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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Martinez-Meyers et al. (2025) studied this question.
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