Light Green is the New Black: The EU SFDR as a Driver for Greenwashing in the Mutual Fund Industry?

Sammanfattning: In March 2021, the European Commission enacted the Sustainable Finance Disclosure Regulation (SFDR), which requires mutual fund managers in the EU to disclose ESG-relevant information and to classify their products either as light green (Art. 8), dark green (Art. 9), or others (Art. 6). This thesis serves to examine the impact of the SFDR on mutual fund flows, to understand the drivers for fund managers to declare their products as green, and to investigate potential greenwashing behaviour regarding the labelling. We find that equity funds labelled as Art. 8 receive more fund flows than Art. 6 funds after the SFDR introduction, while Art. 9 funds attract relatively less investor interest. Furthermore, we identify an underperformance of Art. 8 funds before the SFDR launch, indicating a potential use of the label as a tool to compensate for adverse return effects on fund inflows. Lastly, we find that SFDR labelled funds have a higher sustainability rating than Art. 6 funds and improve their ESG performance after the labelling on the fund and portfolio level. Notably, such improvement occurs only in portfolio characteristics that are subject to the SFDR disclosure requirements. To conclude, the policy intervention seems successful in promoting greener financial products. However, it raises concerns regarding the shift from Art. 9 funds towards less ESG-focused Art. 8 funds and the negligence of ESG criteria that are not required by the SFDR.