Can Investors Curb Greenwashing?

Wednesday, 5th of February 2025, 10.30 am – 12 pm

Olivier David Zerbib (CREST) will present the paper “Can Investors Curb Greenwashing”

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, we characterize firms’ optimal environmental communication, green investments, 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.