Shades of Greenwashing: Corporate Responses to Environmental Pressures and Their Strategic Implications

Abstract

Greenwashing—the practice of creating a misleading impression of environmental responsibility without delivering substantive outcomes—poses a significant challenge to sustainable development. Initially associated with deceptive marketing strategies like false eco-labels and exaggerated product claims, greenwashing has expanded to include broader organizational behaviors. These range from relatively obvious ones, like failing to align commitments with actual practices, to more nuanced tactics, such as manipulating information in environmental disclosures. While academic research on greenwashing has grown, much of it focuses on misalignment behaviors through static comparisons of commitments, actions, and outcomes. This approach often overlooks the time required for meaningful environmental results to materialize, leading to premature conclusions about greenwashing. Additionally, the exploration of covert greenwashing tactics remains limited.

This thesis addresses these research gaps by examining firm-level greenwashing through both theoretical and empirical analyses. It begins with a comprehensive literature review that categorizes greenwashing into two primary forms: decoupling and information manipulation. The review explores its determinants, including internal factors such as corporate governance and strategic priorities, as well as external influences like regulatory environments, market dynamics, cultural norms, and stakeholder expectations. Furthermore, it highlights the far-reaching consequences of greenwashing, which extend beyond financial and reputational damage to societal and environmental harm.

Building on this foundation, the thesis then presents three empirical studies that investigate how firms respond to environmental pressures and engage in various greenwashing behaviors.

The first study focuses on decoupling, analyzing the misalignment between firms’ environmental management performance (EMP)—including environmental commitments, policies, and reporting—and environmental operational performance (EOP), such as greenhouse gas (GHG) emissions. Using the context of environmental shareholder activism, the study investigates whether such external pressures lead to substantive environmental improvements or merely symbolic compliance. The findings reveal that shareholder activism enhances EMP but does not significantly reduce GHG emissions, even over a five-year period. Further analysis reveals that firms often employ greenwashing tactics to project a positive environmental image while failing to commit significant resources to green hiring, capital expenditures, research and development, or green patents. These results underscore the limitations of shareholder activism in addressing climate challenges and highlight the need for stronger government intervention to combat greenwashing.

The second study shifts attention to information manipulation, a more covert form of greenwashing. It explores how firms strategically craft language in their environmental disclosures, particularly under conditions of high GHG emissions. The study finds that firms with larger GHG footprints tend to use more complex and less concrete language in their disclosures. Additionally, it examines the moderating effects of two country-level formal institutions: the Kyoto Protocol Annex I status and mandatory disclosure regulations. The findings indicate that stringent institutional environments reduce the likelihood of high-emitting firms using abstract language, thereby promoting more transparent disclosures.

The third study continues the exploration of information manipulation. It narrows the focus to the Architecture, Engineering, and Construction (AEC) industry, a sector with significant environmental sensitivity. It evaluates the impact of mandatory environmental reporting regulations on the readability of disclosures. The findings show that mandatory reporting significantly improves the readability of environmental disclosures, even though such regulations often lack specific guidelines on how information should be presented. Moreover, the study finds that firms with a higher number of independent directors are more likely to produce readable disclosures, illustrating the role of corporate governance in shaping transparency. These findings demonstrate how mandatory reporting regulations and strong governance can discourage greenwashing and promote clearer communication in industries with high environmental stakes.

This thesis provides a nuanced analysis of firm-level greenwashing and enhances the understanding of how firms navigate environmental pressures. It emphasizes the need for a dynamic perspective to distinguish between symbolic and substantive responses to environmental pressures. It also highlights the importance of addressing subtle greenwashing strategies, such as linguistic manipulation. The findings offer practical implications for stakeholders—such as investors, regulators, and policymakers—to identify and mitigate greenwashing, ensuring that corporate sustainability efforts translate into genuine environmental progress.

Date of Award	21 Aug 2025
Original language	English
Awarding Institution	City University of Hong Kong
Supervisor	W. Z. LU (Supervisor)