For citation:
Nazarova, V. V., Torgachkina, S. A., & Haukka, O. V. (2024). Greenwashing and Corporate Financial Performance: Assessing the Relationship. AlterEconomics, 21(4), 863–882. https://doi.org/10.31063/AlterEconomics/2024.21-4.11
Abstract:
In today’s world, nature conservation and environmental sustainability are becoming increasingly critical for maintaining a business’s competitive advantage. Many companies leverage these factors to enhance their reputation and attract new customers. However, some engage in greenwashing by making misleading or false claims about their environmental achievements. This study aims to analyze the impact of greenwashing practices on the key financial indicators of companies suspected of such behavior. To achieve this, the Greenwashing Index (GWI) was calculated, reflecting the degree of discrepancy between declared environmental initiatives and actual business actions. Econometric models were built using a sample of 100 companies from various industries, with return on assets (ROA) as the dependent variable. Analyzing the relationship between ROA, the GWI, and other related variables allowed for an assessment of how the GWI affects a company’s financial performance. Academic literature indicates that the financial implications of greenwashing are ambiguous. Most research either examines the effect of greenwashing on specific business performance indicators or focuses on the legal consequences of violating environmental regulations. This article contributes to the literature by evaluating the financial performance implications of greenwashing through the calculation of the GWI. The findings reveal that greenwashing practices positively impact financial performance of businesses. Even negative media coverage of greenwashing did not adversely affect the financial outcomes of the companies analyzed. This study significantly advances the understanding of the relationship between greenwashing and financial performance. However, further research is needed to deepen this understanding. Future studies should expand the time horizon (this study covered the 2020–2022 period), include a broader range of industries (this research focused on those most frequently associated with greenwashing), and consider additional control variables. These steps will provide a more comprehensive understanding of greenwashing dynamics and their impact on sustainable business development.
Ambec, S., & Lanoie, P. (2008). Does it pay to be green? A systematic overview. Academy of Management Perspectives, (22), 45−62. http://dx.doi.org/10.5465/AMP.2008.35590353
Bates, T. W., Kahle, K. M., & Stulz, R. M. (2009). Why do U.S. firms hold so much more cash than they used to? The Journal of Finance, 64 (5), 1985−2021. https://doi.org/10.1111/j.1540-6261.2009.01492.x
Chen, Y. S., & Chang, C. H. (2013). Greenwash and Green Trust: The Mediation Effects of Green Consumer Confusion and Green Perceived Risk. Journal of Business Ethics, 114, 489–500. https://doi.org/10.1007/s10551-012-1360-0
Damodaran, A. (2012). Equity Risk Premiums (ERP): Determinants, Estimation and Implications — the 2012 edition. Social Science Research Network.
De Freitas Netto, S. V., Sobral, M. F. F., Ribeiro, A. R. B., & Da Luz Soares, G. R. (2020). Concepts and forms of greenwashing: a systematic review. Environmental Sciences Europe, 32, 19. https://doi.org/10.1186/s12302-020-0300-3
Delmas, M. A., & Burbano, V. C. (2011). The drivers of greenwashing. California Management Review, 54 (1), 64–87. https://doi.org/10.1525/cmr.2011.54.1.64
Endrikat, J., Guenther, E., & Hoppe, H. (2014). Making sense of conflicting empirical findings: A meta-analytic review of the relationship between corporate environmental and financial performance. European Management, 32 (5), 735−751. http://dx.doi.org/10.1016/j.emj.2013.12.004
Friede, G., Busch, T., & Bassen, A. (2015). ESG and financial performance: aggregated evidence from more than 2000 empirical studies. Journal of Sustainable Finance & Investment, 5 (4), 210–233. https://doi.org/10.1080/20430795.2015.1118917
Hart, S. L., & Ahuja, G. (1996). Does It Pay to Be Green? An Empirical Examination of the Relationship Between Emission Reduction and Firm Performance. Business Strategy and the Environment, 5 (1), 30–37. https://doi.org/10.1002/(SICI)1099-0836(199603)5:1%3C30::AID-BSE38%3E3.0.CO;2-Q
Hoskisson, R. E., Hitt, M. A., Wan, W. P., & Yiu, D. (1999). Theory and research in strategic management: Swings of a pendulum. Journal of Management, 25 (3), 417–456. http://dx.doi.org/10.1177/014920639902500307
King, A. A., & Lenox, M. J. (2001). Does it really pay to be green? An Empirical Study of Firm Environmental and Financial Performance: An Empirical study of firm environmental and financial performance. Journal of Industrial Ecology, 5 (1), 105–116. https://doi.org/10.1162/108819801753358526
Lee, H. C. B., Cruz, J. M., & Shankar, R. (2018). Corporate social responsibility (CSR) issues in supply chain competition: Should greenwashing be regulated? Decision Sciences, 49 (6), 1088–1115. http://dx.doi.org/10.1111/deci.12307
Lee, M. T., & Raschke, R. L. (2023). Stakeholder legitimacy in firm greening and financial performance: What about greenwashing temptations? Journal of Business Research, 155, 113393. https://doi.org/10.1016/j.jbusres.2022.113393
Li, W., Li, W., Seppänen, V., & Koivumäki, T. (2022). Effects of greenwashing on financial performance: Moderation through local environmental regulation and media coverage. Business Strategy and the Environment, 32 (1), 820–841. https://doi.org/10.1002/bse.3177
Liu, Y., Li, W., Wang, L., & Meng, Q. (2023). Why greenwashing occurs and what happens afterwards? A systematic literature review and future research agenda. Environmental Science and Pollution Research International, 30 (56), 118102–118116. https://doi.org/10.1007/s11356-023-30571-z
Lo, C. K.Y., Yeung, A. C. L., & Cheng, T. C. E. (2012). The impact of environmental management systems on financial performance in fashion and textiles industries. International Journal of Production Economics, 135 (2), 561−567. http://dx.doi.org/10.1016/j.ijpe.2011.05.010
Lyon, T. P., & Montgomery, A. W. (2015). The Means and End of Greenwash. Organization & Environment, 28 (2), 223–249. https://doi.org/10.1177/1086026615575332
Miroshnychenko, I., Barontini, R., & Testa, F. (2017). Green practices and financial performance: A global outlook. Journal of Cleaner Production, 147, 340–351. https://doi.org/10.1016/j.jclepro.2017.01.058
Misani, N., & Pogutz, S. (2015). Unraveling the effects of environmental outcomes and processes on financial performance: A non-linear approach. Ecological economics, 109, 150–160. https://doi.org/10.1016/j.ecolecon.2014.11.010
Nyilasy, G., Gangadharbatla, H., & Paladino, A. (2013). Perceived greenwashing: The interactive effects of green advertising and corporate environmental performance on consumer reactions. Journal of Business Ethics, 125 (4), 693–707. https://doi.org/10.1007/s10551-013-1944-3
Pereira, Á., & Vence, X. (2012). Key business factors for eco-innovation: an overview of recent firm-level empirical studies. Cuadernos De Gestión, 12 (3), 73–103. https://doi.org/10.5295/cdg.110308ap
Pomering, A., & Dolnicar, S. (2009). Assessing the prerequisite of successful CSR implementation: Are consumers aware of CSR initiatives? Journal of Business Ethics, 85 (S2), 285–301. https://doi.org/10.1007/s10551-008-9729-9
Sánchez-Ballesta, J. P., & García-Meca, E. (2011). Ownership structure and the cost of debt. European Accounting Review, 20 (2), 389–416. https://doi.org/10.1080/09638180903487834
Shin, H. H., & Soenen, L. (1998). Efficiency of Working Capital Management and Corporate Profitability. Financial Practice and Education, 8, 37−45.
Siano, A., Vollero, A., Conte, F., & Amabile, S. (2017). “More than words”: Expanding the taxonomy of greenwashing after the Volkswagen scandal. Journal of Business Research, 71, 27–37. https://doi.org/10.1016/j.jbusres.2016.11.002
Szabo, S., & Webster, J. (2021). Perceived Greenwashing: The effects of green marketing on environmental and product perceptions. Journal of Business Ethics, 171 (4), 719−739. https://doi.org/10.1007/s10551-020-04461-0
Testa, F., Miroshnychenko, I., Barontini, R., & Frey, M. (2018). Does it pay to be a greenwasher or a brownwasher? Business Strategy and the Environment, 27 (7), 1104–1116. https://doi.org/10.1002/bse.2058
Wagner, M. (2010). The role of corporate sustainability performance for economic performance: A firm-level analysis of moderation effects. Ecological Economics, 69 (7), 1553–1560. https://doi.org/10.1016/j.ecolecon.2010.02.017
Walker, K., & Wan, F. (2012). The Harm of Symbolic Actions and Green-Washing: Corporate actions and communications on environmental performance and their financial implications. Journal of Business Ethics, 109 (2), 227–242. https://doi.org/10.1007/s10551-011-1122-4
Wu, Y., Zhang, K., & Xie, J. (2020). Bad greenwashing, good greenwashing: corporate social responsibility and information transparency. Management Science, 66 (7), 3095–3112. https://doi.org/10.1287/mnsc.2019.3340
Zhukova, E.V. (2021). Key Trends in ESG-Agenda Development: Reviewing the Situation in Russia and the World. Vestnik Rossiiskogo ekonomicheskogo universiteta imeni G. V. Plekhanova [Vestnik of the Plekhanov Russian University of Economics], (6), 68–82. https://doi.org/10.21686/2413-2829-2021-6-68-82 (In Russ.)