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Greenwashing in environmental, social and governance disclosures

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  • Yu, Ellen Pei-yi
  • Luu, Bac Van
  • Chen, Catherine Huirong

Abstract

The environmental, social, and governance (ESG) data provided in firms’ sustainability reports is often unaudited. If ESG information disclosed by firms is not reliable, a firm’s greenwashing behavior can be a barrier to integrating ESG factors into investment decisions. In this paper, we study mechanisms to lessen firms’ greenwashing behavior in ESG dimensions holistically. Firstly, we identify “greenwashers” as firms which seem very transparent and reveal large quantities of ESG data but perform poorly in ESG aspects. By creating peer-relative greenwashing scores for a cross-country dataset comprised by 1925 large-cap firms, we measure the extent to which large-cap firms engage in greenwashing. We find evidence that greenwashing behavior in ESG dimensions can be deterred by scrutiny from (a) independent directors, (b) institutional investors, (c) influential public interests via a less corrupted country system, and (d) being cross-listed. Our results suggest that the two firm-level governance factors are most effective at attenuating firms’ misleading disclosure relating to ESG dimensions.

Suggested Citation

  • Yu, Ellen Pei-yi & Luu, Bac Van & Chen, Catherine Huirong, 2020. "Greenwashing in environmental, social and governance disclosures," Research in International Business and Finance, Elsevier, vol. 52(C).
    • Handle: RePEc:eee:riibaf:v:52:y:2020:i:c:s0275531919309523
    DOI: 10.1016/j.ribaf.2020.101192
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    More about this item

    Keywords

    Greenwashing; ESG disclosure; ESG performance; Sustainability; Stakeholder engagement; Corporate governance;
    All these keywords.

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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