Working Paper Series in Economics and Institutions of Innovation,
Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies

Abstract: This paper examines the extent to which the portfolios of green funds differ from conventional funds. We use non-metric multidimensional scaling to analyse 24 549 securities held by 6888 funds traded on European markets as of March 2023. Thisnumerical methodology reduces the fund compositional matrix from thousands ofdimensions to two dimensions, revealing patterns that can be studied graphically.Each fund is classified into three categories by the EU Taxonomy: dark-green,light-green, or conventional funds. With a few exceptions, the results indicate thatthe compositional differences in fund holdings across these three types of funds aresmall: green fund portfolios are largely the same as conventional fund portfolios. Anotable exception are energy sector funds where we find compositional differencesin the holdings of green and conventional funds. Our findings suggest that the EU’sregulatory effort on sustainable finance has not yet delivered on anti-greenwashingobjectives, and that ESG based investing is doin ittle to shift fund allocations.

Keywords: Sustainable finance; investment funds; ESG; Non-metric multidimensional scaling; ordination

JEL-codes: D53; G11; M14

Language: English

28 pages, June 17, 2024

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