Greenwashing in Mutual Funds

44 Pages Posted: 26 Oct 2021

Date Written: September 30, 2021


This paper investigates mutual funds’ potential “greenwashing” behavior. Funds profiled as ESG- based receive higher inflows compared to other similar funds. Importantly, we show this is true also for ESG labeled funds having inferior objective ESG profiles, as based on Morningstar sustainability ratings, applying to both retail and institutional funds. An analysis of mutual funds repurposing into ESG focus shows that fund families especially tend to convert such funds whose ability to attract in-flows has been lagging behind. Documenting and uncovering the motives for greenwashing is vital in terms of trust in the emerging and rapidly growing market of green financial products, with high hopes for its pivotal role in combating climate change.

Keywords: Mutual funds, ESG, Responsible investment, Greenwashing

JEL Classification: G11,G12, G23

Suggested Citation

Kaustia, Markku and Yu, Wenjia, Greenwashing in Mutual Funds (September 30, 2021). Available at SSRN: or

Markku Kaustia

Aalto University ( email )

P.O. Box 21210
Helsinki, 00101

Wenjia Yu (Contact Author)

Aalto University ( email )

P.O. Box 21210
Helsinki, 00101

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