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Why Comparability is a Greater Problem Than Greenwashing in ESG ETFs

13(2) William & Mary Business Law Review 441 (2022)
2021
  • 0
    Citations
  • 2,915
    Usage
  • 3
    Captures
  • 0
    Mentions
  • 0
    Social Media
Metric Options:   Counts1 Year3 Year

Metrics Details

  • Usage
    2,915
    • Abstract Views
      2,294
    • Downloads
      621
  • Captures
    3
    • Readers
      3
      • SSRN
        3
  • Ratings
    • Download Rank
      87,381

Paper Description

This article argues that comparability in environmental, social, and governance (ESG) exchange traded funds (ETFs) is a much greater problem than greenwashing. Rising demand for sustainable investment products in recent years has been met with an explosion in ESG ETF varieties, and numerous ESG-themed funds have captured massive capital inflows. There is little evidence, however, that deceptive “greenwashing” is widespread in ETFs. ETF issuers face significant reputational costs from such behavior, and there are effectively no consumer switching costs for hyper-liquid, easily accessible ETFs. While non-deceptive practices of asset-managers are observable in the zero-sum, highly competitive, asset management game of capturing new ESG-directed capital flows, the subjectivity that ETF issuers use to integrate ESG considerations into the composition of underlying ETF holdings is so disparate that investors face tremendous information acquisition and synthesis costs, and difficulty comparing products. This dilemma grows as product choice expands. ESG ETFs also create unique issuer and commercial index provider conflicts. An investor focused regulatory framework for ESG ETFs would aid comparability, standardization, and consistent product marketing presentation. To this end, this article builds on the author’s prior work on comparative complexity in ETFs by advancing three immediate measures to improve comparability and facilitate more efficient capital allocation in ESG ETF varieties: first, require justification of a fund’s usage of ESG terminology in its name through specific ETF disclosures; second, standardize ESG measurement metrics; and third, mandate uniform information presentation layouts on ETF issuer websites.

Bibliographic Details

Ryan Clements

sec; securities; investment funds; greenwashing; governance; social; environmental; esg; exchange traded fund; etf

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