The misalignment between Companies' Environmental Disclosure and Performance. An analysis of the determinants of Greenwashing and Brownwashing

Abstract

Recently, when talking about sustainability issues, particular attention has been given to the environmental dimension due to increased attention from the public eye on global warming, pollution and resources mismanagement. Claims made by companies about their environmental actions may not always be truthful and matched by an equal level of environmental performance. Due to different underling factors (e.g. their motives, their ability and the internal organization complexity), companies may result in either overstating or understating their environmental efforts, resulting respectively in Greenwashing or Brownwashing behaviours.

The aim of this study is therefore to establish the determinants of such environmental Disclosure-Performance gap, distinguishing between the concept of Greenwashing and Brownwashing. Previous research suggests that, among others, determinants include financial performance, size and country specific factors, that will indeed be investigated. The relationship between the determinants and Greenwashing & Brownwashing is assessed through a regression analysis, using data ranging from 2006 to 2017 for 4106 listed companies based in 61 different countries, for a total of 25026 observations.

Empirical results suggest that, as expected, firm size, the absence of corruption and Environment Wellbeing result in less misalignment between environmental performance and environmental disclosure, while Economy Wellbeing has a positive impact on the degree of Greenwashing. Moreover, firm size has a moderating effect on the relationship between financial performance and Brownwashing activities.

Relatively to the relationship between financial performance and Greenwashing & Brownwashing, results are mixed and not always significant, indicating that Environmental Disclosure-Performance gap is not necessary influenced by financial performance.