Peeking into Corporate Greenwashing through the Readability of ESG Disclosures

Peng Hu, Xuming Li, Nian Li, Yiying Wang () and Derek D. Wang
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Peng Hu: School of Business Administration, Capital University of Economics and Business, 121 Zhangjialukou, Beijing 100070, China
Xuming Li: School of Business Administration, Capital University of Economics and Business, 121 Zhangjialukou, Beijing 100070, China
Nian Li: School of Business Administration, Capital University of Economics and Business, 121 Zhangjialukou, Beijing 100070, China
Yiying Wang: School of Business Administration, Capital University of Economics and Business, 121 Zhangjialukou, Beijing 100070, China
Derek D. Wang: School of Business Administration, Capital University of Economics and Business, 121 Zhangjialukou, Beijing 100070, China

Sustainability, 2024, vol. 16, issue 6, 1-23

Abstract: Faced with the widespread issue of greenwashing, there is a pressing need for an effective approach to assess the extent of corporate involvement in such hypocritical practices. This study aims to address this concern by examining the association between corporate ESG disclosures’ readability and greenwashing. We gauge the readability using a modified Fog Index and construct a company’s peer-relative greenwashing score based on data from third-party databases. The empirical analysis reveals a negative relationship between the level of corporate greenwashing and the readability of its ESG disclosures, suggesting that companies whose ESG disclosures are more readable are less likely to engage in greenwashing. This negative relationship is particularly pronounced in companies characterized by higher levels of information asymmetry. However, the relationship is weaker after 2018, when the “Code of Corporate Governance for Listed Companies” was implemented. In conclusion, our research highlights the significance of ESG disclosure readability in effectively conveying and predicting corporate greenwashing practices. This study provides valuable insights for investors seeking to evaluate corporate performance and make well-informed investment decisions.

Keywords: ESG disclosure; readability; greenwashing; textual analysis (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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