Does Societal Trust Reduce Greenwashing? International Evidence

Abstract

ABSTRACT I investigate the influence of societal trust on greenwashing. Utilizing the ESG controversies score as a proxy for greenwashing, this research finds that firms in high‐trust societies engage in fewer greenwashing activities. The effect is less pronounced for firms in countries with strong formal institutions, consistent with the notion that societal trust works as a substitute for country‐level formal institution. However, the effect is more pronounced for highly visible firms. This study highlights three potential mechanisms through which societal trust reduces greenwashing practices: enhanced firm reputation, improved accounting transparency, and stronger stakeholder engagement. Overall, these findings underscore the significant role of societal trust in mitigating corporate greenwashing and fostering sustainable business practices.

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