The role of Green WACC in reducing greenwashing: assessing financial and environmental integrity in municipal waste management

Purpose The main objective of the research is to examine how incorporating Green Weighted Average Cost of Capital (Green WACC) can be a useful and reliable method to gauge the authenticity of municipal sustainability initiatives, specifically for waste management and to lessen the occurrence of greenwashing. The study explores whether environmentally conscious activities by municipalities lead to better ecological results and financial benefits like lower borrowing costs. The article aims to enable more efficient, sustainable municipal government by establishing a link between financial and environmental performance. Design/methodology/approach The research follows a three-part methodology: (1) a review of scientific literature on greenwashing in waste management practices, sustainable waste management and the determination of WACC; (2) collection and analysis of financial data from Lithuanian municipalities and (3) the creation of a conceptual model for evaluating waste management practices and calculating Green WACC based on insights from the literature review. The empirical application of the model is carried out through the assessment of multiple Lithuanian municipalities. Findings The study revealed that municipalities improved their ability to raise funds over the observation period. Vilnius municipality benefits from the lowest rate required by lenders, while Utena municipality faces the highest rate. The calculated Green WACC indicates that improved waste management practices correlate with a reduced cost of capital, while poorer waste management performance leads to higher required lending rates. This suggests a direct relationship between sustainability efforts, greenwashing and financial performance in terms of cost of capital. Thus, promoting genuine green practices helps obtain lower lending rates and minimise the harm of greenwashing. Research limitations/implications The study's findings are limited to the case of Lithuanian municipalities, which may limit their generalizability to other regions. The model's applicability to different national contexts should be further investigated. Future research could expand the geographical scope and explore additional factors influencing Green WACC, such as policy changes, local environmental regulations and global economic conditions. Practical implications The research provides a practical framework for evaluating the Weighted Average Cost of Capital (WACC) for municipalities, offering a tool to assess municipal waste management efforts in terms of their financial efficiency. Municipalities can use these insights to optimise their environmental performance, minimise the impact of greenwashing and reduce borrowing costs by improving waste management practices. Social implications By improving municipal waste management practices, municipalities can contribute to broader environmental sustainability goals. Effective waste management reduces environmental degradation, which can enhance the quality of life for residents and promote social well-being. Additionally, municipalities with better waste management practices may benefit from improved public perception and increased trust in local governance. Originality/value This research offers a novel contribution by integrating the concept of Green WACC with waste management practices. The model provides an innovative approach to evaluating how financial performance is linked to environmental sustainability in municipalities. The study also introduces the Green Progress (GP) measure, offering a new tool for assessing the effectiveness of municipal environmental efforts within the context of financial metrics.