The Paradox of environmental disclosure:Evidence of greenwashing from suppliers

Environmental information disclosure plays a critical role in advancing China’s environmental protection initiatives and achieving its “dual carbon” targets. This study investigates the spillover effects of environmental information disclosure between upstream and downstream firms, utilizing a sample of Chinese listed companies from 2010 to 2023. This analysis takes place within the context of China’s lack of mandatory environmental disclosure policies. The empirical findings indicate that customers with higher levels of environmental information disclosure encourage suppliers to improve their disclosure practices, thus suggesting the presence of spillover effects within the supply chain. The mechanism analysis further reveals that, in the absence of mandatory disclosure of value chain emissions, customer firms’ environmental information disclosure may unintentionally incentivize suppliers to engage in greenwashing behaviors, such as falsifying disclosure reports, to artificially inflate their environmental information disclosure levels. Further analysis indicates that the improvement of environmental information disclosure level of supplier enterprises under the influence of downstream customer enterprises is more pronounced for suppliers that are located in eastern cities or facing intense industry competition and for areas that are with strong environmental regulation and strong bank competition. This study contributes to the literature on supply chain spillover effects and environmental information disclosure, underscores the significance of green supply chain management, and provides valuable insights for policy development.