62 Pages Posted: 23 Jun 2020 Last revised: 10 Mar 2021
Date Written: May 26, 2020
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: Suggested Citation