Olivier-David Zerbib (CREST, ENSAE, IPP)

Title : Can Investors Curb Greenwashing?

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 with information asymmetry, we characterize firms' optimal environmental communication, emissions reduction, and greenwashing policies, and we explain the forces driving them. Notably, under a condition that we explicitly characterize, companies greenwash to inflate their environmental score above their fundamental environmental value, with an effort and impact increasing with investors’ pro-environmental 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.

A joint work with Fanny Cartellier (IPP) and Peter Tankov (CREST, ENSAE, IPP).

Link to the working paper