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Spotting portfolio greenwashing in sustainable funds

Spotting portfolio greenwashing in sustainable funds
Spotting portfolio greenwashing in sustainable funds
This paper examines greenwashing practices in sustainable funds portfolios. We use an event study to examine whether sustainable funds' announcements about their commitment to decarbonization lead to abnormal flows from investors. We utilize a unique data set of US equity mutual funds and their holdings, over the period 2011-2021, to calculate the sustainable fund portfolios' carbon footprint. We find that sustainable fund flows respond positively to announcements from sustainable funds. Surprisingly, this result shows significantly positive cumulative abnormal flows in the event window, while there are significant and negative incremental abnormal flows before and after the event window. To overcome selection bias and endogeneity, we use Difference in Differences analysis to measure how much the carbon footprint of sustainable funds changes following the announcement date. These results confirm that sustainable funds fail to reduce their carbon footprint relative to conventional funds over the period that follows the announcement date. Moreover, This is consistent with the signaling theory argument. By rushing to announce the integration of sustainability criteria in the fund's prospectus, asset managers give misleading signals to investors about their commitments toward decarbonization which is considered a sign of greenwashing.
Greenwashing, Sustainable funds, ESG investing, Funds prospectus, Carbon footprint
Abouarab, Rabab Samir
50ef9914-0c61-4b62-bade-0cd46400fa09
Mishra, Tapas
218ef618-6b3e-471b-a686-15460da145e0
Wolfe, Simon
9a2367fc-36cc-496a-bbd2-e7346bcbb19e
Abouarab, Rabab Samir
50ef9914-0c61-4b62-bade-0cd46400fa09
Mishra, Tapas
218ef618-6b3e-471b-a686-15460da145e0
Wolfe, Simon
9a2367fc-36cc-496a-bbd2-e7346bcbb19e

Abouarab, Rabab Samir, Mishra, Tapas and Wolfe, Simon (2022) Spotting portfolio greenwashing in sustainable funds 48pp. (Submitted)

Record type: Monograph (Working Paper)

Abstract

This paper examines greenwashing practices in sustainable funds portfolios. We use an event study to examine whether sustainable funds' announcements about their commitment to decarbonization lead to abnormal flows from investors. We utilize a unique data set of US equity mutual funds and their holdings, over the period 2011-2021, to calculate the sustainable fund portfolios' carbon footprint. We find that sustainable fund flows respond positively to announcements from sustainable funds. Surprisingly, this result shows significantly positive cumulative abnormal flows in the event window, while there are significant and negative incremental abnormal flows before and after the event window. To overcome selection bias and endogeneity, we use Difference in Differences analysis to measure how much the carbon footprint of sustainable funds changes following the announcement date. These results confirm that sustainable funds fail to reduce their carbon footprint relative to conventional funds over the period that follows the announcement date. Moreover, This is consistent with the signaling theory argument. By rushing to announce the integration of sustainability criteria in the fund's prospectus, asset managers give misleading signals to investors about their commitments toward decarbonization which is considered a sign of greenwashing.

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More information

Submitted date: 1 July 2022
Keywords: Greenwashing, Sustainable funds, ESG investing, Funds prospectus, Carbon footprint

Identifiers

Local EPrints ID: 471778
URI: http://eprints.soton.ac.uk/id/eprint/471778
PURE UUID: 1e27a9b7-5293-4db2-82bc-7f45a651efd7
ORCID for Rabab Samir Abouarab: ORCID iD orcid.org/0000-0001-5446-4669
ORCID for Tapas Mishra: ORCID iD orcid.org/0000-0002-6902-2326
ORCID for Simon Wolfe: ORCID iD orcid.org/0000-0001-9815-9535

Catalogue record

Date deposited: 18 Nov 2022 17:30
Last modified: 19 Nov 2022 02:57

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Contributors

Author: Rabab Samir Abouarab ORCID iD
Author: Tapas Mishra ORCID iD
Author: Simon Wolfe ORCID iD

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