Greenwashing and the EU's Sustainable Finance Disclosure Regulation

Abstract

Greenwashing poses a major obstacle for financing the green transition. We propose a simple approach to identify potential greenwashers in the context of mutual funds. Focusing on a sample of actively-managed bond funds in Europe, we find that the greenwashing-risk has decreased around the introduction of the EU's Sustainable Finance Disclosure Regulation (SFDR). For Article 9 funds, the greenwashing-potential has dropped by a factor of two between March 2022 and September 2023. This is both due to (i) re-classifications towards Article 8 products and (ii) sustainability rating improvements. For Article 8 funds, the improvement is less pronounced and the greenwashing-potential remains elevated.

Keywords: ESG, asset management, greenwashing, regulation

JEL Classification: G11, G23, Q01