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The Psychology of Greenwashing and ESG Disclosures

In: Following the Crowd: Psychological Drivers of Herding and Market Overreaction

Author

Listed:
  • Kok Loang Ooi

    (Universiti Malaysia)

  • Norazlin Binti Ab Aziz

    (Universiti Malaysia)

  • Wee Yeap Lau

    (Universiti Malaysia)

Abstract

This chapter examines the intricate psychology of greenwashing and its implications for environmental, social, and governance (ESG) disclosures in the financial markets. It traces the historical roots of greenwashing, highlights the various deceptive practices used by corporations to manipulate stakeholders, and examines how these practices undermine market integrity and investor confidence. Through case studies such as H&M’s Conscious Collection and Volkswagen’s Clean Diesel scandal, the chapter illustrates the far-reaching consequences of greenwashing on corporate reputation, investor trust, and long-term financial performance. It also examines the crucial role of investors in evaluating ESG disclosures, highlighting the importance of third-party assurance and credible reporting to mitigate the risks of greenwashing. The discussion extends to the challenges faced by regulators in addressing greenwashing, analysing global efforts including the IFRS Sustainability Disclosure Standards and EU directives, while calling for a unified international legal framework. The chapter concludes by stressing the importance of enhancing ESG disclosure quality, promoting corporate accountability, and advancing sustainable finance to build resilient and trustworthy financial markets.

Suggested Citation

  • Kok Loang Ooi & Norazlin Binti Ab Aziz & Wee Yeap Lau, 2025. "The Psychology of Greenwashing and ESG Disclosures," Springer Books, in: Following the Crowd: Psychological Drivers of Herding and Market Overreaction, chapter 0, pages 189-198, Springer.
    • Handle: RePEc:spr:sprchp:978-981-95-0792-4_14
    DOI: 10.1007/978-981-95-0792-4_14
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