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Can investors curb greenwashing?

Author

Listed:
  • Fanny Cartellier

    (UZH - Universität Zürich [Zürich] = University of Zurich)

  • Peter Tankov

    (CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - GENES - Groupe des Écoles Nationales d'Économie et Statistique - X - École polytechnique - IP Paris - Institut Polytechnique de Paris - ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - GENES - Groupe des Écoles Nationales d'Économie et Statistique - IP Paris - Institut Polytechnique de Paris - CNRS - Centre National de la Recherche Scientifique)

  • Olivier David Zerbib

    (CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - GENES - Groupe des Écoles Nationales d'Économie et Statistique - X - École polytechnique - IP Paris - Institut Polytechnique de Paris - ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - GENES - Groupe des Écoles Nationales d'Économie et Statistique - IP Paris - Institut Polytechnique de Paris - CNRS - Centre National de la Recherche Scientifique)

Abstract

We show how investors with pro-environmental preferences and who penalize revelations of past environmental controversies impact corporate greenwashing practices. Through a dynamic equilibrium model, we characterize firms' optimal environmental communication, green investments, and greenwashing policies, and we explain the forces driving them. Notably, under a condition that we explicitly characterize, companies greenwash to inflate their environmental rating above their fundamental environmental value, with an effort and impact increasing with investors' proenvironmental preferences. However, investment decisions that penalize greenwashing, policies increasing transparency, and environment-related technological innovation contribute to mitigating corporate greenwashing. We provide empirical support for our results.

Suggested Citation

  • Fanny Cartellier & Peter Tankov & Olivier David Zerbib, 2025. "Can investors curb greenwashing?," Post-Print hal-05415062, HAL.
    • Handle: RePEc:hal:journl:hal-05415062
    DOI: 10.1016/j.jedc.2025.105195
    Note: View the original document on HAL open archive server: https://hal.science/hal-05415062v1
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