Greenwashing as Aspirational Signaling: From Burden to Benefit?

The practice of greenwashing has gained significance given the debate about ESG disclosures on both sides of the Atlantic. While the SEC in the US is no longer pursuing climate-related disclosure rules, the European Union has put forward an ambitious agenda, including the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD). Regardless of whether disclosures are voluntary or mandatory, there is an enforcement gap resulting from limitations on private litigation and only limited effects of reputational sanctions. This article argues that greenwashing may also have social benefits relative to the absence of sustainability disclosures. Greenwashing, especially when it is aspirational rather than outright fraudulent, can be viewed as a gateway to introduce green causes into a corporation's agenda. First, environmentally oriented messaging by the private sector may inspire policymakers to raise corporate standards. Second, social responsibility communication will attract human capital aligned with green and social goals to firms, thus gradually changing corporations from within. Third, greenwashing scandals trigger social attention that reinforces pledges and pushes the quality and quantity of greening activities throughout the economy.