Environmental Policy and ESG Greenwashing

Soil is a vital component of the natural environment, yet soil pollution control has recently been a critical bottleneck in environmental protection. Since 2016, China has been implementing the Soil Pollution Prevention and Control Action Plan (SPPCAP), an environmental policy that reinforces the regulation of soil polluters and helps improve the legitimacy of environmental governance. Employing panel data on Chinese listed firms from 2011 to 2021, this study assesses the impact of the SPPCAP on Environmental, Social, and Governance (ESG) greenwashing using a difference-in-differences approach. We find a robust result that the SPPCAP significantly reduces corporate ESG greenwashing. The mechanism tests reveal that the SPPCAP reduces ESG greenwashing by mitigating managerial myopia and promoting clean production strategies from both product and factor dimensions. The heterogeneity analyses indicate that the effect is more pronounced in regions with a better business environment, stricter environmental judicialization, and heavier soil pollution, as well as in more competitive and downstream industries. The additional analysis suggests that reduced ESG greenwashing induced by the SPPCAP contributes to sustainable growth. Our findings highlight the role of soil environmental governance within environmental governance systems and provide evidence on how environmental policies improve substantive ESG performance as a pathway to sustainability-oriented transformation.