Greenwashing in mutual funds

Author: Markku Kaustia (Aalto University)

Abstract: This paper investigates mutual funds’ potential greenwashing behavior. In addition to showing that ESG-profiled funds receive higher inflows compared to otherwise similar funds, we make a number of new contributions. We show this is true also for ESG labeled funds having inferior objective ESG profiles, as based on Morningstar sustainability ratings, applying to both retail and institutional funds. Analyzing funds repurposing into ESG shows that fund families especially tend to convert funds that had somewhat lackluster flows. Detecting and understanding greenwashing is key to curbing it, and thus promoting public trust in this proliferating market, with high hopes for its role in the green shift.     

Host: Amy Zhao Ding