Greenwashing Risk and Its Mitigation for Sustainable Finance

Abstract

Greenwashing presents a significant risk to sustainable financing, prompting researchers to investigate its impact on investors. In response to the urgency of combating this deceptive practice, financial market regulators have increasingly adopted ESG (environmental, social, governance) criteria. This study aims to comprehensively understand the effects of greenwashing by employing a mixed-method approach. Initially, a survey was conducted among participants to analyze their perspectives. The findings reveal a prevailing trend among individuals who seek to optimize investment returns, with a remarkable 50% of respondents demonstrating familiarity with greenwashing tactics. Notably, upon becoming aware of greenwashing practices, a substantial proportion of participants express a strong inclination to revise their investment strategies accordingly. Further exploration into the phenomenon uncovers a combination of factors contributing to greenwashing, including ambiguous legislation, stakeholder pressures, organizational qualities, and individual mindsets. Respondents emphasize the critical importance of enhanced transparency, a heightened emphasis on quality standards, and the enforcement of stringent regulations as key measures to mitigate the prevalence of greenwashing. This study sheds light on investors' sentiments regarding greenwashing, providing valuable insights into the impacts of this unethical practice on sustainable financing. Additionally, it offers practical recommendations to effectively combat greenwashing. By implementing suggested measures such as promoting transparency, prioritizing quality, and enforcing robust regulations.