Restoring Trust in Sustainable Finance The Role of Active Supervision in Greenwashing Scandals

Greenwashing scandals pose significant financial risks to banks and asset managers. However, companies implicated in greenwashing do not experience immediate share price declines until supervisory authorities take formal action. Our recent study reveals that mere public allegations and media discussions of greenwashing fail to provoke a reaction from investors. When supervisory authorities launch investigations, however, the company’s market value drops by an average of 6 percent, compared to the expected development without supervisory intervention. If the authorities proceed with a raid, the company’s value decreases by an additional 5 percent. This effect is not due to the greater severity of cases that are investigated. Even for the same greenwashing allegations, we do not observe any investor reaction when the allegations are made or complaints are filed—only when the supervisory authorities take action.