Discretionary Information in ESG Investing: A Text Analysis of Mutual Fund Prospectuses

50 Pages Posted: 4 May 2022

See all articles by Angie Andrikogiannopoulou

Angie Andrikogiannopoulou

King's College London

Philipp Krueger

University of Geneva - Geneva Finance Research Institute (GFRI); Swiss Finance Institute; European Corporate Governance Institute (ECGI); University of Geneva - Geneva School of Economics and Management

Shema Frédéric Mitali

Ecole Polytechnique Fédérale de Lausanne

Filippos Papakonstantinou

King's College London

Date Written: April 12, 2022

Abstract

We construct novel measures of funds' environmental, social, and governance (ESG) commitment by applying text analysis to the discretionary investment-strategy descriptions in their prospectuses. We find that investors respond strongly to text-based ESG measures. Using discrepancies between text- and fundamentals-based ESG measures, we identify greenwashing funds. We find greenwashing is more prevalent in the last five years and among funds with lower past flows and weaker oversight. Furthermore, greenwashing funds attract similar flows as funds that truthfully reveal their ESG commitment, suggesting that investors cannot distinguish between them. On the other hand, greenwashers have inferior performance than genuinely green funds.

Keywords: ESG, Prospectus, Greenwashing, Text Analysis, Mutual Funds, Fund Flows, Fund Performance

JEL Classification: G11, G23

Suggested Citation

Andrikogiannopoulou, Angie and Krueger, Philipp and Mitali, Shema Frédéric and Papakonstantinou, Filippos, Discretionary Information in ESG Investing: A Text Analysis of Mutual Fund Prospectuses (April 12, 2022). Available at SSRN: https://ssrn.com/abstract=4082263 or http://dx.doi.org/10.2139/ssrn.4082263

Angie Andrikogiannopoulou

King's College London

Strand
London, WC2R 2LS
United Kingdom

Philipp Krueger

University of Geneva - Geneva Finance Research Institute (GFRI) ( email )

40 Boulevard du Pont d'Arve
Geneva 4, Geneva 1211
Switzerland

Swiss Finance Institute ( email )

Switzerland

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

University of Geneva - Geneva School of Economics and Management ( email )

Uni Mail
Bd du Pont-d'Arve 40
Geneva, 1211
Switzerland

Shema Frédéric Mitali

Ecole Polytechnique Fédérale de Lausanne ( email )

Quartier UNIL-Dorigny, Bâtiment Extranef, # 211
40, Bd du Pont-d'Arve
CH-1015 Lausanne, CH-6900
Switzerland

Filippos Papakonstantinou (Contact Author)

King's College London ( email )

Strand
London, England WC2R 2LS
United Kingdom

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