Unmasking greenwashing in ESG disclosure: insights from evolutionary game analysis

Abstract Environmental, Social, and Governance (ESG) disclosure is acknowledged as a compelling initiative to facilitate sustainable business practices. However, greenwashing undermines the credibility of this initiative, presenting a decision dilemma for stakeholders. Involving principal stakeholders (enterprises, investors, rating agencies) in ESG disclosure, this study conducts an evolutionary game analysis to explore the strategic evolution mechanisms. The equilibrium results suggest the potential market dilemma stemming from deceptive enterprises and unreliable rating agencies. Meanwhile, the system can converge to an ideal state without greenwashing. Reaching this state necessitates a market-based approach combined with government regulations, such as the ongoing monitoring of rating agencies to provide truthful and stringent ESG evaluation. Additionally, mandatory enterprise ESG disclosure is a robust measure to curb greenwashing. Investment-returns-based solutions can be considered for investors to augment the rigorous ESG ratings. Managers should understand the impact factors and evolution paths in ESG disclosure and how to deal effectively with greenwashing.