Greenwashing: Evidence from Hedge Funds. By Hao Liang, Lin Sun and Melvyn Teo. Singapore Management University, Fudan University


HAO LIANG, Singapore Management University
LIN SUN, Fudan University
MELVYN TEO, Singapore Management University

Globally, over US$30 trillion assets are committed to socially responsible investing (SRI), an investment approach that seeks to include environmental, social, and governance (ESG) factors in investment decisions. For investment managers, a popular way to publicly signal one’s commitment to SRI is to endorse the United Nations Principles for Responsible Investment (PRI). Given the unprecedented interest in responsible investment by asset owners, one concern is that some fund managers may deceptively endorse the PRI to attract flows from responsible investors while not honoring their promise of incorporating ESG into their investment decisions.

In a study of hedge funds around the world, the researchers find that a significant number of hedge funds which endorse PRI (21%) have inadequately low ESG exposure through their portfolio holdings. These low-ESG signatories (“greenwashing funds”) subsequently underperform high-ESG signatories and nonsignatory hedge funds in generating financial returns. These greenwashing funds have poor governance, weak incentive alignment, and greater operational risk, but attract significantly more flows from asset owners than do nonsignatories.

Implications for family enterprises:
As responsible investment is becoming increasingly popular among family businesses and family offices, many of these asset owners are looking for exemplars, such as PRI signatories, to guide their investment. These results raise doubts as to whether these signatories are exemplars of responsible investment, and raises the need for investors to maintain scrutiny over their investments. One way is to conduct in-depth due diligence and leverage different ESG ratings to better understand whether their investment managers indeed “walk the talk.”

Source: Liang, Hao and Sun, Lin and Teo, Melvyn, Greenwashing: Evidence from Hedge Funds 

Available at SSRN: or