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

Candelon, Bertrand; Hasse, Jean‐Baptiste; Lajaunie, Quentin

doi:10.3390/risks9110199

Cited by 17 publications

(13 citation statements)

References 49 publications

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“…Concerning the practice of ESG-washing, Candelon et al (2021) use a sample of about 1,500 European and U.S. domestic equity mutual funds to show that socially responsible mutual fund names are not related to their non-financial performance. Indeed, they find that some asset managers opportunistically make unsubstantiated or misleading claims about their funds' ESG commitments such as the choice of a name or a private third-party certification with a label assignment, thus portraying themselves as socially responsible but without making any tangible investment decision.…”

Section: Mf 501mentioning

confidence: 99%

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Exploring the role of ESG for the performance and risks of infrastructure investing: evidence from the international funds' market

Baldi

Lambertides

2023

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PurposeThis study investigates the relation between ESG-driven investment strategies and the performance of infrastructure funds. More specifically, this study examines the impact of the different dimensions – environmental (E), social (S) and governance (G) – of the ESG profile of infrastructure funds on their performance.Design/methodology/approachTo study the risk-return properties of infrastructure funds and the relationship with their ESG profiles, an econometric analysis is conducted, based on a sample of 180 listed, ESG-oriented infrastructure funds identified through Refinitiv Eikon.FindingsThe results show that infrastructure funds with more solid environmental investment policies experience a lower performance, while those with a stronger social orientation yield a superior performance. Governance-related investment policies seem trivial in determining the performance of these funds. Further analysis shows that ESG controversies have a negative impact on infrastructure funds' performance, whereas Emissions and Resource Use scores, both proxying for different elements under the environmental pillar, have opposite signs. Finally, the Community score has a positive impact on funds' performance consistent with the positive impact of the social pillar score. The study also provides a number of sub-sample analyses to shed light on the conditions under which each pillar has significant impact on funds’ performance.Practical implicationsFirst, infrastructure funds should choose the composition of their portfolio holdings in a way that the total return is not penalized by the prevalence of the tricky E aspects (compliance with environmental regulations) over the main benefits of the S dimension. Second, fund managers need to bet on infrastructures with an expected impact on the social pillar dimension such as those aimed at promoting the wealth of the local communities (e.g. hospitals, schools). Third, to strengthen the fund's social dimension, fund managers must increase the dollar amount of the assets under management to count on a higher firepower.Originality/valueThis study makes three contributions to literature. First, the ESG profiles of the infrastructure funds operating both at local and global level and their relationship with annual performance are studied. Second, the different dimensions of the ESG profile of infrastructure funds are investigated by measuring their impact on performance. Third, the study sheds light on some detailed but relevant aspects of this phenomenon by analyzing the breakdown of the ESG profile of infrastructure funds into four sustainability sub-scores capturing their efforts to reduce CO2 emissions, the use of polluting materials and to influence local communities as well their exposure to the risk of litigation due to the occurrence of ESG controversies. This study addresses the extent to which the adoption of ESG investment policies by the infrastructure funds have an impact on their performances.

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Section: Mf 501mentioning

confidence: 99%

“…Concerning the practice of ESG-washing, Candelon et al . (2021) use a sample of about 1,500 European and U.S. domestic equity mutual funds to show that socially responsible mutual fund names are not related to their non-financial performance.…”

Section: Literature Reviewmentioning

confidence: 99%

Exploring the role of ESG for the performance and risks of infrastructure investing: evidence from the international funds' market

Baldi

Lambertides

2023

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“…3 However, one should note that there are still methodological challenges related to information asymmetry on the pricing externality effects of conventional and green financial assets (Berg et al 2019;Candelon et al 2021a).…”

Section: Notesmentioning

confidence: 99%

Green Bonds for the Transition to a Low-Carbon Economy

2022

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The green bond market is emerging as an impactful financing mechanism in climate change mitigation efforts. The effectiveness of the financial market for this transition to a low-carbon economy depends on attracting investors and removing financial market roadblocks. This paper investigates the differential bond performance of green vs non-green bonds with (1) a dynamic portfolio model that integrates negative as well as positive externality effects and via (2) econometric analyses of aggregate green bond and corporate energy time-series indices; as well as a cross-sectional set of individual bonds issued between 1 January 2017, and 1 October 2020. The asset pricing model demonstrates that, in the long-run, the positive externalities of green bonds benefit the economy through positive social returns. We use a deterministic and a stochastic version of the dynamic portfolio approach to obtain model-driven results and evaluate those through our empirical evidence using harmonic estimations. The econometric analysis of this study focuses on volatility and the risk–return performance (Sharpe ratio) of green and non-green bonds, and extends recent econometric studies that focused on yield differentials of green and non-green bonds. A modified Sharpe ratio analysis, cross-sectional methods, harmonic estimations, bond pairing estimations, as well as regression tree methodology, indicate that green bonds tend to show lower volatility and deliver superior Sharpe ratios (while the evidence for green premia is mixed). As a result, green bond investment can protect investors and portfolios from oil price and business cycle fluctuations, and stabilize portfolio returns and volatility. Policymakers are encouraged to make use of the financial benefits of green instruments and increase the financial flows towards sustainable economic activities to accelerate a low-carbon transition.

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“…Supplementary Materials S2. PCDS form and Guidance created 2020 for piloting[56][57][58][59][60][61][62][63][64][65][66][67][68][69][70][71][72]. Writing-original draft preparation, D.M.…”

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confidence: 99%

The Product Circularity Data Sheet—A Standardized Digital Fingerprint for Circular Economy Data about Products

Mulhall

Ayed²,

Schroeder³

et al. 2022

Energies

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Background. Laws that enable a circular economy (CE) are being enacted globally, but reliable standardized and digitized CE data about products is scarce, and many CE platforms have differing exclusive formats. In response to these challenges, the Ministry of The Economy of Luxembourg launched the Circularity Dataset Standardization Initiative to develop a globalized open-source industry standard to allow the exchange of standardized data throughout the supply cycle, based on these objectives: (a) Provide basic product circularity data about products. (b) Improve circularity data sharing efficiency. (c) Encourage improved product circularity performance. A policy objective was to have the International Organization for Standardization (ISO) voted to create a working group. Methods. A state-of-play analysis was performed concurrently with consultations with industry, auditors, data experts, and data aggregation platforms. Results. Problem statements were generated. Based on those, a solution called Product Circularity Data Sheet (PCDS) was formulated. A proof of concept (POC) template and guidance were developed and piloted with manufacturers and platforms, thus fulfilling objective (a). For objective (b), IT ecosystem requirements were developed, and aspects are being piloted in third party aggregation platforms. Objective (c) awaits implementation of the IT ecosystem. The policy objective related to the ISO was met. Conclusions and future research. In order to fully test the PCDS, it is necessary to: conduct more pilots, define governance, and establish auditing and authentication procedures.

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

Cited by 17 publications

References 49 publications

Exploring the role of ESG for the performance and risks of infrastructure investing: evidence from the international funds' market

Exploring the role of ESG for the performance and risks of infrastructure investing: evidence from the international funds' market

Green Bonds for the Transition to a Low-Carbon Economy

The Product Circularity Data Sheet—A Standardized Digital Fingerprint for Circular Economy Data about Products

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