The AI Sustainability Paradox: How Verification and Regulation Synergize to Curb Greenwashing in Emerging Markets

ABSTRACT Artificial intelligence (AI) reflects a paradox for corporate sustainability: it provides tools for genuine socio‐economic improvement and enables greenwashing at scale. This study examines this duality in emerging Asian markets, where rapid AI adoption coincides with evolving regulatory regimes. Using a panel of 1260 firm‐years across six economies, we construct a firm‐level green washing index and estimate panel models with Mondale corrections. The results show that AI adoption is positively associated with green washing intensity. Crucially, this risk is disciplined by two forces: verified ESG performance and regulatory stringency. We demonstrate their complementarity; the disciplining effect of verification is substantially stronger where regulatory enforcement is credible. Furthermore, firm valuation rewards verified ESG performance, not AI adoption itself. These findings reframe verification and regulation as synergistic rather than independent safeguards, advancing theory on disclosure credibility. They also provide actionable insights for policymakers designing governance regimes and for investors seeking to distinguish substantive sustainability from AI‐enabled impression management.