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ESG-Washing in the Mutual Funds Industry? From Information Asymmetry to Regulation

Author

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  • Candelon, Bertrand

    (Université catholique de Louvain, LIDAM/LFIN, Belgium)

  • Hasse, Jean-Baptiste
  • Lajaunie, Quentin

Abstract

In this paper, we study the asymmetric information between asset managers and investors in the socially responsible investment (SRI) market. Specifically, we investigate the lack of transparency of the extra-financial information communicated by asset managers. Using a unique international panel dataset of approximately 1500 equity mutual funds, we provide empirical evidence that some asset managers portray themselves as socially responsible yet do not make tangible investment decisions. Furthermore, our results indicate that the financial performance of mutual funds is not related to asset managers’ signals but should be evaluated relatively using extra-financial ratings. In summary, our findings advocate for a unified regulation framework that constrains asset managers’ communication.

Suggested Citation

  • Candelon, Bertrand & Hasse, Jean-Baptiste & Lajaunie, Quentin, 2021. "ESG-Washing in the Mutual Funds Industry? From Information Asymmetry to Regulation," LIDAM Reprints LFIN 2021023, Université catholique de Louvain, Louvain Finance (LFIN).
    • Handle: RePEc:ajf:louvlr:2021023
    DOI: https://doi.org/10.3390/risks9110199
    Note: In: Risks, 2021, 9(11), 199
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    Cited by:

    1. 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.
    2. Douglas Mulhall & Anne-Christine Ayed & Jeannot Schroeder & Katja Hansen & Thibaut Wautelet, 2022. "The Product Circularity Data Sheet—A Standardized Digital Fingerprint for Circular Economy Data about Products," Energies, MDPI, vol. 15(9), pages 1-19, May.
    3. Mogens Steffensen, 2022. "Special Issue “Risks: Feature Papers 2021”," Risks, MDPI, vol. 10(3), pages 1-2, March.
    4. Gibbon, Kayshani & Derwall, Jeroen & Gerritsen, Dirk & Koedijk, Kees, 2025. "Renaming with purpose: Investor response and fund manager behaviour after fund ESG renaming," Journal of International Money and Finance, Elsevier, vol. 152(C).
    5. Zehua He & Kexin Hu & Zhongfei Li, 2023. "Drifting from the Sustainable Development Goal: Style Drift in ESG Funds," Sustainability, MDPI, vol. 15(16), pages 1-24, August.
    6. Inigo Martin-Melero & Raul Gomez-Martinez & Maria Luisa Medrano-Garcia & Felipe Hernandez-Perlines, 2025. "Comparison of sectorial and financial data for ESG scoring of mutual funds with machine learning," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 11(1), pages 1-31, December.
    7. Christine Helliar & Barbara Petracci & Nongnuch Tantisantiwong, 2025. "Environmental, social and governance risk exposures of mutual funds," Journal of Asset Management, Palgrave Macmillan, vol. 26(3), pages 316-332, May.

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