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Do US Active Mutual Funds Make Good of Their ESG Promises? Evidence from Portfolio Holdings

Author

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  • Massimo Guidolin

    (Department of Finance and GREEN, Bocconi University, Via Roentgen 1, 21100 Milan, Italy)

  • Monia Magnani

    (Division of Accounting and Finance, University of Liverpool Management School, Chatham Street, Liverpool L69 7ZH, UK
    GREEN, Bocconi University, Via Roentgen 1, 21100 Milan, Italy)

Abstract

We investigate the occurrence of greenwashing in the US mutual fund industry. Using panel regression methods, we test whether there exist differences in the portfolio investment behaviors of active equity funds that are self-declared to be driven by ESG motives when compared to all other funds. In particular, we focus on two aspects of funds’ portfolio allocation decisions, i.e., the actual implied average ESG ratings of the stocks a mutual fund invests in and the portfolio share invested in sin stocks. We do not find strong evidence that ESG and non-ESG funds make identical investment choices and hence reject the hypothesis of widespread greenwashing. ESG funds, on average, invest more in companies with higher ESG ratings and avoid sin stocks more than non-ESG funds. Nonetheless, we obtain evidence that some degree of greenwashing may still be occurring. However, over time, the differences between ESG and non-ESG funds in these behaviors seem have declined, suggesting a potential reduction in greenwashing practices.

Suggested Citation

  • Massimo Guidolin & Monia Magnani, 2024. "Do US Active Mutual Funds Make Good of Their ESG Promises? Evidence from Portfolio Holdings," Risks, MDPI, vol. 12(2), pages 1-26, February.
    • Handle: RePEc:gam:jrisks:v:12:y:2024:i:2:p:41-:d:1340970
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    References listed on IDEAS

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    1. Rajna Gibson Brandon & Simon Glossner & Philipp Krueger & Pedro Matos & Tom Steffen, 2022. "Do Responsible Investors Invest Responsibly? [Why and how investors use ESG information: evidence from a global survey]," Review of Finance, European Finance Association, vol. 26(6), pages 1389-1432.
    2. Gabriel Paradis & Eduardo Schiehll, 2021. "ESG Outcasts: Study of the ESG Performance of Sin Stocks," Sustainability, MDPI, vol. 13(17), pages 1-18, August.
    3. Giedrė Lapinskienė & Irena Danilevičienė, 2023. "Assessment of Green Banking Performance," Sustainability, MDPI, vol. 15(20), pages 1-16, October.
    4. Massimo Guidolin, 2005. "Home Bias and High Turnover in an Overlapping‐generations Model with Learning," Review of International Economics, Wiley Blackwell, vol. 13(4), pages 725-756, September.
    5. Jędrzej Białkowski & Laura T. Starks, 2016. "SRI Funds: Investor Demand, Exogenous Shocks and ESG Profiles," Working Papers in Economics 16/11, University of Canterbury, Department of Economics and Finance.
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