On the Edge of Green: How Environmental Performance Benchmarks Drive Corporate Greenwashing Behavior?

Despite growing attention to sustainability, many firms continue to engage in greenwashing, or symbolic disclosures that lack substantive backing. This study develops a reference-dependent framework grounded in prospect theory to explain when and why firms engage in greenwashing. Using international panel data on 6944 firms from 2009 to 2023, we show that greenwashing varies depending on a firm’s position relative to environmental performance benchmarks: firms below the benchmark are more likely to greenwash as environmental performance improves, while those above the benchmark reduce symbolic disclosures. This asymmetry is amplified in weak regulatory environments. We further find that attaining externally observable benchmarks (e.g., industry standards) is more effective than internal ones in discouraging greenwashing. These findings provide new behavioral and institutional insights into the strategic use of environmental, social, and governance communication.