Modeling Circularwashing Risk in Renewable Energy Adoption: A Structural Equation Approach for Sustainable Consumption

Abstract Circularwashing limits eco-friendly consumption by overstating, confusing, or inadequately proving the circular properties of products. While regular greenwashing makes ambiguous claims about the environmental characteristics, circularwashing takes advantage of the complicated nature of resource loops and the quality of the supply chain, causing significant market friction and high information asymmetry. Hence, an unexpected change in information distorts price signals, weakens customer trust, and jeopardizes market transparency by creating a lemon market for real circular goods. The present research presents the idea of circularwashing risk and provides a model to analyze the effect of false claims on the customers’ skepticism, decision-making risk perception, institutional trust, penalties for unreasonable behavior, and post-decision actions. The model is based on the Signaling Theory and the Stimulus Organism Response theory and is verified with the help of the survey data collected from 607 digital consumers in Colombia using the method of Partial Least Squares Structural Equation Model (PLS SEM). The measurement properties were assessed through composite reliability, average variance extracted, and heterotrait monotrait discriminant criteria and bootstrap resampling. The findings imply that misleading environmental claims correlate with consumer skepticism, which has a positive relationship with perceived decision risks and the erosion of institutional trust. Moreover, the effects of perceived decision risk and erosion of institutional trust on behavioral penalty are considerable. Structural chains indicate that the relationship between decision risk and erosion of trust serves as two mediating channels. Lastly, the Circularwashing Risk Propagation Model serves to highlight the significance of verifiable claims in maintaining consumer trust and promoting Sustainable Development Goals 7 and 13.