The Consequences of Greenwashing

Can "greenwashing” can ever benefit a company under any circumstance?

Late last year, the news broke that Volkswagen had programmed the software in 11 million of its vehicles to give false readings in government emissions tests. During its independent tests of European diesel cars, West Virginia's International Council on Clean Transportation (ICCT) had discovered that once the tests were over, VW's vehicles emitted nitrogen oxide at levels far exceeding allowable standards.

The deception, while extreme, represents a trend among companies to make misleading claims about their environmentally responsible practices, say Pascual Berrone, associate professor of strategic management at the IESE Business School in Madrid, Spain; Andrea Fosfuri, professor of management and technology at Universita Bocconi in Milan, Italy; and Liliana Gelabert, assistant professor of economics at IE Business School in Madrid.

To determine whether such “greenwashing” can ever benefit a company under any circumstance, the group analyzed more than 1,500 articles in The Wall Street Journal from 1997 to 2015 about 326 public U.S. firms. They found that when companies touted actions such as garnering environmental patents and obtaining environmental trademarks, they increased their “environmental legitimacy” in the public eye.

The problem? Too many independent watchdog groups and nongovernmental organizations—such as the ICCT—are looking for firms that employ greenwashing tactics. The authors conclude that the negative publicity, lost goodwill, legal consequences, and other fallout after wrongdoing comes to light make any such deception far too costly to be worthwhile—as Volkswagen has discovered all too well.

The research paper “Does Greenwashing Pay Off? Understanding the Relationship Between Environmental Actions and Environmental Legitimacy” was published online on August 19, 2015, by the Journal of Business Ethics.