Greenhush and greenwash: a signalling game analysis of strategic environmental disclosure

Abstract This paper presents a theoretical framework to explain how firms strategically choose between truthful disclosure, greenwash (overstating environmental performance) or greenhush (deliberately under-communicating positive environmental actions). The analysis reveals that greenhush arises as an equilibrium when signalling costs exceed benefits from investor support, particularly when firms can secure sales without environmental claims. Greenwash emerges when penalties for false claims are insufficient relative to market premiums. Notably, increasing investor support for environmental initiatives reduces greenhush but may unintentionally promote greenwash rather than truthful disclosure without complementary regulatory mechanisms. The results suggest several policy strategies to promote truthful labeling: strengthening certification credibility by increasing the cost differential between legitimate and fraudulent certification, calibrating penalties to ensure separating equilibria and developing coordinated approaches that simultaneously target investor preferences andverification mechanisms.