Greenwashing or Brownwashing:The Tendency of ESG-washing in the Context of Inefficient Investment
The legitimacy theory indicates that there is an implicit social contract between individual organizations and the society in which they operate,and companies generally gain social recognition through information disclosure.However,due to the non-mandatory or regulatory gaps in policies and regulations regarding ESG disclosure in many countries or regions,existing studies have shown that companies tend to protect their legitimacy in ESG by"decoupling"facts from disclosure,i.e."ESG-washing".ESG-washing includes"green-washing"and"brown-washing".Green-washing occurs when companies choose to disclose a large amount of redundant ESG information,however,brown-washing occurs when companies choose to disclose ESG information less or more conservatively.ESG-washing behavior is not beneficial to the healthy development of ESG investment and hinders sustainable development process in China.Because ESG practice is a type of investment project,the degree of company's inefficient investment exhibited in its investment activities will inevitably affect its performance,which inducing information disclosure manipulation behavior targeting non-financial performance.To explore the impact of inefficient investment on ESG-washing in ESG reports,based on the legitimacy theory,this paper uses A-share listed companies from 2009 to 2022 as a sample and panel fixed effects model as a research method.As for variables measurement,this paper assesses the extent of ESG-washing by using the difference between industry-adjusted Bloomberg disclosure scores and Huazheng ESG performance ratings.In other words,the obtained measure reflects the industry-relative degree of ESG-washing,and express it in GW.If GW is greater than 0,it implies that the company exhibits a green-washing behavior compared to other companies in the industry.If GW is less than 0,it means the company demonstrates brown-washing behavior compared to other companies in the industry.If GW equals 0,it signifies that the company neither engages in green-washing nor brown-washing relative to other companies in the industry.Additionally,it uses the Richardson investment efficiency model to measure the degree of inefficient investment.The results are as follows:(1)Companies with insufficient investment tend to green-wash ESG reports.This conclusion still holds after using methods such as propensity score matching method,Heckman two-stage regression,instrumental variable method,replacing the ESG-washing measurement and regression models to alleviate endogeneity issues.However,the conclusion that'companies with excessive investment tends to brown-wash ESG reports'lacks robustness.(2)Insufficient investment only significantly enhances the positive impact of green-washing in companies with lower equity balance,lower centrality in the independent directors'network,lower executive monetary compensation,and higher managerial short-sightedness.(3)The stronger the profitability,the higher the total factor productivity,the greater the proportion of ESG funds held,and the higher the number of analysts'coverage,the more effectively it can mitigate the positive impact of insufficient investment on green-washing in ESG reports.(4)Corporate reputation is the pathway through which insufficient investment triggers the green-washing in ESG reports.Financing constraints are the deep-seated driving force behind underinvestment and resulting in greenwashing.And economic policy uncertainty serves as an effective external constraint mechanism.This paper explores the impact of corporate investment activities on ESG reports disclosure from the perspective of inefficient investment,and conducts empirical analysis on its moderating mechanism,intermediary mechanism,underlying drivers and external constraint mechanism.Firstly,it compensates for the shortcomings of existing literature on the economic consequences of inefficient investment and the ESG-washing motivation.Secondly,it provides empirical evidence for a deeper understanding of the impact of inefficient investment on the quality of non-financial performance reports disclosure and the information asymmetry caused by inefficient investment.And it also provides ideas for the government and regulatory authorities to introduce relevant regulations based on this to suppress green-washing.Last but not least,this paper is also beneficial for promoting listed companies to better implement the Two Mountains Theory and achieve the"carbon peaking and carbon neutrality"goals faster.What's more,it also provides reference for further enhancing investors'risk awareness and improving the quality of ESG information disclosure by listed companies.
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