When Do Firms Oversell or Undersell Environmental Sustainability?: An Empirical Analysis of Sustainability Communications

Stanford Global Projects Center Working Paper Series

57 Pages Posted: 19 Oct 2018 Last revised: 25 Jul 2019

See all articles by Soh Young In

Soh Young In

Global Projects Center, Stanford University; Precourt Institute for Energy, Stanford University

Ki Young Park

Yonsei University

Date Written: July 17, 2019

Abstract

This study proposes an empirical framework to catalogue the varieties of corporate sustainability communications, and investigates characteristics and factors affecting how firms promote their environmental sustainability. We build three types of environmental communication: (1) neutral, (2) vocal, and (3) silent, based on a firm’s relative environmental communication (EC) and performance (EP). We also define two focus groups based on the discrepancy between EC and EP: (1) greenwashing, and (2) silent green, which are subsets of environmentally vocal and silent EC groups, respectively. Based on a sample of 3,316 observations from 529 publicly traded US firms from 2005 to 2013, our main empirical findings are as follows. First, there is a negative association between a firm's EC and EP, suggesting that a firm with a lower level of EP is likely to choose to be vocal about its environmental sustainability. Second, regulatory challenges and public norms significantly influence a firm's sustainability communication strategy -- high public attention tends to make a firm more vocal. Third, silent firms with a higher level of discrepancy exhibit lower price-earnings ratio (PER) and earnings per share (EPS). On the other hand, vocal firms tend to exhibit higher Tobin's q as their discrepancy increases. This suggests that there might exist significant market incentives on the firms when they oversell environmental sustainability.

Keywords: Sustainability communications; green accounting and finance; greenwashing; sustainability reporting; environmental, social and governance (ESG) integration

JEL Classification: Q56, Q51, M39, M49

Suggested Citation

In, Soh Young and Park, Ki Young, When Do Firms Oversell or Undersell Environmental Sustainability?: An Empirical Analysis of Sustainability Communications (July 17, 2019). Stanford Global Projects Center Working Paper Series. Available at SSRN: https://ssrn.com/abstract=3264923 or http://dx.doi.org/10.2139/ssrn.3264923

Soh Young In (Contact Author)

Global Projects Center, Stanford University ( email )

473 Via Ortega, Suite 242
Stanford University
Stanford, CA 94305
United States

HOME PAGE: http://https://gpc.stanford.edu/

Precourt Institute for Energy, Stanford University ( email )

473 Via Ortega, Suite 324
Stanford University
Stanford, CA 94305
United States

HOME PAGE: http://https://energy.stanford.edu/

Ki Young Park

Yonsei University ( email )

Yonsei University
Seoul
Korea, Republic of (South Korea)

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