Exaggerating, Distracting, or Window-Dressing? An Empirical Study on Firm Greenwashing Recognition

Abstract

This paper uses both quantitative and qualitative methods to identify and categorize three distinct greenwashing practices: exaggerating, distracting, and window-dressing. It investigates the investor reaction and third-party ESG/CSR ratings associated with each type, thereby ascertaining their ability to recognize potential greenwashing activities. The results show that exaggerating strategy, which is mostly discussed, is not so common among Chinese listed firms. Additionally, greenwashing firms exhibit significantly higher market returns through signal effects, while receiving lower rating evaluations. These findings shed light on the ability of investors to recognize distinct greenwashing tactics and highlight the comparable rational evaluation of ESG/CSR rating platforms.