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Green Window Dressing

Author

Listed:
  • Parise, Gianpaolo
  • Rubin, Mirco

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.

Suggested Citation

  • Parise, Gianpaolo & Rubin, Mirco, 2023. "Green Window Dressing," CEPR Discussion Papers 18270, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:18270
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    More about this item

    Keywords

    Window dressing; Mutual funds; ESG; Green finance; Asset allocation;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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