How to Spot and Avoid Greenwashing in Supply Chains

Research draws attention to practice of firms greenwashing their CSR by disclosing supply chain relationships with “green” but concealing “brown” suppliers

Paid Post:CUHK Business School

Reading Time:6 minutes

How to Spot and Avoid Greenwashing in Supply Chains

Published: 12:02am, 18 Jun 2021Updated: 12:05am, 18 Jun 2021

[Sponsored Article]

The days of running businesses solely for profit are long gone. Businesses, large or small, must make considerable efforts to be socially responsible and eco-friendly. A past survey shows that 91 percent of global consumers expect businesses to address social and environmental issues, and 90 percent of them would boycott a company if it were engaged in irresponsible business practices. In other words, corporate social responsibility (CSR) is not only a buzzword, but vital for businesses to be successful nowadays. However, it is not always easy to tell whether a company is really doing good or just faking it, and as a recent research study looks at depth, some firms would voluntarily publish their supply chain relationships with “green” suppliers to fake a good CSR brand.

Titled “Corporate Social Responsibility in Supply Chain: Green or Greenwashing?”, this research study is the first to examine greenwashing behaviour of firms by looking at the voluntary disclosure of their suppliers. It was co-conducted by Jing Wu, Assistant Professor in the Department of Decision Sciences and Managerial Economics at The Chinese University of Hong Kong (CUHK) Business School, Yilin Shi, an incoming PhD student at the CUHK Business School, and Prof. Yu Zhang at Peking University. The researchers found greenwashing to be common in the 42 countries who are the world's major economies. The team looked at around 7,600 public manufacturing firms globally and observed over 120,00 unique firm-supplier relationships from 2003 to 2019.

“It is just not enough for firms to show the ‘green’ image of themselves to the world to demonstrate their efforts in CSR. Our results show that firms now selectively reveal their ‘green’ suppliers to win customer trust,” Prof. Wu says.

“If the ‘bright’ side to CSR is a world where firms are seeking to lower their carbon footprint, then what our study shows is the ‘dark’ side and how smaller and weaker firms are using it to greenwash their public image.” – Prof. Jing Wu

To gauge greenwashing behaviour, the researchers first calculated a score for each of the companies in the sample based on their environmental performance. They found consistent evidence that a suppliers’ environment score is positively related to how likely their partner firm would disclose its supply chain relationship. Specifically, a one-standard-deviation increase in a supplier’s environment score would lead to a 4.2 percent higher chance of being disclosed by their customer firm. In addition, firms tend to conceal their less eco-friendly suppliers.