Peer effects of ESG greenwashing within board networks

This paper investigates the board-network peer effects of enterprise, social, and governance (ESG) greenwashing. We find that ESG greenwashing behaviors exhibit significant peer effects across board networks, primarily driven by information transmission through interlocking directors, social pressure, and industry competition. Using robust identification strategies to address endogeneity concerns and test alternative explanations, our findings remain consistent. We also observe that the peer effect is more pronounced in firms with weaker corporate governance, larger size and higher market position, overconfident chief executives and unstable teams, major shareholders with external affiliations, and environments characterized by lax legal enforcement, weaker economic development, or strong political embeddedness. Importantly, our analysis rejects the hypothesis of superficial ESG report mimicry, instead revealing the use of sophisticated and substantive greenwashing strategies. This is because ESG greenwashing yields tangible benefits for both firms and individual interlocking directors. Although greenwashing initially provides short-term financial advantages (i.e., abnormal stock returns and reduced debt financing costs) these benefits ultimately give way to negative market repercussions. We further show that interlocking directors' involvement in greenwashing diffusion is systematically associated with higher compensation packages, longer tenure, and increased environmental subsidies for their affiliated firms.