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What you see is not what you get: ESG scores and greenwashing risk

Author

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  • Kathan, Manuel C.
  • Utz, Sebastian
  • Dorfleitner, Gregor
  • Eckberg, Jens
  • Chmel, Lea

Abstract

This paper shows that ESG scores capture a company’s greenwashing behavior. Greenwashing accusations are most prevalent among large companies with high ESG scores. We empirically employ a novel theoretical model that distinguishes between the communication of a company’s environmental efforts (apparent environmental performance) and its actual environmental impact (real environmental performance). The correlation of the apparent (real) environmental performance with ESG scores is significantly positive (negative). Therefore, ESG scores are unsuitable for measuring real environmental impact. Thus, investors focusing on high ESG-rated companies may unknowingly increase their greenwashing risk exposure, and academics may use misleading information to assess greenwashing risk.

Suggested Citation

  • Kathan, Manuel C. & Utz, Sebastian & Dorfleitner, Gregor & Eckberg, Jens & Chmel, Lea, 2025. "What you see is not what you get: ESG scores and greenwashing risk," Finance Research Letters, Elsevier, vol. 74(C).
    • Handle: RePEc:eee:finlet:v:74:y:2025:i:c:s1544612324017392
    DOI: 10.1016/j.frl.2024.106710
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    References listed on IDEAS

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    Cited by:

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    2. Yuan Li & Yongchun Huang & Yupeng Zhao & Zi Ye, 2025. "The Impact of Corporate Environmental, Social, and Governance Performance on Total Factor Productivity: An Analysis of the Moderating Effect of Environmental Uncertainty," Sustainability, MDPI, vol. 17(19), pages 1-24, September.
    3. Tang, Iengchuo & Dias, Roshanthi & Mo, Di & Tian, Xiao, 2025. "When green turns brown: Green premium revisited," Finance Research Letters, Elsevier, vol. 86(PA).
    4. Shen, Ling & Yang, Xiaozhong & Ma, Guangcheng, 2025. "Can companies’ participation in ESG ratings improve green innovation efficiency? Evidence from Chinese A-share listed companies," Finance Research Letters, Elsevier, vol. 78(C).
    5. Mahdi Ghaemi Asl, 2025. "A novel AI-driven approach to greenwashing: breakthroughs in the future fit between domain-specific Islamic enterprises with varying developmental progress and ESG landscapes," Future Business Journal, Springer, vol. 11(1), pages 1-38, December.
    6. Wang, Lei & Sha, Yifan & Li, Yue & Wang, Tongyu, 2025. "The double-edged effects of the ESG rating on analyst forecast performance," International Review of Economics & Finance, Elsevier, vol. 103(C).
    7. Anna Lewandowska & Katarzyna Joachimiak-Lechman & Jolanta Baran & Joanna Kulczycka, 2025. "Electricity-Related Emissions Factors in Carbon Footprinting—The Case of Poland," Energies, MDPI, vol. 18(15), pages 1-29, August.
    8. Asaad Mubarak Hussien Musa & Rayan Alqubaysi & Hassan Ali Alqahtani, 2025. "The Effect of Board Characteristics on ESG Commitment in Saudi Arabia: How Diversity, Independence, Size, and Expertise Shape Corporate Sustainability Practices," Sustainability, MDPI, vol. 17(12), pages 1-22, June.
    9. Li, Yue & Deng, Zhongwen, 2025. "Can environmental regulation inhibit enterprises` greenwashing? Evidence from implementing the New Environment Protection Law," Finance Research Letters, Elsevier, vol. 81(C).
    10. Klimenko, Mikhail & Romanyuk, Kirill, 2025. "Investor perception of ESG-linked credit risk during the COVID-19 pandemic for U.S. and European firms," Finance Research Letters, Elsevier, vol. 86(PB).

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