The root cause of greenwashing

Some investors just get a 'warm glow' holding sustainable assets

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(Mark Hulbert, an author and longtime investment columnist, is the founder of the Hulbert Financial Digest; his Hulbert Ratings audits investment newsletter returns.)

CHAPEL HILL, N.C. (Callaway Climate Insights) — Investors aren’t as vulnerable to greenwashing as they otherwise appear.

That’s the implication of a new study that recently began circulating in academic circles. The study, titled “The Effects of Regulating Greenwashing,” was conducted by Hunt Allcott, co-director of Stanford University’s Environmental and Energy Policy Analysis Center; Mark Egan of Harvard’s Business School, Paul Smeets of the University of Amsterdam, and Hanbin Yang of the London Business School.

The researchers focused on whether the March 2021 implementation of Europe’s Sustainable Finance Disclosure Regulation (SFDR) had any impact on the behavior of mutual fund investors. Up until that month, European mutual funds were given wide latitude in deciding whether to classify themselves as “dark green” (100% invested in companies considered sustainable), “light green” (invested in companies that promote environmental characteristics), or neither. Virtually everyone agrees that, prior to that date, greenwashing was rampant.