Environmental Disclosure and Greenwashing Can We Separate Signal from Noise?

The increase in social debate on environmental issues has led to an increase in the number of companies presenting environmental declarations that are not backed up by actions. The declarations are made for marketing purposes only and they lead to extensive damage even to companies that back up their statements with actions, since it is difficult for investors and customers to identify when it is a reliable commitment. As greenwash activities arise, combined with the difficulty of identifying whether the declaration is backed by actions or not, investors’ trust in these statements is damaged, as are investments in companies that are truly committed to the declarations, creating a situation in which it is very difficult to produce a reliable signalSignaling (Moran Ofir/Tal Elmakiess). Diverse mechanisms have been established throughout time to encourage investment in the environment and to address the environmental dimension of the agency problem, but all mechanism did not succeed in solving it. This chapter examines coping mechanisms such as green bondsGreen Bonds(Moran Ofir/Tal Elmakiess), CoCo bondsCoCo Bonds (Moran Ofir/Tal Elmakiess), and ESGESG (Moran Ofir/Tal Elmakiess) (Rolf H. Weber) (Sadie Blanchard)-biased executive compensation, which incentivize environmental responsibility and aim to create credible signalsSignaling (Moran Ofir/Tal Elmakiess) and explain the reasons for these mechanisms not fulfilling their goals. In addition, it explores the intricate relationship between environmental disclosureDisclosure (Moran Ofir/Tal Elmakiess)and greenwashingGreenwashing (Moran Ofir/Tal Elmakiess) (Dawn Zaiter), delving into motivations, tactics, and impacts on stakeholdersStakeholders (Moran Ofir/Tal Elmakiess) (Phemelo Magau) (Sadie Blanchard). Furthermore, the chapter addresses the complexities of environmental disclosureDisclosure (Moran Ofir/Tal Elmakiess)and proposes strategies to foster genuine sustainabilitySustainability (Moran Ofir/Tal Elmakiess) (Dawn Zaiter) (Phemelo Magau) (Rolf H. Weber)practices while combating greenwashingGreenwashing (Moran Ofir/Tal Elmakiess) (Dawn Zaiter). It discusses the ongoing debate around mandatory environmental disclosureDisclosure (Moran Ofir/Tal Elmakiess) and provides guidelines for distinguishing between genuine signalsSignaling (Moran Ofir/Tal Elmakiess) and deceptive noise in environmental communication.