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Incentive or catering effect of environmental subsidies? Evidence from ESG reports on greenwashing

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  • Liu, Guangrui
  • Fang, Ying
  • Qian, Hao
  • Ding, Zhigang
  • Zhang, Alex
  • Zhang, Songlin

Abstract

This study examines how government environmental subsidies impact firm environmental, social, and governance (ESG) information disclosure by focusing on incentive-driven and catering effects. Using data from Chinese listed companies (2011−2021), we develop an ESG report greenwashing catering index. We show that these subsidies generally promote greenwashing in ESG disclosures, with the catering effect outweighing the incentive effect. This is driven mainly by increased investor sentiment, analyst attention and risk-taking capacity following subsidy receipt. Management's greenwashing is amplified by executives' political connections and is more prevalent in the sample of heavy polluters, state-owned enterprises, firms under strong environmental regulation, firms exhibiting voluntary disclosure and firms with poor ESG performance. Overall, we reveal the catering effect of ESG reporting on greenwashing through government environmental subsidies and introduce a new theoretical perspective on such greenwashing.

Suggested Citation

  • Liu, Guangrui & Fang, Ying & Qian, Hao & Ding, Zhigang & Zhang, Alex & Zhang, Songlin, 2025. "Incentive or catering effect of environmental subsidies? Evidence from ESG reports on greenwashing," International Review of Financial Analysis, Elsevier, vol. 103(C).
    • Handle: RePEc:eee:finana:v:103:y:2025:i:c:s1057521925003291
    DOI: 10.1016/j.irfa.2025.104242
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