Greenwashing: Motivations, causes and consequences

We discuss motives and outcomes of corporate greenwashing as well as factors that contribute to it. We argue that in the presence of benefits accrued to corporate social responsibility, economic agents with short-term horizons may be incented to engage in greenwashing. Motivated by a desire to mispresent their brown product as green, and cast doubt on the green product’s CSR claims, and to make it difficult for the markets to separate a firm’s genuine commitment to CSR from a competitor’s false claims, the greenwashing firm aims to extract the benefits of sustainable practices without accruing its attendant costs. For such firms, success is attained when the market’s confidence in sustainability claims is shaken and price becomes the the sole differentiator for some consumers who have lost faith in sustainability claims. Our empirical results lend support to the notion that greenwashing creates a negative sentiment toward the business environment and makes it more opaque.