ESG Carbonwashing: A New Type of ESG-Washing

In 2020, the Chinese government announced the “Dual Carbon” goals, making carbon responsibility the most prominent focus within the Environmental, Social, and Governance (ESG) practices of Chinese firms. This shift creates a new type of ESG-washing, a practice involving the selective disclosure of information that portrays the firm in a favorable light, thereby leading stakeholders to overestimate its ESG performance. In this study, we define a novel type of ESG-washing behavior called “ESG carbonwashing”, in which firms disproportionately highlight their carbon responsibility initiatives while overlooking other dimensions of ESG. By adopting a strategy of excessively emphasizing their carbon-related efforts in ESG activities, these firms mislead stakeholders about their overall ESG performance. Using a sample of 59 high-carbon-emitting firms listed on the Shanghai and Shenzhen A-share markets from 2018 to 2022, we construct a systematic framework to measure the extent of ESG carbonwashing and further analyze its temporal and industry-level variations. Our key findings indicate that: (1) ESG carbonwashing has significantly increased alongside the rollout of the “Dual Carbon” policy; (2) there are significant inter-industry differences, with the steel and aviation sectors exhibiting the highest levels of ESG carbonwashing, while the building materials industry shows the lowest. This study offers valuable guidance for ESG information users in detecting and mitigating carbonwashing practices, while also providing robust empirical support for refining relevant regulatory frameworks.