The green fog: Environmental rating disagreement and corporate greenwashing

We investigate whether the environmental rating disagreement (ERD) would influence future corporate greenwashing behavior. We find that ERD would increase the future probability of corporate greenwashing, mainly through mechanisms of agency costs and corporate information opacity. The relationship between ERD and corporate greenwashing is stronger in heavily -polluted firms, and would be significantly affected by internal incentives. In the presence of ERD, corporate greenwashing of firms with higher internal supervision intensity and external investor attention exhibits a smaller or even insignificant increase. Overall, our findings indicate that greenwashing could be curbed through the unification of environmental rating standards, the improvement of internal supervision improvement, and the expansion of external monitoring.

Automated summary

We examine the impact of environmental rating disagreement (ERD) on future corporate greenwashing behavior. Our findings suggest that ERD increases the likelihood of corporate greenwashing, primarily through agency costs and corporate information opacity mechanisms. The relationship between ERD and corporate greenwashing is stronger in heavily-polluted firms and is also significantly influenced by internal incentives. In the presence of ERD, firms with higher internal supervision intensity and external investor attention exhibit a smaller or even insignificant increase in greenwashing. Overall, our research highlights the importance of unifying environmental rating standards, improving internal supervision, and expanding external monitoring to curb greenwashing.