Blockchain-enabled green Loans: Mitigating greenwashing through inventory and emission signaling

Although green loans are widely used to support capital-constrained supply chains, some firms engage in greenwashing (GW) to exploit lower interest rates. To address this, we propose that firms can signal their green credentials through two operational indicators—inventory transactions and carbon emissions—which can be monitored using blockchain technology, thereby enhancing signal observability and reliability. To analyze the effectiveness of inventory signaling (IS) and emission signaling (ES) mechanisms, we develop a signaling game between a bank and a finance-constrained firm that can be one of two types (green or brown), differentiated by production risk and emission intensity. We derive separating equilibria (SE) under both mechanisms and analyze green firms’ mechanism selection across different scenarios. Our findings show that under the IS mechanism, an SE always exists—green firms must increase procurement to credibly signal their type. Under the ES mechanism, an SE exists only if emission intensity is below a threshold—green firms must reduce output and associated emissions to signal their type. When evaluating mechanisms based on signal cost, increasing production risk differences favors the IS mechanism, while greater differences in emission intensity favor the ES mechanism. When adopting either a carbon emission criterion or an interest rate pricing rule that shifts from risk-linked to emission-linked pricing, the advantage of the ES mechanism expands further. However, higher fixed and variable costs of blockchain implementation in the ES mechanism reduce its adoptability. In an extension, we apply the ES mechanism to sustainability-linked loans and derive a feasible emission target range within which green firms can simultaneously deter GW and maintain positive profits. Finally, we provide managerial insights to enhance the effectiveness of signaling mechanisms in practice.