Spotting Portfolio Greenwashing in Sustainable Funds

Abstract

This paper examines greenwashing practice in sustainable funds. We utilize a unique data set of US equity mutual fund holdings between 2011 and 2021 to calculate the sustainable funds' carbon footprint. Using an event study, we find that sustainable fund flows initially respond positively to fund announcements of commitments to decarbonization. We then use a Difference-in-Differences analysis to measure how much the carbon footprint of sustainable funds changes following the announcement date. The results confirm that sustainable funds fail to reduce their carbon footprint relative to a matched group of conventional funds. This provides strong evidence of greenwashing in sustainable funds.

Keywords: Greenwashing; Sustainable funds; ESG investing; Funds prospectus; Carbon footprint

JEL Classification: G10; G11; G14