Does it pay to be a greenwasher or a brownwasher?

Abstract

AbstractThe growing attention to corporate green practices and the increased competition in global markets have pressed companies to disclose information about their environmental footprints. In doing so, some firms tend to either overstate or understate their environmental commitments by adopting so‐called “greenwashing” or “brownwashing” strategies, respectively. In this paper, we analyze the impact of different types of environmental communication strategies on firm value and operating performance using a panel of 3,490 publicly traded companies from 58 countries and 19 industries. Results show that it does not pay to be a greenwasher, whereas the decision to not properly communicate a firm's environmental commitment is associated with lower financial performance. Therefore, this study highlights the importance of having not only effective green practices, but also coherent communication of environmental strategies. This is the first attempt to empirically model the impact of greenwashing and brownwashing strategies on corporate financial performance in a longitudinal setting.