We construct a novel measure to identify green window dressing in mutual funds by comparing the hypothetical returns-based ESG measure imputed from disclosed holdings of funds with the fund’s actual returns-based ESG measure. We find that, since 2016, a substantial 15% of funds green-dress. We also find green dressing is associated with higher self-proclaimed ESG commitment, poor past performance, and weak oversight. Moreover, green-dressing funds attract comparable flows as genuinely green funds, indicating that investors are unable to differentiate between them. However, green dressers exhibit inferior performance relative to genuinely green funds. Our results provide valuable insights for investors as well as for regulators who seek to detect ESG-related misconduct.
