Green Window Dressing

Gianpaolo Parise and Mirco Rubin

No 18270, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We uncover evidence of widespread sustainability ratings manipulation by mutual funds. Our analysis finds that ESG fund portfolios exhibit 31% higher ESG exposure immediately before mandatory portfolio disclosure than immediately afterwards. As a result, disclosed portfolios receive substantially higher ratings than actual portfolios would. We document that ESG manipulators earn higher risk-adjusted returns and attract more investor flows. At the asset level, we find that high-ESG (low-ESG) stocks rise (fall) in the days before fund portfolio disclosure and revert afterwards. We discuss whether ESG manipulation is optimal for investors and document similar behavior by non-ESG funds, albeit more limited.

Keywords: Window dressing; Mutual funds; ESG; Green finance; Asset allocation (search for similar items in EconPapers)
JEL-codes: G11 G23 Q56 (search for similar items in EconPapers)
Date: 2023-07
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