A Global Study of the Link between Board Policies and Greenwashing

The need for better corporate governance have led many listed firms to transform their boards and make them more “effective” by introducing policies encouraging board independence, gender diversity and many other aspects. The pressure of higher corporate sustainability has at the same time led to a divergence between environmental practices and communications, and so-called “greenwashing” has started to occur in the corporate world. In this study we attempt to comprehensively explore the corporate governance drivers of greenwashing. We examine the role of board policies in greenwashing, and we test our hypotheses using an unbalanced panel of 3490 publicly traded companies from 19 industries and 58 countries over the period 2002-2014. Surprisingly, the results show that boards with “good” characteristics according to the traditional corporate governance literature, i.e., more independent and diverse boards – are associated with higher greenwashing practices, while firms with “strong boards”, i.e., small boards and those in which the CEO holds the role of chairman - are less likely to greenwash. Overall, our results suggest that the impact of corporate board on greenwashing is a double-edged sword, as board policies may play an unexpected role in greenwashing.