Does mandatory greenhouse gas emissions reporting program deter corporate greenwashing?

Abstract

This study examines the impact of the mandatory greenhouse gas emissions reporting program (GHGRP) on corporate greenwashing behaviour. Utilising the GHGRP in the United States as a quasi-natural experiment, we perform a difference-in-difference analysis to a panel dataset of 2731 publicly listed US firms from 2007 to 2022. The data consist of annual observations of firm-level variables, including ESG performance and disclosure metrics, financial characteristics, and environmental innovation indicators. Our results reveal a notable reduction in greenwashing behaviour following the adoption of the GHGRP, suggesting that increased transparency and accountability discourage deceptive disclosure practices. A decomposition analysis shows that the GHGRP motivates firms to improve actual ESG performance while curbing inflated ESG claims. Larger and more profitable firms exhibit a more significant decrease in greenwashing, indicating that those under greater public scrutiny respond more strongly to regulatory oversight. Additionally, firms with higher levels of environmental innovation demonstrate a greater reduction in greenwashing post-GHGRP adoption, reflecting an alignment between sustainability commitments and corporate culture. This study offers valuable insights for firm managers, investors, and policymakers on leveraging the GHGRP framework to promote transparency in corporate reporting practices.