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Can investors curb greenwashing?

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  • Cartellier, Fanny
  • Tankov, Peter
  • Zerbib, Olivier David

Abstract

We show how investors with pro-environmental preferences and who penalize revelations of past environmental controversies impact corporate greenwashing practices. Through a dynamic equilibrium model, we characterize firms' optimal environmental communication, green investments, and greenwashing policies, and we explain the forces driving them. Notably, under a condition that we explicitly characterize, companies greenwash to inflate their environmental rating above their fundamental environmental value, with an effort and impact increasing with investors' pro-environmental preferences. However, investment decisions that penalize greenwashing, policies increasing transparency, and environment-related technological innovation contribute to mitigating corporate greenwashing. We provide empirical support for our results.

Suggested Citation

  • Cartellier, Fanny & Tankov, Peter & Zerbib, Olivier David, 2025. "Can investors curb greenwashing?," Journal of Economic Dynamics and Control, Elsevier, vol. 180(C).
    • Handle: RePEc:eee:dyncon:v:180:y:2025:i:c:s0165188925001617
    DOI: 10.1016/j.jedc.2025.105195
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    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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