Impact of information disclosure on global supply chain greenwashing: Is more information transparency always better?

Abstract

As supply chains become more globalized, retailers outsource the manufacturing of their products to foreign suppliers. Supply chain greenwashing is an immoral practice employed by retailers whereby they selectively disclose information regarding upstream suppliers after exaggerating the environmental benefits of their fake green products to consumers. Using a perfect Bayesian Nash equilibrium approach, this paper examines the conditions under which a retailer who engages in greenwashing will disclose the information of an unethical foreign supplier under pressure from enhanced scrutiny by a non-governmental organization (NGO). The results show that when the increase in the NGO’s utility from targeting the unrevealed upstream supplier is sufficiently large, the greenwashing retailer prefers to disclose the unethical foreign supplier’s information, whereas when the increased utility is low, the greenwashing retailer prefers to hide the unethical foreign supplier. Different from common belief that increased information transparency may be beneficial, we find that it does not necessarily lead to reduced social damage and that it depends on the unethical foreign supplier’s capability for compliance. In particular, when the unethical foreign supplier has a low capacity for compliance, the supply chain’s transparency advantage will lead to more fake green goods being sold, thus causing greater social damage.