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Spotting Portfolio Greenwashing in Environmental Funds

Author

Listed:
  • Rabab Abouarab

    (University of Southampton)

  • Tapas Mishra

    (University of Southampton)

  • Simon Wolfe

    (University of Southampton)

Abstract

This paper examines greenwashing practices in environmental funds. We utilize a unique data set of US equity mutual fund holdings between 2012 and 2021 to calculate the funds’ carbon footprints. Using a difference-in-differences analysis, we find that, following their commitments to sustainability, environmental funds fail to reduce their carbon footprints relative to a matched group of conventional funds. We also find, using an event study, a significant increase in the flows of environmental funds in response to these commitments. The combination of the failure to reduce carbon footprints and the surge in inflows provides evidence of greenwashing by environmental funds, raising concerns about their fiduciary duty. Our findings also show that greenwashers tend to initially have low flows and high portfolio carbon emissions suggesting that they announce their commitments to sustainability just to attract investors.

Suggested Citation

  • Rabab Abouarab & Tapas Mishra & Simon Wolfe, 2025. "Spotting Portfolio Greenwashing in Environmental Funds," Journal of Business Ethics, Springer, vol. 197(4), pages 811-839, April.
    • Handle: RePEc:kap:jbuset:v:197:y:2025:i:4:d:10.1007_s10551-024-05783-z
    DOI: 10.1007/s10551-024-05783-z
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    More about this item

    Keywords

    Greenwashing; Environmental funds; Fund prospectus; Carbon footprint; Decarbonization; Fiduciary duty;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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