This article investigates whether sustainability labels for mutual funds in Europe provide consistent signals regarding funds’ sustainable characteristics. Specifically, we assess the alignment of signals conveyed by third-party and self-declared labels. Among the first typology, we consider labels sponsored by government and nonprofit organizations (GNPOs) alongside Environmental, Social, and Governance (ESG) ratings from commercial data vendors. The latter category includes the Sustainable Finance Disclosure Regulation (SFDR) classification and an ESG-related name. Our findings indicate that equity funds with GNPO labels are more likely to exhibit top-tier ESG ratings and alignment with self-declared sustainability signals, namely Article 9 of SFDR and fund names. Furthermore, holding government and multiple GNPO labels is linked to other signals indicating higher sustainability standards. In addition, funds tend to experience an improvement in Morningstar globes after receiving a GNPO label, consistent with GNPO labels signaling funds of the high-quality type. The results regarding label alignment in fixed-income funds are less conclusive. Our findings underscore the need for credible signals in view of the growing number of sustainability labels available to investors.
AkerlofG. A. (1970). The market for “lemons”: Quality uncertainty and the market mechanism. The Quarterly Journal of Economics, 84(3), 488–500.
2.
AlajoutsijärviK.KettunenK.SohloS. (2018). Shaking the status quo: Business accreditation and positional competition. Academy of Management Learning & Education, 17(2), 203–225.
3.
AmmannM.BauerC.FischerS.MüllerP. (2019). The impact of the Morningstar Sustainability Rating on mutual fund flows. European Financial Management, 25(3), 520–553.
4.
ArbaaO.VaronE. (2019). The performance and fund flows of name-change funds. Journal of Behavioral and Experimental Finance, 22, 7–13.
5.
AtkinsonL.RosenthalS. (2014). Signaling the green sell: The influence of eco-label source, argument specificity, and product involvement on consumer trust. Journal of Advertising, 43(1), 33–45.
6.
BalafoutasL.KerschbamerR. (2020). Credence goods in the literature: What the past fifteen years have taught us about fraud, incentives, and the role of institutions. Journal of Behavioral and Experimental Finance, 26, 100285.
BergF.KölbelJ.RigobonR. (2022). Aggregate confusion: The divergence of ESG ratings. Review of Finance, 26(6), 1315–1344.
9.
BrachS.WalshG.ShawD. (2018). Sustainable consumption and third-party certification labels: Consumers’ perceptions and reactions. European Management Journal, 36(2), 254–265.
10.
BrécardD. (2014). Consumer confusion over the profusion of eco-labels: Lessons from a double differentiation model. Resource and Energy Economics, 37, 64–84.
11.
CastkaP.CorbettC. J. (2016). Governance of eco-labels: Expert opinion and media coverage. Journal of Business Ethics, 135(2), 309–326.
12.
ChatterjiA. K.DurandR.LevineD. I.TouboulS. (2016). Do ratings of firms converge? Implications for managers, investors and strategy researchers. Strategic Management Journal, 37(8), 1597–1614.
13.
ChristensenD. M.SerafeimG.SikochiS. (2022). Why is corporate virtue in the eye of the beholder? The case of ESG ratings. The Accounting Review, 97(1), 147–175.
14.
ConnellyB. L.CertoS. T.IrelandR. D.ReutzelC. R. (2011). Signaling theory: A review and assessment. Journal of Management, 37(1), 39–67.
15.
CooperM. J.GulenH.RauP. R. (2005). Changing names with style: Mutual fund name changes and their effects on fund flows. The Journal of Finance, 60(6), 2825–2858.
16.
CrifoP.DurandR.GondJ. P. (2020). Le rôle des labels dans la finance verte: Construction et régulation d’un marché des labels en France [The role of labels in green finance: Construction and regulation of a label market in France]. Revue d’Economie Financière, 138(2), 209–223.
17.
DarbyM.KarniE. (1973). Free competition and the optimal amount of fraud. Journal of Law and Economics, 16(1), 67–88.
DarnallN.JiH.Vázquez-BrustD. A. (2018). Third-party certification, sponsorship, and consumers’ ecolabel use. Journal of Business Ethics, 150(4), 953–969.
20.
DarnallN.PontingC.Vazquez-BrustD. A. (2012). Why consumers buy green. In Vazquez-BrustD.SarkisJ. (Eds.), Green growth: Managing the transition to a sustainable economy (pp. 287–308). Springer.
DeatonB. J. (2004). A theoretical framework for examining the role of third-party certifiers. Food Control, 15(8), 615–619.
23.
DelmasM. A.BlassV. D. (2010). Measuring corporate environmental performance: The trade-offs of sustainability ratings. Business Strategy and the Environment, 19(4), 245–260.
24.
DelmasM. A.EtzionD.Nairn-BirchN. (2013). Triangulating environmental performance: What do corporate social responsibility ratings really capture?Academy of Management Perspectives, 27(3), 255–267.
25.
DelmasM. A.LessemN. (2017). Eco-premium or eco-penalty? Eco-labels and quality in the organic wine market. Business & Society, 56(2), 318–356.
26.
DesaiV. M. (2018). Third-party certifications as an organizational performance liability. Journal of Management, 44(8), 3096–3123.
27.
DimsonE.MarshP.StauntonM. (2020). Divergent ESG ratings. The Journal of Portfolio Management, 47(1), 75–87.
28.
DrempeticS.KleinC.ZwergelB. (2020). The influence of firm size on the ESG score: Corporate sustainability ratings under review. Journal of Business Ethics, 167(2), 333–360.
29.
El GhoulS.KarouiA. (2021). What’s in a (green) name? The consequences of greening fund names on fund flows, turnover, and performance. Finance Research Letters, 39, 101620.
30.
ErdemT.SwaitJ. (1998). Brand equity as a signaling phenomenon. Journal of Consumer Psychology, 7(2), 131–157.
FonnerR.SylviaG. (2015). Willingness to pay for multiple seafood labels in a niche market. Marine Resource Economics, 30(1), 51–70.
35.
FransenL. (2011). Why do private governance organizations not converge? A political–institutional analysis of transnational labor standards regulation. Governance, 24(2), 359–387.
36.
GallasteguiI. G. (2002). The use of eco-labels: A review of the literature. European Environment, 12(6), 316–331.
37.
GangiF.VarroneN.DanieleL. M.CosciaM. (2022). Mainstreaming socially responsible investment: Do environmental, social and governance ratings of investment funds converge?Journal of Cleaner Production, 135, 131684.
38.
GortonM.ToccoB.YehC. H.HartmannM. (2021). What determines consumers’ use of eco-labels? Taking a close look at label trust. Ecological Economics, 189, 107173.
39.
GraffinS. D.WardA. J. (2010). Certifications and reputation: Determining the standard of desirability amidst uncertainty. Organization Science, 21(2), 331–346.
40.
GutscheG.ZwergelB. (2020). Investment barriers and labeling schemes for socially responsible investments. Schmalenbach Business Review, 72, 111–157.
41.
HahnR.ReimsbachD.KotzianP.FederM.WeißenbergerB. E. (2021). Legitimation strategies as valuable signals in nonfinancial reporting? Effects on investor decision-making. Business & Society, 60(4), 943–978.
42.
HarbaughR.MaxwellJ. W.RoussillonB. (2011). Label confusion: The Groucho effect of uncertain standards. Management Science, 57(9), 1512–1527.
43.
HorneR. E. (2009). Limits to labels: The role of eco-labels in the assessment of product sustainability and routes to sustainable consumption. International Journal of Consumer Studies, 33(2), 175–182.
44.
JahnG.SchrammM.SpillerA. (2005). The reliability of certification: Quality labels as a consumer policy tool. Journal of Consumer Policy, 28(1), 53–73.
NuttavuthisitK.ThøgersenJ. (2017). The importance of consumer trust for the emergence of a market for green products: The case of organic food. Journal of Business Ethics, 140(2), 323–337.
55.
Organisation for Economic Co-Operation and Development. (2020). Sustainable and resilient finance—OECD business and finance outlook 2020. OECD Publishing.
56.
PolidoroF. (2013). The competitive implications of certifications: The effects of scientific and regulatory certifications on entries into new technical fields. The Academy of Management Journal, 56(2), 597–627.
RaoH. (1994). The social construction of reputation: Certification contests, legitimation, and the survival of organizations in the American automobile industry: 1895–1912. Strategic Management Journal, 15(Suppl. 1), 29–44.
59.
ReineckeJ.ManningS.Von HagenO. (2012). The emergence of a standards market: Multiplicity of sustainability standards in the global coffee industry. Organization Studies, 33(5–6), 791–814.
60.
RekkerS. A.HumphreyJ. E.O’BrienK. R. (2021). Do sustainability rating schemes capture climate goals?Business & Society, 60(1), 125–160.
61.
RhodesM. J. (2010). Information asymmetry and socially responsible investment. Journal of Business Ethics, 95(1), 145–150.
62.
RileyJ. G. (1979). Informational equilibrium. Econometrica, 47, 331–359.
63.
SandbergJ.JuravleC.HedesströmT. M.HamiltonI. (2009). The heterogeneity of socially responsible investment. Journal of Business Ethics, 87(4), 519–533.
64.
SemenovaN.HasselL. G. (2015). On the validity of environmental performance metrics. Journal of Business Ethics, 132(2), 249–258.
65.
ShawC.GroeneO.MoraN.SunolR. (2010). Accreditation and ISO certification: Do they explain differences in quality management in European hospitals?International Journal for Quality in Health Care, 22(6), 445–451.
66.
SigurdssonV.LarsenN. M.PálsdóttirR. G.FolwarcznyM.MenonR. V.FagerstrømA. (2022). Increasing the effectiveness of ecological food signaling: Comparing sustainability tags with eco-labels. Journal of Business Research, 139, 1099–1110.
van AmstelM.DriessenP.GlasbergenP. (2008). Eco-labeling and information asymmetry: A comparison of five ecolabels in the Netherlands. Journal of Cleaner Production, 16(3), 263–276.
70.
ZhangX.YinH.ZhaoR. (2021). Consumer willingness to pay for eco-labels in China: A choice experiment approach. Journal of Management Analytics, 8(4), 673–692.
Supplementary Material
Please find the following supplemental material available below.
For Open Access articles published under a Creative Commons License, all supplemental material carries the same license as the article it is associated with.
For non-Open Access articles published, all supplemental material carries a non-exclusive license, and permission requests for re-use of supplemental material or any part of supplemental material shall be sent directly to the copyright owner as specified in the copyright notice associated with the article.
