Defining greenwashing

We propose a precise definition of greenwashing in asset management that combines ESG self-labels, sustainability scores of portfolio holdings, and funds' voting behavior. Armed with this definition, we are able to quantify the prevalence of greenwashing in the US mutual fund industry. Although self-labeled ESG funds dominate non-ESG funds in terms of ESG ratings and voting support for ESG proposals, 34\% of them are greenwashers according to our definition. Greenwashers are more likely to underperform, tend to belong to larger and younger fund families, and are less likely to be offered by signatories of the United Nations Principles for Responsible Investment. Importantly, while retail investors do not distinguish between greenwashers and true ESG funds, institutional investors appear to discriminate between them. Our results suggest that while a majority of ESG funds deliver on their promise, concerns about greenwash in the asset management industry are justified. Moreover, regulatory efforts should consider various aspects of ESG investing, not just ratings, to facilitate retail investors' judgement.