Imposing Sustainability Disclosure on Investors: Does it Lead to Portfolio Decarbonization?

Using a wide sample of international investment funds, we document that the recent introduction of the EU Sustainable Finance Disclosure Regulation (SFDR)—the first wide-ranging sustainability disclosure mandate ever imposed on investment funds—was followed by a decarbonization of the investment portfolios of EU funds that claim to invest based on sustainability criteria. Additional tests suggest that the lower level of emissions is due to changes in funds’ investment decisions as well as to changes in firm-level emissions. Our results inform the debate on the role of mandatory disclosure for institutional investors on the current efforts to decarbonize the economy.