive to the voluntary ESG disclosures of the funds, they seem inattentive to the sustainability performance of the funds' portfolio.

Keywords: ESG strategy, Mutual fund flows, Globe rating, Sustainable investing, Greenwashing

JEL Classification: G00, G12, Q56

Suggested Citation

Kashyap, Nishant, Mutual funds' disclosure of `ESG' strategy, prevention of greenwashing, and investor response (April 28, 2022). Available at SSRN: https://ssrn.com/abstract=3834564 or http://dx.doi.org/10.2139/ssrn.3834564

Nishant Kashyap (Contact Author)

Indian School of Business ( email )

Hyderabad, Gachibowli 500 019
India

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