Contagious greenwashing investment
China Finance Review International
ISSN: 2044-1398
Article publication date: 28 May 2024
Issue publication date: 7 June 2024
Abstract
Purpose
This study explores the contagion of greenwashing strategies among ESG mutual funds. It investigates how the greenwashing behaviors of peer funds within the same family influence a fund’s decision to engage in greenwashing. The research also examines the impact of greenwashing on genuine ESG funds and explores the mechanisms through which greenwashing strategies spread across ESG mutual funds.
Design/methodology/approach
This paper employs a two-stage least squares regression model with cross-fund returns standard deviation as an instrumental variable to disentangle the peer effects of greenwashing from family-level characteristics. The analysis incorporates various fund characteristics and introduces four contagion channels through which greenwashing may influence genuine ESG funds.
Findings
The study finds greenwashing behavior in ESG funds is positively influenced by similar practices within their fund family. Larger assets under management and older funds with higher management fees show resilience against greenwashing influences, while team-managed funds are more susceptible. Additionally, socially responsible investors struggle to distinguish between genuine and greenwashing ESG funds, which may contribute to the persistence of greenwashing practices.
Originality/value
This paper contributes to the literature by delineating the mechanisms of greenwashing contagion within ESG mutual funds. It also examines the demand-side incentives for adopting greenwashing strategies, offering insights into the implications for fund flows and investor behavior. This study is among the first to analyze the contagion effects of greenwashing strategies across an extensive network of ESG funds, enriching our understanding of the broader impacts of greenwashing in the context of socially responsible investing.
Keywords
Citation
Sun, Y., Jiang, S. and Wang, S. (2024), "Contagious greenwashing investment", China Finance Review International, Vol. 14 No. 2, pp. 201-227. https://doi.org/10.1108/CFRI-04-2024-0191
Publisher
:Emerald Publishing Limited
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