The illusion of AI: how AI washing impedes green technology innovation

Artificial intelligence (AI) washing refers to firms’ deceptive exaggeration of AI capabilities, posing an emerging risk to sustainable development. Using panel data from Chinese A-share listed firms from 2012 to 2023, we find that AI washing significantly inhibits green technology innovation. Mechanism tests reveal that AI washing diverts managerial environment attention and reduces green investment. The effect is stronger in private enterprises, firms with weaker external oversight, regions with weak regulation, and low-tech and low-pollution industries. Further analysis reveals temporal dynamics: AI washing temporarily boosts ESG ratings but undermines them in the long run. Our findings highlight the unintended consequences of digital-era greenwashing and inform policies for AI governance and sustainable innovation.