A study of green European equity fund portfolio allocations

Abstract

This paper examines the extent to which the portfolios of green funds differ from conventional funds. We use non-metric multidimensional scaling to analyse 24 549 securities held by 6888 funds traded on European markets as of March 2023. This numerical methodology reduces the fund compositional matrix from thousands of dimensions to two dimensions, revealing patterns that can be studied graphically. Each fund is classified into three categories by the EU Taxonomy: dark-green, light-green, or conventional funds. With a few exceptions, the results indicate that the compositional differences in fund holdings across these three types of funds are small: green fund portfolios are largely the same as conventional fund portfolios. A notable exception are energy sector funds where we find compositional differences in the holdings of green and conventional funds. Our findings suggest that the EU's regulatory effort on sustainable finance has not yet delivered on anti-greenwashing objectives, and that ESG based investing is doing little to shift fund allocations.

Keywords: Sustainable finance, investment funds, ESG, Non-metric multidimensional scaling, ordination JEL: G11, M14, D53