Research seminar by professor April KLEIN

Department : Accounting and Management Control

Speaker : April KLEIN (Stern School of Business)

Room : building V Ramanantsoa and by Zoom link: https://hec-fr.zoom.us/j/94363575287

“Spillover Effects of the EU Sustainability Finance Disclosure Regulation”

Abstract:

The U.S. mutual fund industry manages nearly $30 trillion in assets, yet sustainability disclosures remain inconsistent due to the lack of regulatory guidance. In contrast, the European Union’s Sustainability Finance Disclosure Regulation (SFDR), effective March 2021, mandates detailed reporting on how EU funds integrate environmental, social, and governance (ESG) factors into investment strategies and assess related risks. We examine whether U.S. asset managers offering both EU- and U.S.-domiciled funds increased the informativeness of sustainability disclosures in their U.S. fund prospectuses following SFDR adoption. Using a difference-in-differences design with Morningstar fund data, we classify disclosure quality in SEC Form 485BPOS filings into ESG Strategy and ESG Risk informativeness. Our results show significant post-SFDR improvements among U.S.-domiciled funds managed by global families relative to domestic-only families: a 6.0% increase in strategy informativeness and a 14.5% increase in risk informativeness. Effects are stronger for ESG-designated funds. These findings provide evidence of a “Brussels effect,” where EU regulations spill over to U.S. practices, and contribute to the literature on the SFDR’s economic consequences. Unlike prior work that studies second-order effects such as fund flows or portfolio changes, we document a first-order impact consistent with SFDR’s goals: improved ESG disclosure quality in mutual fund prospectuses.