Curbing Corporate Environmental, Social and Governance Greenwashing Through Centralisation of Environmental Monitoring: Evidence From China

ABSTRACT The potential impact of environmental regulatory system reform on corporate environmental, social and governance (ESG) greenwashing remains to be further explored. Using China's 2017 environmental system reform as a quasi‐natural experiment, this study examines the impact of monitoring authority reclaim on corporate ESG greenwashing. Our findings show that recentralising environmental monitoring significantly curbs ESG greenwashing, and we document a sizable negative association between ESG greenwashing and a shift towards cleaner air quality. However, the inhibitory effect of the reform is diminishing with the increase in monitoring distance from the business to the nearest monitoring station. Further investigation indicates that the inhibitory effect is particularly pronounced in state‐owned, pollution‐intensive, low‐tech firms and those with tight financing constraints. Mechanism analysis suggests that monitoring centralisation deters ESG greenwashing by strengthening environmental governance and promoting citizen participation in environmental protection. Overall, this study highlights the effectiveness of centralisation in sustainability and underscores the need for an appropriate environmental monitoring system.