Measuring greenwashing and ESG/CSR market risk under non-pecuniary investment preferences: an empirical mean–variance framework

Purpose This study develops and validates a market-based framework to measure greenwashing risk – interpreted as ESG/CSR market risk – from a Social and Environmental Accounting and Accountability (SEAA) perspective. By shifting from disclosure-based to market-based accountability, the framework captures ESG/CSR credibility through asset pricing dynamics under non-pecuniary investment preferences. Design/methodology/approach The analysis uses Refinitiv data on 31,453 corporate and 4,657 sovereign bonds issued by G20 countries (2016–2024). German “twin” sovereign bonds serve as a sustainability risk-free benchmark. Greenwashing risk is estimated through yield-spread differentials between GSSS+ and matched conventional bonds, using fixed-effects regressions, robustness tests with macroeconomic and ESG variables, and an event study on Brazil’s 2024 floods. Findings The market greenium is negatively associated with fossil fuel prices and overall market performance and positively related to emissions indices. The framework also preserves the negative relationship between corporate greenium and ESG controversy risk and detects abnormal adjustments following environmental shocks. These results indicate that ESG/CSR risk is dynamically incorporated into asset prices, providing observable signals of sustainability credibility. Research limitations/implications The focus on GSSS+ bonds from G20 issuers limits generalization. Future research may extend the analysis to non-G20 markets and incorporate textual ESG data. Practical implications The framework supports investors, auditors and regulators in detecting greenwashing using market-based evidence. Originality/value The study introduces a market-based accountability framework that advances SEAA paradigms by redefining ESG/CSR risk as a market-implied construct.