Do Sustainability Signals Diverge? An Analysis of Labeling Schemes for Socially Responsible Investments

47 Pages Posted: 2 Mar 2023

See all articles by Sofia Brito Ramos

Sofia Brito Ramos

ESSEC Business School

Maria C. Cortez

University of Minho - School of Economics and Management

Florinda Silva

University of Minho - School of Economics and Management

Date Written: February 22, 2023

Abstract

Several labels for sustainable investment funds sponsored by government and nonprofit organizations (GNPOs) have emerged in Europe. This paper examines the coherence of the signals sent by these sustainable labels versus those from the private sector. While some GNPO-labeled funds are perceived as bearing high Environmental, Social and Governance (ESG) risks, we find that labeled funds are more likely to be assessed as top ESG funds by private rating providers. Furthermore, equity funds with governmental and multiple labels are more likely to show better ESG ratings. Additionally, GNPO-labeled funds show greater alignment with article 9 of the Sustainable Finance Disclosure Regulation and tend to exhibit ESG terminology in their name, consistent with internal signals of sustainability coherence with GNPO labels. However, our research draws attention to the existence of sustainable signals that are not always coherent, jeopardizing their role as efficient tools for promoting sustainability.

Keywords: asymmetric information, government, labelling, nonprofit organizations, SFDR, socially responsible investments, sustainable finance, third-party certifications

Suggested Citation

Ramos, Sofia Brito and Ceu Cortez, Maria and Silva, Florinda, Do Sustainability Signals Diverge? An Analysis of Labeling Schemes for Socially Responsible Investments (February 22, 2023). ESSEC Business School Research Paper , Available at SSRN: https://ssrn.com/abstract=4366867 or http://dx.doi.org/10.2139/ssrn.4366867

Sofia Brito Ramos (Contact Author)

ESSEC Business School ( email )

3 Avenue Bernard Hirsch
CS 50105 CERGY
CERGY, CERGY PONTOISE CEDEX 95021
France

Maria Ceu Cortez

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

Campus Gualtar
Braga, 4710-057
Portugal

Florinda Silva

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

Campus Gualtar
Braga, 4710-057
Portugal
351 253 604564 (Phone)
351 253 601380 (Fax)

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