DOES IT PAY NOT TO ENGAGE IN GREENWASHING? THE EFFECT OF SUPPLY CHAIN INVOLVEMENT IN GREENWASHING ON INVESTORS’ REACTIONS

Abstract

In the last few years, the attention on false and misleading communications regarding company’s commitment towards the environment – a practice known as greenwashing – has drastically increased. Greenwashing has several consequences for companies: it deteriorates brand reputation and trust (Duan and Jie, 2013), increases consumer skepticism (Delmas and Burbano, 2011), reduces purchase intentions (Murray and Vogel 1997; Swaen and Vanhamme 2004, 2005), and erodes investor’s confidence in environmentally friendly firms (Delmas and Burbano, 2011). Indeed, private investors are interested in CSR and look for information about it (Cellier et al., 2016; Nath, et al., 2013) but little is known about the consequences of greenwashing on private investments. Moreover, greenwashing often happens because of the bad management of the supply chain and various company’s faults are related to the difficulty to manage it (Crane et al., 2014). The aim of this research is to investigate how greenwashing affects intention to invest depending on the involvement of the supply chain. In two experiments we compared three types of greenwashing, which vary according to the supply chain role in the misconduct and the declared CSR commitment of the company. We call indirect greenwashing when a company that declares to be CSR committed is accused of greenwashing because it purchases raw materials or services from a supplier that does not meet sustainability standards (e.g. child labor, environmental damages). Conversely, a company that does not follow its CSR talk because of its own production procedures is an example of direct greenwashing. We also propose a third category of greenwashing, which we called vicarious greenwashing: when the misconduct and the relative accusation regard a company’s supplier, but the company does not claim to be sustainable (so it’s vicariously affected). A scenario-based experimental design (n =107) asked participants to indicate the intention to invest on a company accused of direct greenwashing (vs. indirect vs. vicarious). Results showed that direct greenwashing is particularly detrimental on investment intentions, especially compared to vicarious greenwashing, but not compared to indirect greenwashing (even if the means were lower). This result suggests that greenwashing is detrimental for investments even when the company does not perform the misconduct. A second experiment (n = 202) investigated whether the declared control on the supply chain affects intention to invest when the company is involved in greenwashing. Direct greenwashing was the more detrimental for investments, but, when companies declared high control on the supply chain, greenwashing significantly decreased intention to invest, so that in high control condition direct greenwashing did not differ from vicarious and indirect greenwashing. These results show how the involvement in greenwashing affects investment intentions of private investors and expand our knowledge on the consequences of greenwashing, so far mostly investigated from the consumer side. We show that greenwashing has potential disruptive consequences from a broader perspective, because it reduces stakeholders’ willingness to invest, even when the misconduct is attributable to a supplier.