In Holdings We Trust : Uncovering the ESG Fund Lemons

Using a novel survey of retail global equity funds offered in Australasia, we provide new insights into the evolving landscape of responsible investing (RI) and potential greenwashing. Our analysis has three components. First, we surveyed asset managers to elicit an understanding of how and why they integrate ESG information into investment decisions. We found that RI was primarily driven by performance and fund flow focused value, rather than ethical values. Further, we found that climate change themes were prioritised within the investment process, relative to other ESG sub-themes. Second, we compared survey responses to portfolio holdings data to evaluate whether fund managers were as environmentally responsible as they claimed to be. Surprisingly, we found that portfolio carbon intensity was significantly higher for respondents that were members of a climate initiative, and not significantly different for those that prioritised climate change themes or engaged in a decarbonisation strategy. The divergence between words and actions appears to be consistent with greenwashing funds (‘lemons’) seeking responsible investment flows without ‘walking the talk’. Third, we evaluated the determinants of carbon and ESG performance across our entire sample of survey respondents and non-respondents. We found that the ESG named funds had similar emissions intensities and inconsistent ESG performance, across three major external rating providers, relative to non ESG named funds