Sustainable Finance Disclosure Regulation: Voluntary Signaling or Mandatory Disclosure?

42 Pages Posted: 19 Feb 2024

See all articles by Lara Spaans

Lara Spaans

Utrecht University - School of Economics

Jeroen Derwall

Maastricht University; Maastricht University - Department of Finance; Utrecht University - School of Economics

Joop Huij

Erasmus University - Rotterdam School of Management; Robeco; Erasmus University Rotterdam (EUR) - Erasmus Research Institute of Management (ERIM)

Kees Koedijk

Utrecht University

Date Written: February 11, 2024

Abstract

We study the consequences of mandatory sustainable finance disclosure regulation (SFDR) for the money flows and investment behavior of mutual funds. Under SFDR, any EU-regulated mutual fund is required to publicly classify itself as either Article 8 (promoting ESG characteristics), Article 9 (having ESG/sustainability goals as objective 9), or Article 6 (‘Other’ funds). Applying difference-differences analysis, we find that, EU funds classified as either Article 8 or 9 experience on average a 0.96 percentage point higher annualized flow post SFDR relative to Article 6 funds. This difference in flow is significant after both the SFDR introduction date and implementation date and holds regardless of whether funds received a high or low Morningstar Sustainability Rating pre-SFDR. Following SFDR, retail (but not institutional) funds with Article 8 or 9 classification demonstrate stronger portfolio decarbonization and higher portfolio-level ESG scores compared to Article 6 funds. In aggregate, EU-regulated funds significantly improve the ESG profile of their investments relative to U.S. mutual funds, holding for both retail and institutional funds. Taken together, the results suggest that sustainable finance disclosure regulation enables mutual funds to attract capital by signaling commitments to sustainable investments, and it induces funds to change their behavior.

Keywords: Mandatory disclosure, Signaling, Investor preferences, Mutual funds, Sustainable finance

JEL Classification: G11, G15, G23, Q58

Suggested Citation

Spaans, Lara and Derwall, Jeroen and Derwall, Jeroen and Huij, Joop and Koedijk, Kees, Sustainable Finance Disclosure Regulation: Voluntary Signaling or Mandatory Disclosure? (February 11, 2024). Available at SSRN: https://ssrn.com/abstract=4722820 or http://dx.doi.org/10.2139/ssrn.4722820

Lara Spaans (Contact Author)

Utrecht University - School of Economics ( email )

Kriekenpitplein 21-22
Adam Smith Building
Utrecht, +31 30 253 7373 3584 EC
Netherlands

Jeroen Derwall

Maastricht University ( email )

FEBA
Tongersestraat 53
Maastricht, Limburg 6200MD
Netherlands

HOME PAGE: http://www.jeroenderwall.nl

Maastricht University - Department of Finance ( email )

Maastricht, 6200 MD
Netherlands

HOME PAGE: http://www.fdewb.unimaas.nl/finance/?page=member&id=175

Utrecht University - School of Economics ( email )

Kriekenpitplein 21-22
Adam Smith Building
Utrecht, +31 30 253 7373 3584 EC
Netherlands

Joop Huij

Erasmus University - Rotterdam School of Management ( email )

P.O. Box 1738
Rotterdam, 3000 DR
Netherlands

HOME PAGE: http://www.rsm.nl/jhuij

Robeco

Rotterdam, 3014DA
Netherlands

HOME PAGE: http://www.robeco.com/

Erasmus University Rotterdam (EUR) - Erasmus Research Institute of Management (ERIM)

P.O. Box 1738
Rotterdam, 3000 DR
Netherlands

Kees Koedijk

Utrecht University ( email )

Vredenburg 138
Utrecht, 3511 BG
Netherlands

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