Greenwash vs. Brownwash: Exaggeration and Undue Modesty in Corporate Sustainability Disclosure

TLDR

Corporate greenwashing has surged, fueling skepticism, yet existing theories of its drivers remain static and omit many misrepresentation tactics. The study extends disclosure theory to include undue modesty, hypothesizes stakeholder‑driven drivers of exaggeration and modesty, and situates firms in a dynamic context. Using a dataset that directly compares corporate green claims with actual performance, the authors test these hypotheses. Results show that output growth, deregulation, and low profits under deregulation drive firms toward greenwashing or brownwashing, but external scrutiny mitigates these effects.

Abstract

Corporate greenwashing has accelerated in recent years, bringing in its wake growing skepticism about corporate green claims. Although a theory of the drivers and deterrents of greenwashing has begun to emerge, it is static in nature and does not incorporate the full range of ways in which firms can misrepresent their environmental performance. Our contribution is threefold. First, we extend the theory of organizational information disclosure to incorporate the possibility of undue modesty about a firm’s environmental, social, and governance practices. Second, we hypothesize about the drivers of exaggeration and undue modesty based on which of a firm’s stakeholders are salient at a given point in time; to do so, we place the firm within a dynamic context that has largely been missing in the prior literature. Third, we test our hypotheses using a data set that allows us to directly compare corporate green claims against actual performance. Results reveal that corporate output growth, deregulation, and low profits under deregulation significantly affect the choice between greenwashing and brownwashing. The effects of growth and profits are mitigated by external scrutiny.