We examine how the substance of ESG disclosures in mutual fund shareholder letters affects investor flows and fund behavior. ESG disclosure is associated with higher fund flows, despite no overall improvement in portfolio ESG scores, a pattern suggestive of greenwashing. However, the average effect masks sharp heterogeneity. Only Opportunistic ESG disclosures (those emphasizing financial value) attract flows, consistent with investors’ value seeking preferences. By contrast, Impact (values-motivated) ESG disclosures do not increase flows but lead to genuine improvements in portfolio ESG scores, while Opportunistic disclosures are followed by declines in portfolio ESG scores. These results show that broad concerns about greenwashing are overstated once we account for disclosure content. Finally, we find that Opportunistic ESG disclosures amplify outflows if subsequent performance disappoints. Overall, our findings highlight that ESG disclosure content is central to understanding investor responses and equilibrium behavior of fund managers.
