Buying green, not selling brown. Portfolio substance behind SFDR labels

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Abstract
We ask whether Sustainable Finance Disclosure Regulation (SFDR) labels certify pre-existing portfolio differences or induce portfolio change. We match 718 Article 8 and Article 9 funds to never-classified peers on size, age, fees, and flows, and compare portfolio composition and trading direction across 4,666 European UCITS equity funds over 33 quarters of position-level holdings data. Labeled funds hold cleaner portfolios. Their carbon intensity is 26.1 tonnes of CO2 per million dollars of investee revenue lower and their ESG risk percentile is 6.2 points lower, and both differences are significant at the 1 percent level. They do not rebalance more or hold more concentrated portfolios. Instead, they allocate 0.8 percentage points more of their rebalancing activity to buying green names, while showing no significant difference in brown holdings or brown selling relative to peers. These gaps were already visible before SFDR enforcement, when no fund yet carried an SFDR label. The evidence points to certification of pre-existing portfolio substance rather than regulation-induced portfolio change.

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