Beyond Green Labels: Assessing Mutual Funds’ ESG Commitments through Large Language Models

Abstract

This paper investigates whether mutual funds that adopt ESG-related names follow through on the implied increase in ESG commitments. Utilizing Large Language Models (LLMs) to analyze mutual fund prospectuses, we find that, following a name change, funds increase their discussion of ESG and improve their holdings-based ESG scores. While we observe a positive correlation between a fund’s ESG content and its scores, the marginal benefit of additional ESG content diminishes post-name change. Our findings suggest that investors evaluating these funds can use LLMs to gauge a fund’s ESG commitment, especially when traditional ESG metrics are unavailable.