Work

Greening the portfolio: The role of environmental innovation, clean production, and controversy avoidance in sustainable SFDR fund selection

Year: 2025

Type: article

Abstract: The Sustainable Finance Disclosure Regulation (SFDR) plays a key role in increasing transparency and reducing information asymmetry in the EU fund management industry. This study examined the impact of corporate environmental commitment and controversies on portfolio selection within the SFDR fund categories, particularly Article 8 and 9 funds. It explored whether sustainable fund managers prioritize companies with green innovation and cleaner production while avoiding controversial sectors and companies involved in ESG controversies. Using quantile estimation, this study finds mixed results in the factors that may explain variations (both positive and negative) in the frequency that corporations are included in EU sustainable fund categories. Our findings highlight the significance of resource use and the controversial sectors for Article 8 funds, and asymmetric relationships in the environmental innovation, resource use, and controversial sectors depending on the quantile analyzed for Article 9 funds. These mixed results demonstrate that the decision-making process of fund managers regarding the inclusion or exclusion of assets in EU sustainable fund portfolios involves not only variables related to Principal Adverse Impacts but also other factors, making the process significantly more complex.

Source: Green Finance

DOI: 10.3934/gf.2025019

Authors: Susana Martinez-Meyers, Idoya Ferrero-Ferrero, María Jesus Muñoz-Torres

Institution: Universitat Jaume I

Language: English

Topic: Sustainable Finance and Green Bonds

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: diamond

Funders: Generalitat Valenciana, HORIZON EUROPE Framework Programme

Award: G8908040012