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

Susana Martinez-Meyers; Idoya Ferrero-Ferrero; María Jesus Muñoz-Torres; Susana Martinez-Meyers; Idoya Ferrero-Ferrero; María Jesus Muñoz-Torres

doi:10.3934/GF.2025019

Green Finance

2025, Volume 7, Issue 3: 495-519. doi: 10.3934/GF.2025019

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Research article

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

1.
IE Business School, Calle de María de Molina, 31, 28006 Madrid, Spain
2.
Sustainability of Organizations and CSR Management Research Group-IUDESP, Department of Finance and Accounting, Universitat Jaume I, Campus de Riu Sec, 12071, Castellón, Spain

Received: 10 March 2025 Revised: 30 June 2025 Accepted: 01 July 2025 Published: 04 August 2025
JEL Codes: G11, Q56, Q58

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.
- environmental,
- social,
- and governance (ESG) performance,
- environmental innovation,
- clean production,
- ESG controversies,
- mutual funds,
- sustainable funds,
- sustainable regulation,
- Sustainable Finance Disclosure Regulation (SFDR)
Citation: Susana Martinez-Meyers, Idoya Ferrero-Ferrero, María Jesus Muñoz-Torres. Greening the portfolio: The role of environmental innovation, clean production, and controversy avoidance in sustainable SFDR fund selection[J]. Green Finance, 2025, 7(3): 495-519. doi: 10.3934/GF.2025019

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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.

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