CEF.UP – FIN Seminar

Thursday – May 29^th, 2025 at 1:00 p.m. | Room 305| Online

Can Investors Curb Greenwashing?

Olivier David Zerbib – Institut Polytechnique de Paris (France), CREST (France)

Abstract:

“We show how investors with pro-environmental preferences and who penalize revelations of past environmental controversies impact corporate greenwashing practices. Through a dynamic equilibrium model with information asymmetry, we characterize firms’ optimal environmental communication, emissions reduction, and greenwashing policies, and we explain the forces driving them. Notably, under a condition that we explicitly characterize, companies greenwash to inflate their environmental score above their fundamental environmental value, with an effort and impact increasing with investors’ pro-environmental preferences. However, investment decisions that penalize greenwashing, policies increasing transparency, and environment-related technological innovation contribute to mitigating corporate greenwashing. We provide empirical support for our results.”