Nearly all of the 100 largest companies in Japan, France, and the United Kingdom — and the vast majority of such companies in the United States — issue sustainability reports. These very high reporting rates reflect increasing pressure on companies from stakeholders — including investors, consumers, governments, and civil society — to be more transparent about their environmental impacts.
Does all this environmental information provide greater corporate accountability by accurately portraying companies’ environmental impacts? Or is this just symbolic action where companies aim to merely appear accountable but are actually engaging in greenwashing, creating an overly optimistic impression of their environmental performance by selectively disclosing their inconsequential environmental indicators while concealing the more consequential ones? Concerns about greenwashing are widespread, ranging from skeptical environmental nongovernmental organizations that offer greenwashing awards and Oscars and even a game to detect greenwashing, to media accounts questioning the legitimacy of corporate green branding and lobbying efforts, to the government in the US and elsewhere issuing policies that seek to mitigate the most blatant forms of greenwashing.
In an article forthcoming in Organization Science, we provide the first systematic evidence of how the global environmental movement affects the authenticity of corporate environmental transparency.
We analyzed the environmental disclosures of thousands of companies headquartered in 46 countries during 2005-2008, a period when such disclosures grew substantially among many global corporations. We identified several organizational and institutional features that influence whether companies disclosures convey accountability or mere symbolism. We measured a particular type of corporate greenwashing that we termed selective disclosure, which occurs when a company’s environmental disclosures creates an overly optimistic impression of its environmental performance by divulging many relatively inconsequential environmental indicators but not the more consequential ones. Our results suggest that scrutiny from civil society and other stakeholders and the spread of global norms of transparency are key factors that affect whether companies are more or less likely to greenwash by selectively disclosing their environmental impacts.
The role of scrutiny
While companies with better environmental performance might greenwash less because they have less to hide, poor performers that might have more reputation to gain by greenwashing tend to be more highly scrutinized by regulators, civil society, and other stakeholders, which makes it more difficult to get away with it. We find that this scrutiny effect trumps the enticement to bolster reputations: companies causing more environmental damage actually exhibit less greenwashing than companies with better environmental performance.
In addition, institutional features that bolster civil society scrutiny appear to further dissuade environmentally damaging companies from greenwashing. First, environmental activists exert greater influence on corporate behavior by magnifying individual voice and intensifying societal attention on the company. Second, citizens and the media are able to scrutinize corporate behavior and speak up about it. Companies with poor environmental performance are more salient to civil society actors and face greater risk of being caught for greenwashing—and our findings show that these firms are especially less likely to engage in greenwashing in countries with many environmental NGOs or that provide strong civil liberties and political rights.
The influence of norms
Companies’ greenwashing behavior is also influenced by the extent to which their headquarters country — and thus a company’s corporate leaders — is exposed to global norms such as strong expectations of corporate environmental accountability and transparency. Accordingly, we find that companies with poor environmental performance that are headquartered in more globalized countries are especially deterred from greenwashing.
Furthermore, companies also gain exposure to environmental transparency norms when their shares are listed on foreign stock exchanges. Such listings typically require companies to be more transparent about their accounting policies, board and management structure, and ownership structure. Many managers of foreign-listed corporations come to internalize these transparency norms and practices as a legitimate and appropriate behavior expected of companies, which consequently delegitimizes selective disclosure. And companies with poor environmental performance are particularly attuned to regulatory signals and societal normative expectations, making them particularly attuned to these norms. Indeed, we find especially low levels of greenwashing among companies with poor environmental performance that are listed on foreign stock exchanges.
Our research promotes a deeper understanding of global environmental movements and civil society, and the role of scrutiny and norms in shaping corporate behavior. Although prior studies have stressed the importance of institutional pressures, few have disentangled the underlying mechanisms. We distinguish scrutiny and normative mechanisms, and identify several sources of these mechanisms across different types of political and economic systems.
At a more practical level, by promoting a better understanding about which companies’ environmental reports are more likely to reflect accountability or symbolism, programs that guide and encourage environmental disclosure can tailor their requirements in a cost-effective manner for companies embedded in different institutional environments.
This post appeared originally at Work in Progress and at LSE Business Review, and is based on “Scrutiny, Norms, and Selective Disclosure: A Global Study of Greenwashing,” forthcoming in Organization Science.
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Christopher Marquis – Cornell University
Christopher Marquis is the Samuel C. Johnson Professor in Global Sustainable Enterprise at the Johnson Graduate School of Management at Cornell University. His primary teaching and research focus is the sustainability and shared value strategies of global corporations, with an emphasis on firms in China. He received a PhD in Sociology and Organizational Behavior from the University of Michigan.
Michael Toffel – Harvard Business School
Michael Toffel is a Professor of Business Administration at the Harvard Business School. His research evaluates the effectiveness of environmental, health, and safety programs and regulations in the United States and in global supply chains. He received a PhD in Business Administration from the University of California at Berkeley.
Yanhua Zhou – Harvard University
Yanhua Zhou is a doctoral candidate in the joint program in Sociology and Organizational Behavior at Harvard University. Her research focuses primarily on corporate social practices and corporate sustainability.