Beyond Green Labels: Assessing Mutual Funds’ ESG Commitments Through Large Language Models

Abstract

This paper investigates whether mutual funds that adopt ESG-related names genuinely follow through on the implied increase in ESG commitments caused by this action. Utilizing Large Language Models (LLMs) to analyze mutual fund prospectuses, we find that funds significantly increase their ESG focus post-name change, leading to higher traditional ESG scores. However, the marginal benefit of additional ESG content in prospectuses diminishes after the name change. Our results suggest that while LLMs can be a cost-effective tool for assessing a fund's ESG commitment, investors should continue to exercise due diligence, particularly after an ESG-related name change.

Keywords: Fund Names, Fund Performance, sustainability, ESG, SRI, greenwashing, large language models