Essays on sustainable finance

Abstract

This thesis contributes to the field of sustainable finance by studying some critical sustainability challenges through three distinct research avenues. First, it examines greenwashing in sustainable investments, offering a comprehensive analysis to detect greenwashing practices by environmental mutual funds. Second, it introduces a novel greenwashing index, providing a valuable tool to evaluate the effectiveness of the Sustainable Finance Disclosure Regulation (SFDR) in combating greenwashing. Finally, the thesis employs a quasi-natural experimental design to investigate shifts in herding behavior across various investment fund types, shedding light on whether the SFDR influences investor behavior and improves the transparency of sustainable investing practices.

We provide evidence that environmental funds fail to reduce their carbon footprints compared to a matched group of conventional funds, despite a significant increase in inflows driven by sustainability commitments. This combination of underperformance in carbon reduction and increased inflows suggests greenwashing, raising concerns about the fiduciary duty of these funds. Using a novel greenwashing index, we find that after implementing the SFDR, Article 9 funds exhibit a lower greenwashing index relative to unclassified funds. Our analysis also reveals that Article 9 funds decarbonise their portfolios primarily by tilting toward low carbon-intensive holdings. Additionally, Article 9 funds show a significant decline in herding behavior, while Article 8 and Article 6 funds experience an insignificant reduction compared to unclassified funds. These findings highlight the differential impact of SFDR regulations on fund behavior.

The results of this thesis have important policy implications. First, given the growing concerns around greenwashing, our findings can help regulators evaluate the gap between sustainability claims and actual performance, ensuring that investment funds fulfill their fiduciary duties. Furthermore, introducing a greenwashing index offers regulators an effective tool to assess the credibility of sustainability claims, reducing the risk of misleading investors. Finally, the observed reduction in herding behavior among Article 9 funds post-SFDR highlights the regulation’s role in promoting independent and responsible investment decisions, which can help foster more diverse sustainable investing strategies.

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Identifiers

ORCID for Rabab Samir Abouarab: orcid.org/0000-0001-5446-4669

ORCID for Simon Wolfe: orcid.org/0000-0001-9815-9535

ORCID for Tapas Mishra: orcid.org/0000-0002-6902-2326

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