Greenwashing in environmental, social and governance disclosures

Ellen Pei-yi Yu, Bac Van Luu and Catherine Huirong Chen

Research in International Business and Finance, 2020, vol. 52, issue C

Abstract: The environmental, social, and governance (ESG) data provided in firms’ sustainability reports is often unaudited. If ESG information disclosed by firms is not reliable, a firm’s greenwashing behavior can be a barrier to integrating ESG factors into investment decisions. In this paper, we study mechanisms to lessen firms’ greenwashing behavior in ESG dimensions holistically. Firstly, we identify “greenwashers” as firms which seem very transparent and reveal large quantities of ESG data but perform poorly in ESG aspects. By creating peer-relative greenwashing scores for a cross-country dataset comprised by 1925 large-cap firms, we measure the extent to which large-cap firms engage in greenwashing. We find evidence that greenwashing behavior in ESG dimensions can be deterred by scrutiny from (a) independent directors, (b) institutional investors, (c) influential public interests via a less corrupted country system, and (d) being cross-listed. Our results suggest that the two firm-level governance factors are most effective at attenuating firms’ misleading disclosure relating to ESG dimensions.

Keywords: Greenwashing; ESG disclosure; ESG performance; Sustainability; Stakeholder engagement; Corporate governance (search for similar items in EconPapers)
JEL-codes: G15 G3 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (114)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:52:y:2020:i:c:s0275531919309523

DOI: 10.1016/j.ribaf.2020.101192

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