Greenwashing

62 Pages Posted: 23 Jun 2020 Last revised: 10 Mar 2021

See all articles by Hao Liang

Hao Liang

Singapore Management University - Lee Kong Chian School of Business; European Corporate Governance Institute (ECGI)

Lin Sun

Fudan University

Melvyn Teo

Singapore Management University - Lee Kong Chian School of Business

Date Written: May 26, 2020

Abstract

We find that a non-trivial number of hedge funds that endorse the United Nations Principles for Responsible Investment (PRI) indulge in greenwashing. Hedge funds that greenwash underperform both genuinely green and nongreen funds after adjusting for risk. Consonant with an agency explanation, greenwashers (i) underperform more when incentive alignment is poor, (ii) trigger more regulatory violations, and (iii) report more suspicious returns. By exploiting the staggered adoption of stewardship codes that mitigate agency problems, we provide causal evidence that relates agency to greenwashing and fund underperformance. Investors, however, do not appear to discriminate between greenwashers and genuinely green funds.

Keywords: Principles for Responsible Investment, Greenwash, Hedge Funds, Walk the Talk, Agency Problems, Operational Risk, ESG, Stewardship

JEL Classification: G23, Q56

Suggested Citation

Liang, Hao and Sun, Lin and Teo, Melvyn, Greenwashing (May 26, 2020). Available at SSRN: https://ssrn.com/abstract=3610627 or http://dx.doi.org/10.2139/ssrn.3610627

Hao Liang

Singapore Management University - Lee Kong Chian School of Business ( email )

469 Bukit Timah Road
Singapore 912409
Singapore

HOME PAGE: http://business.smu.edu.sg/faculty/profile/130396/LIANG-Hao

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Lin Sun

Fudan University ( email )

220 Handan Road
Shanghai, 200433
China

Melvyn Teo (Contact Author)

Singapore Management University - Lee Kong Chian School of Business ( email )

50 Stamford Road
Singapore, 178899
Singapore
+65 6828 0735 (Phone)
+65 6822 0777 (Fax)

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