The effects of accusations of greenwashing on a firms’ corporate social responsibility practice
Master Thesis
Student: Bas Saurwalt, 10781242
MSc. Business Administration, Strategy track
University of Amsterdam, Faculty of Economics and Business Supervisor: Mr. Dr. Panikos Georgallis
Statement of originality
This document is written by student Bas Saurwalt who declares to take full responsibility for the contents of this document.
I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it.
The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.
Table of contents Abstract ... 4 1. Introduction ... 5 2. Theoretical framework ... 9 2.1 Literature review ... 9 2.2 Greenwashing ... 11 2.3 Moderator ... 14 2.3.1 Firm industry ... 14 2.3.2 Pro-environmental groups ... 17 3. Methodology ... 20 4. Results ... 23 Hypothesis 1 ... 25 Hypothesis 2 ... 25 Hypothesis 3 ... 26
5. Discussion & conclusion ... 29
Main findings ... 29
Implications ... 31
Limitations and future research ... 33
6. References ... 35
7. Appendix ... 41
Appendix A ... 41
Abstract
This study examines the effects of accusations of greenwashing of activists on firms’
corporate social responsibility practices. I hypothesize that accusations of greenwashing have a positive effect on the corporate social responsibility practices implemented by firms.
Furthermore, I expect that firms active in dirty industries will increase their corporate social strategy practices to a greater extent, in respect to firms active in other industries when accused of greenwashing. Even more, I posit that activists with a radical ideological stance have a bigger impact on the firms’ corporate social responsibility strategy, when accusing firms of greenwashing, than reformative activists. I use the data of 100 companies from 2011 to 2016, from the S&P 500, to investigate the effect of accusations of greenwashing on a firms’ corporate social responsibility practice. I find that under certain circumstances
accusations of greenwashing from activists have significant effects on firms’ corporate social responsibility practices. Specifically, accusations of greenwashing towards firms active in dirty industries have a smaller positive effect than accusations towards firms active in other industries. Furthermore, accusations of activists with a radical ideological stance have a smaller negative effect on firms’ corporate social responsibility strategy, in respect to accusations of reformative activists, which have a bigger negative effect on firms’ corporate social responsibility. These findings are not consistent with my predictions and show that accusing firms of greenwashing, which are active in other industries, leads to a bigger increase in corporate social responsibility practices, in respect to firms active in dirty industries. Furthermore, activists with a clear radical or reformative ideological stance will benefit of not accusing firms of greenwashing, as accusations will lead to disadvantageous effects.
1. Introduction
There has been an expanding growth in the consumer and capital market for green products, services and firms. More firms are communicating the greenness of their products and services to obtain the benefits of this growing green market (Delmas & Burbano, 2011). When firms have implemented an excellent corporate social responsibility strategy, firms can achieve higher financial performance and an increase in reputation and customer satisfaction (Waddock & Graves, 1997; Saeidi, Sofian, Saeidi, Saeidi & Saaeidi, 2015). However, there are cases in which organizations communicate environmental information that is not aligned with their environmental practices.
Greenwashing is spreading positive information about a firm’s environmental or social performance, without disclosure of the negative information about these dimensions, resulting in an overly positive corporate image (Lyon & Montgomery, 2015). Furthermore,
greenwashing leads to the existence of consumer scepticism, perceived deception, negative impact on organizational credibility and perceived company performance (Webb & Mohr, 1998; Newell, Goldsmith & Banzhaf, 1998; Vanhamme & Grobben, 2009). Volkswagen is one of the firms that were greenwashing. Their environmental friendly cars emitted more than 40 times the legal limit of nitrogen oxide, although Volkswagen stated that the cars were environmental friendly (Dans, 2015). As for Volkswagen, greenwashing led to the first quarterly loss of EUR 2.5 billion and a fine of EUR 18 billion (Hotten, 2015), even more relationships with customers were damaged and their reputation decreased (Preston, 2015). Volkswagen experienced first-hand that greenwashing leads to consumer scepticism, a
decrease in customer confidence, and loss of reputation (Nyilasy, Gangadharbatla & Paladino, 2012; Webb & Mohr, 1998; Newell, Goldsmith & Banzhaf, 1998; Vanhamme & Grobben, 2009; Delmas & Burbano, 2011).
It can be seen that greenwashing is disadvantageous for firms. However, firms do want to reap the benefits of the expanding markets for green products and services, and could therefore keep greenwashing. Delmas and Burbano state that external market drivers, such as consumer demand, in which consumers demand firms to be green, and competitive pressure, in which firms are pressured to not fall behind the greenness of competition, inclines firms to state greenness (2011). Furthermore lax regulatory environment, weak political pressure, greater threat of regulation, and low visibility are drivers of corporate greenwash (Lyon & Montgomery, 2015).
Greenwashing firms attain high attention from activists, which see themselves as claimants in environmental issues and put pressure on firms to address environmental problems (Den Hond & De Bakker, 2007). Activists try to hold organizations that are greenwashing accountable (Delmas & Burbano, 2011). When firms are accused of greenwashing, they try to diminish its negative effects. As can be seen, greenwashing has disadvantageous effects on one hand, but on the other hand stating to be green leads to reaping the benefits of these green markets (Delmas & Burbano, 2011). After accusations of greenwashing by activists, it is therefore possible that firms increase or decrease the CSR that they implemented. Firms could stop greenwashing though claiming less environmental and social claims, or back-up their claims through an increase in environmental and societal performance, or keep greenwashing to reap the benefits of the green market. However, what the effects of accusations of greenwashing are on a firm’s corporate social responsibility strategy has not been researched.
I seek to extent the current literature by researching what the effects of accusations of greenwashing are on firms’ corporate social responsibility and show if activist groups that fight for better social and environmental policies actually compel change in the corporate social responsibility implemented by firms. Furthermore, this study researches the moderating
effect of differences in firm industry and pro-environmental groups on the relationship between accusations and CSR. This research will have a contribution to existing literature by showing what the actual effects are of accusations of greenwashing. It will show if the intention of activists to accuse firms of greenwashing, which is compelling organizational change concerning environmental and societal practices, will actually result in more environmental, sustainable and social changes in corporate social responsibility strategies implemented by firms. It will show if activists are better able to pressure firms to change within particular dirty industries than firms active in other industries. Even more, this research tries to identify if certain activists groups are better in compelling corporate social
responsibility change than others.
This paper tries to extent the current literature through a quantitative empirical study. I use the data of 100 firms from the S&P500 to investigate the effect of greenwashing on firms CSR practices. I find that accusations of greenwashing have a significant effect on the actual corporate social responsibility initiatives implemented by firms under certain circumstances. Specifically, this research shows that accusations of greenwashing towards dirty industries have a positive impact on CSR but is smaller than accusations of greenwashing towards firms active in other industries. Even more, radical activists groups have a smaller negative impact on firms’ corporate social responsibility when accusing firms of greenwashing, in comparison to reformative activists groups. This paper makes three contributions to existing literature. First of all, it contributes to the existing literature concerning the effects of accusations of greenwashing. Prior research shows that greenwashing leads to negative effects, but
companies are still trying to reap its benefits. Activists try to hold firms that are greenwashing accountable, and this research shows the actual influence of activists. Secondly, this paper sheds a light on the effect of accusations of greenwashing on different industries. A distinction is made between dirty and other industries. Hence, this paper brings a better
understanding in what the effects are of accusations of greenwashing towards different
industries. Third, this paper enhances current research of greenwashing by looking at what the effects are of accusations of greenwashing of activists on a firms CSR, based on the activists’ ideological stance.
2. Theoretical framework
2.1 Literature review
This section describes the current literature concerning greenwashing. This section starts with the definition of greenwashing and its relationship with corporate social responsibility. Furthermore, the current literature gap is presented and a research question is proposed. Hereafter, the relevant definitions and relations are reviewed more elaborately and hypotheses are stated.
Corporate social responsibility (CSR) has been defined as the organization’s configuration of principles of social responsibility, processes of social responsiveness and policies, and observable outcomes as they relate to the firms societal relationships (Wood, 1991). A well-implemented CSR leads to many benefits for firms, like higher financial performance, increase in reputation and customer satisfaction (Waddock & Graves, 1997; Saeidi, Sofian, Saeidi, Saeidi & Saaeidi, 2015). When a firm has implemented a corporate social responsibility strategy it means that the firm acts ethically, supports the work of non-profit organizations, treats employees fairly, and minimizes damage to the environment (Mohr & Webb, 2005). In some cases firms make claims about implementing principles of social responsibility and environmental policies that are not true. Greenwashing is known as the practice of boosting a firms’ green credential through stating fictitious claims about their products and services via eco-friendly marketing campaigns (Murugesan, 2010). Misleading consumers regarding the environmental and social practices of a firm is known as firm-level greenwashing (Delmas & Burbano, 2011). Because of the upward trend for environmental sustainability, many companies try to bolster their green credentials, which consequently leads to firms that are greenwashing (Murugesan, 2010). Accusations of greenwashing lead to decrease in reputation and customer satisfaction (Webb & Mohr, 1998; Newell, Goldsmith & Banzhaf, 1998; Vanhamme & Grobben, 2009; Delmas & Burbano, 2011).
Easterling, Kenworthy, and Nemzoff (1996) state that organisations that claim to be sustainable are subjected to more scrutiny from governments, consumers and activists. When organisations have made false claims about their green credentials, activists can accuse them of greenwashing. As shown, this will be disadvantageous for corporations and therefore needs to be prevented (Webb & Mohr, 1998; Newell, Goldsmith & Banzhaf, 1998; Vanhamme & Grobben, 2009; Delmas & Burbano, 2011). If firms want to avoid future accusations of activists, they need to stop spreading false claims of environmental practices or actually start implementing a corporate social responsibility strategy that is in line with the claims the organization makes. Research has already studied the negative effects of greenwashing on firms’ performance, as well as the positive effects of corporate social responsibility on the organization and society. However, the effects of accusations of greenwashing on the corporate social responsibility practices implemented by firms have not yet been studied. Therefore this research aims to answer the following: What is the effect of accusations of
firm-level greenwashing on the firms’ corporate social responsibility?
Activists are able to put pressure on organizations and demand change (Delmas & Burbano, 2011). The purpose of this research is to investigate if activists are able to put pressure or alter CSR initiatives of corporations that are misleading consumers by false environmental claims. It will show if firms increase their CSR initiatives and actually try to hold up on their end and show environmental practices that are in line with the statements they make. Or, firms decrease their CSR initiatives after accusations of greenwashing.
2.2 Greenwashing
In cases in which firms do not honour their agreements and implement a variety of specific forms of misleading environmental and societal communication, they are greenwashing (Lyon & Montgomery, 2015). Delmas and Burbano elaborate the definition of greenwashing by explaining that is concerns misleading customers about environmental performance and benefits of a product or service (2011). It is about a discrepancy between the actual environmental and social performance, which is poor, and communication about the
environmental and social performance, which is positive (Delmas & Burbano, 2011). There are two forms of greenwashing; misleading consumer regarding the social and environmental practices of a company (firm-level greenwashing) and the environmental and social benefits of a product or service (product-level greenwashing) (Delmas & Burbano, 2011). When advertising of environmental and social practices becomes misleading it leads to adverse impacts on CSR efforts and reputation (Nyilasy, Gangadharbatla & Paladino, 2012). It will lead to the existence of consumer scepticism, perceived deception, negative impact on
organizational credibility and perceived company performance (Webb & Mohr, 1998; Newell, Goldsmith & Banzhaf, 1998; Vanhamme & Grobben, 2009). Furthermore, greenwashing leads to negative effects on consumer confidence, erode the consumer market for green products, decrease investor confidence, and can lead to lawsuits for false advertising (Delmas & Burbano, 2011).
Besides the lawsuits for false advertising, organisations that are greenwashing also encounter activist attacks. Non-governmental organizations and activist groups play a role as informal monitors of greenwashing. These groups campaign against greenwashing and spread information about incidents. They try to hold organizations that engage in greenwashing accountable (Delmas & Burbano, 2011). Due to communication platforms, these activist groups are able to share and spread information about greenwashing incidents at low costs.
Furthermore, because of increasing interest of consumers, investors and the public itself in environmental and social issues, these activist groups become more powerful and are able to exert more influence and pressure on companies (Delmas & Burbano, 2011). Besides, social movement activists can use boycotts to compel organizations to implement or change specific practices or policies (McDonnell & King, 2013). When firms get boycotted they try to
significantly increase their pro-social claims, such as organization’s commitment to socially acceptable norms, beliefs and activities. When boycott threats are larger and firms have a high reputation, firms are likely to increase pro-social claims (McDonnell & King, 2013). Even more, activists can have an impact on important strategic decision-making of firms (Durand & Georgallis, 2018).
Because of the upward trend for environmental sustainability, many companies try to bolster their green credentials, which consequently leads to firms that are greenwashing (Murugesan, 2010). Activists criticize firms that are greenwashing and try to pressure these firms to improve their environmental and social performance (Lyon & Maxwell, 2011). Because accusations of greenwashing have a negative impact on CSR efforts and reputations (Webb & Mohr, 1998; Newell, Goldsmith & Banzhaf, 1998; Vanhamme & Grobben, 2009) firms are likely to alter their claims in regards to their corporate social responsibility. It is reasoned that accusations of greenwashing can have two consequences. First of all activists are able to exert pressure and influence companies (Delmas & Burbano, 2011) and have an influence in the strategic decision-making of a firm (Durand & Georgallis, 2018). Therefore, it can be reasoned that accusations of greenwashing will alter the CSR implemented by firms in a beneficial way. It will lead to a change of CSR that is in line with the claims that firms make.
On the other hand organizations that are claiming to be sustainable receive more scrutiny from activists (Nyilasy, Gangadharbatla & Paladino, 2012). This could result in firms
deterring from advertising their sustainable goals and practices and focus on other activities. Lyon and Maxwell endorse this view and state that the threat of a public backlash for
greenwashing can result in firms being less transparent and open in regard to their corporate social responsibility (2011). Therefore, it is possible that the accusations of greenwashing can lead to firms becoming less transparent and open and trying to focus on other initiatives within the firm (Lyon & Maxwell, 2011; Nyilasy, Gangadharbatla & Paladino, 2012). This could mean that accusations of greenwashing will result in lower levels of pro-social claims and initiatives implemented. Even more, when firms have already used pro-social claims in the past to bolster their position, these firms will perceive to be shielded from movement attacks and therefore will not react on accusations at all. This is called buffering (McDonnell & King, 2013).
Because of the trend for environmental sustainability firms are communicating the greenness of their products and services to obtain the benefits of this growing green market. To obtain those benefits companies cannot be considered as greenwashing, as it is
disadvantageous for firms. To reap the benefits of the growing green market, firms have to suit one’s actions to one’s words. Therefore, it is expected that accusations of greenwashing will lead to an increase in CSR, instead of decrease of their CSR, as firms try to reap the benefits of the greenmarket and not attain the disadvantages that greenwashing firms procure. Therefore, the following hypothesis is stated:
H1: Accusations of greenwashing from activists will increase firms’ corporate social responsibility.
2.3 Moderator
Besides studying the effects of accusations of firm-level greenwashing on firm’s corporate social responsibility, two moderators will be added. The first moderator is firm industry. Prior research shows that dirty industries attain more attention from environmental organizations, are more likely to implement environmental policies and act more transparent (Etzion, 2007; Ramus & Montiel, 2005; Delmas & Toffel, 2008). Therefore the influence of firm industry on the relationship of accusations of greenwashing and CSR will be discussed. The second moderator variable is different pro-environmental groups. Haines states that activists groups can be either reformative or radical in their activism (1984). Prior research shows that these different groups react and act differently in pressuring firms to address environmental and social issues (Den Hond & De Bakker, 2007). Therefore, the different activist groups can influence the relationship between accusation of greenwashing and firms CSR. The moderator variables will be discussed more elaborately in the following paragraphs.
2.3.1 Firm industry
It can be seen that different industries react differently to environmental policies and attain higher attention than others. Prior research has shown that “dirty” industries achieve more concerns from environmental organizations and regulators than other industries because of obvious and significant environmental footprints (Etzion, 2007). Dirty industries are defined as the industries that have high levels of pollution, whereas clean industries have low level of pollution (Grether & De Melo, 2003). The chemical, automotive, forestry, and energy
industries are dirtier industries and therefore attain more attention of pro-environmental organizations (Etzion, 2007).
Visible polluting industries are subjected to more stakeholder scrutiny, due to the fact that environmental issues are now a major social concern. This means that the dirty industries
face more governmental regulations, media attention and strong environmental activism (Berrone & Gomez-Mejia, 2009). Delmas and Toffel (2008) even more show that industries, with high levels of pollution, are pressured to adapt to environmental management practices and participate in government-initiated voluntary programs. Lyon and Maxwell (2011)
furthermore state, that firms, which state to be clean but actually have high levels of pollution, attain more aggression from activist groups.
Research shows that dirty industries are motivated by industry associations to adopt environmental management practices and participate in voluntary programs (Delmas & Toffel, 2008). Government-initiated voluntary programs are programs between firms and regulators in which firms voluntary commit actions that improve the environmental performance of the company (Delmas & Terlaak, 2001). Even more, Ramus and Montiel (2005) state that firms within the manufacturing, oil and gas industry are more likely to
implement environmental policies over other sectors. Besides, Lyon and Maxwell (2011) state that firms with social and environmental damaging impacts or big footprints, will be more likely to become transparent and open after accusations or outrage concerning greenwashing than the cleaner industries. Cho and Pattern (2007) add that these dirty firms are even more likely to disclose environmental information.
With the increase in scrutiny and pressure from stakeholders, expectations for
environmental performance are increased. Because dirty industries have big footprints and are causing environmental damage, they are expected to minimize the damage that they have done. If the dirty industries will fail to meet these expectations it will lead to a decrease in financial performance (Walker & Wang, 2012). Customers will punish firms if their expectations are not met, which will lead to a decline in shareholder wealth (Rhee & Haunschild). It is expected that due to the fact that dirty industries are more likely to be identified and punished for greenwashing in comparison to other industries (Walker & Wan,
2012), that when firms are accused of greenwashing, that firms within the dirty industry will alter their CSR to a greater extent because they have a higher risk of backlash and scandals than other industries. The following hypothesis will be tested if different industries moderate the relationship between accusations of greenwashing and the actual corporate social
responsibility implemented:
H2:
Firms within the dirty industries will increase their CSR initiatives to a greater extent, after accusations of greenwashing, than other industries.
2.3.2 Pro-environmental groups
Activist groups see themselves as legitimate claimants in social issues and environmental matters and put pressure on firms to address such issues (Den Hond & De Bakker, 2007). These pro-environmental groups strive for field-level change and not solely on individual firms. People can create activists groups through joining a loosely organized network (Diani & McAdam, 2003). Another activist group could be a formal social movement organization, which is highly professional and big in size and resources (McCarthy & Zald, 1997).
Although activist groups can differ in size, these organizations are working on similar issues and trying to reach the same public (Taylor, Kent & White, 2001).
All activists groups fight for the same cause, but they can differ. Some scholars make a distinction based on its size, which can be large or small, or on the efficiency and ability to take action on behalf of members (Kent, Taylor, & White, 2002). However, the most evident way activists groups can be distinguished is based on their ideological stance. Haines state that activist groups develop to be either radical or moderate in the passing of time (1984). The ideology shows a link between groups’ expectations and demands, and the tactics these groups consider legitimate and suitable for corporate social change (Den Hond & De Bakker, 2007).
Moderate or reformative activists groups believe that companies who are part of the problem can also be part of the solution (Den Hond & De Bakker, 2007). Reformative groups want to participate in helping firms to change and make solutions to environmental issues (Den Hond & De Bakker, 2007). The reformists have shown a tendency to work with existing political structures, which are actively addressing social and environmental issues.
The activist groups that “offer a more comprehensive version of the problem and more drastic change as a solution” are called radical (Zald & McCartchy, 1980, P.8).
The radicals bypass existing political structures and favour a direct action (Horton, 2003). Radical groups do not believe that companies that created the problem can be part of the solution (Den Hond & De Bakker, 2007). Radical activist groups tend to discredit the firm itself, not only its activities (Den Hond & De Bakker, 2007). These radical activist groups tend to adopt tactics of inflicting material damage in situations of escalating conflicts with firms (Den Hond & De Bakker, 2007).
Due to the difference between the groups’ expectations and demands, and the tactics these groups consider legitimate and suitable for corporate social change they can have a greater or smaller effect on certain firms. The radical activists groups tend to only assess companies positively when the initiatives firms make to address corporate social
responsibility are entirely satisfactory within radicals’ eyes (Derville, 2005). Therefore, radical activist groups continuously raise the bar for companies, and spend most of their time and resources deinstitutionalizing the current best corporate social responsibility practices of firms (Den Hond & De Bakker, 2007). This means that radical activist groups tend to push further than reformative groups in corporate social responsibility change. Even more, based on the fact that radical activists make use of material damage and showing misconducts, Den Hond and De Bakker state that radical activist groups are better in challenging firms’ CSR than reformative groups (2007). Furthermore, radical activists can use extra institutional tactics, which are tactics not commonly embraced by other groups that draw attention to perceived injustices and broaden political discussion. These tactics have shown to compel organizations to change, which ultimately could result in corporate social responsibility change (King, 2008). Lastly, Derville (2005) states that radical activists are great in
compelling change trough their communication strategies. These communication strategies enhance members’ identities, which results in making opponents pay attention to them, attract funds, and provoke overreaction that increase support.
On the other hand, Bashir, Lockwood, Chasteen, Nadolny and Noyes state that
individuals avoid supporting the “typical” environmental change activists (2013). Individuals see the typical activist negatively, and affiliation and behaviours that these typical activists promote have to be avoided. The typical activist can be seen as militant, aggressive, eccentric and unconventional (Bashir et al., 2013). These traits are in line with the description of radicals stated by Den Hond and De Bakker (2007). Therefore, it can be stated that radicals are not able to compel greater amount of change due to the fact that they do not achieve support and affiliation from others. Even more, it can be stated that reformative activists can compel organizations to greater change than the radicals. King states that besides extra institutional tactics the political mediation model can lead to organizational change (2008). The political mediation model states that activist movements are more influential when the target institution is willing to change (King, 2008). In cases that companies are willing to be persuaded to change by external influences, it cannot be done by radical activists. Radical activists are not willing to collaborate with target companies, whereas reformative activists groups are (Den Hond & De Bakker, 2007). Therefore, with well-willing institutions, reformative groups are more able to compel organizational change than radicals.
Based on prior research, it is expected that because of the fact that radicals are continuously raising the bar, invest huge amount of effort, time and resources, and the communication strategies they use to tackle environmental issues, they are better able in altering firms’ CSR to a greater extent than reformative activists are. Therefore, the following hypothesis is proposed to see if radicals are more effective than reformative activists in pressuring firms to change:
H3: Accusations of greenwashing from radical activists will lead to a greater increase of CSR initiatives than accusations of greenwashing from reformative activists.
3. Methodology
This section discusses the selected sample, the independent variable, the dependent variable, the moderators, the control variables and the relations that are tested. Figure 1 visually demonstrates the variables and their relationships.
This research will use a quantitative empirical research design. The information needed will be found through two databases. The databases DataStream and LexisNexisNL will be used to find the information necessary. Companies from the S&P 500 are selected. Due to their size and global scale these companies are more likely to have CSR initiatives (Porter & Kramer, 2006). 100 firms, over a time period of 5 years from the S&P 500 are selected. The years 2011-2016 will be used because of their availability, the fact that CSR is upcoming within those years, and that the results from this research are not out-dated because of the use of old data.
The dependent variable of this research is corporate social responsibility. The database DataStream will be used to find an aggregate score of this variable. Using the database Asset 4 an average weighted score of CSR of different companies can be found, which will be used to compare firms’ CSR before and after accusations of greenwashing. This aggregate score is based on the social, corporate governance and environmental score of firms.
The independent variable of this paper is accusations. This is the amount of accusations of greenwashing firms have received between 2011 and 2016. Through the LexisNexisNL database, news articles of accusations by various activist groups will be searched for. Through using catchwords, added in appendix A, articles will be easier to find.
The moderating variables are firms operating in dirty industries and radical activist groups. The moderator of firms in dirty industries will be discussed first. Different firms from the S&P 500 will be selected. These firms will differ in basis of industry. “Dirty” firms from the manufacturing, chemical, automotive, forestry, and energy industries (Etzion, 2007:
Ramus & Montiel, 2005) as well as firms in the other industries will be selected to find the possible moderating relationship of firm industry. Dirty industries are defined as the
industries that have higher levels of pollution (Grether & De Melo, 2003). The firms will be coded as either dirty by the number 1 or not dirty by the number 0. The results of the different industries will be compared.
Different activists can accuse firms of greenwashing. Den Hond and De Bakker (2007) and Hoffman (2008) make a distinction between radical and reformative activist groups. Radicals seek change by confronting companies and working on issues without collaboration with companies. Reformative groups work with companies and within a network system to solve environmental problems (Den Hond & De Bakker, 2007: Hoffman, 2008). Hoffman makes a distinction between activist groups based on centrality in the corporate network and diversity of sector ties (2008). The centrality in the corporate network means if activists put themselves in the core of the corporate network or in the periphery of the network (Hoffman, 2008). Radicals are disconnected from companies, whereas reformative activists are at the core of the network and are willing to collaborate. Based on this distinction between the activists groups, effects of the different groups can be compared (See, appendix B).
Lastly, a number of variables are controlled for because they could influence the amount of CSR implemented. Firm size, measured by the amount of current firm assets, firm performance measured by return on assets, and firm risk, measured by the total debt divided by the total assets, will be controlled for because these variables could influence the amount of CSR that firms implement (Wickert, Scherer & Spence, 2016; Singal, 2014; Nguyen & Nguyen, 2015). The data used for these control variables is found in the Worldscope database through DataStream.
Figure 1. Conceptual framework.
4. Results
This section outlines the results of this research. First, an overview of the data is presented through a descriptive statistics table. Secondly, the correlations between the variables are reported. Lastly, six linear regression analyses are performed to test the hypotheses.
For this research the data for 100 companies over the years 2011 till 2016 is gathered. Such data is called panel data, because it is a multidimensional data set, which consists out of multiple observations of multiple variables at different moments (Hayes, 2006). This data is analysed through linear regression in which the data is identified as panel data. Because of the fact that some variables do not change over time, this research will only look at the random effects of the variables. Random effects state that the variation across entities is random and uncorrelated with the independent variable in the model (Green, 2008).
The first table provides descriptive statistics and the Pearson correlation coefficient between the variables in this research. Only five of the correlations are statistically different from zero. Dirty industries have a positive weak linear relationship with corporate social responsibility (r = 0.20). Furthermore, the size of a firm has a weak positive linear relationship with the amount of accusations a firm receives (r = 0.23). Even more, dirty industries have a negative weak linear relationship with the return of assets of a firm (r =
-0.12). Lastly, dirty industries have a positive weak linear relationship with the amount of risk
a firm has (r = 0.09) (see, table 1).
The second table shows the random effects of the variables on the dependent variable, namely corporate social responsibility. The first model only contains the control variables. The second model contains the control variables and the independent variable. In models 3 the moderator dirty industries is added, and in model 4 its interaction effect. In model 5 and 6 the moderator radical activist is added and its interaction effect.
Table 1: Descriptive statistics
*Correlation is significant at the 0.05 level (2-tailed)
N Mean S.D. 1 2 3 4 5 6 CSR 589 74.76 23.58 1 Accusations 600 0.04 0.22 0.04 1 Return On Asset 599 7.09 7.14 0.02 0.06 1 Size 516 1239.20 1984.91 0.05 0.23* 0.02 1 Risk 600 29.64 18.96 0.08 0.00 0.02 -0.12* 1 Industry 600 1.36 0.48 0.20* -0.06 -0.14* -0.05 0.09* 1 Activist 19 1.16 1.16 0.15 0.18 -0.02 -0.31 -0.23 0.13
Hypothesis 1
Based on the fact that activists pressure firms that are greenwashing to improve their environmental and social performance (Lyon & Maxwell, 2011), are able to exert pressure and influence companies (Delmas & Burbano, 2011) and have an influence in the strategic decision-making of a firm (Durand & Georgallis, 2018), it is proposed that accusations of greenwashing from activists will increase a firm’s corporate social responsibility. In model 2, the coefficient of accusations is -4.148, and is not statistically different from zero, Z = -1.81, p > 0.05. In model 3 the coefficient of accusations is -4.098, and is not statistically different from zero, Z = -1.79, p > 0.05. In model 5 the coefficient of accusations is -0.228, and is not statistically different from zero, Z = -0.94, p > 0.05. In model 4 and 6, an interaction effect is added which changes the interpretation of coefficients. Therefore, the coefficients of
accusations of these models will be discussed later on. According to model 2, 3 and 5, accusations of greenwashing have a negative insignificant effect on the corporate social responsibility of firms. Therefore hypothesis 1 is not supported (See, table 2).
Hypothesis 2
It is expected that due to the fact that dirty industries are more likely to be identified and punished for greenwashing in comparison to other industries (Walker & Wan, 2012), that when firms are accused of greenwashing, that firms within the dirty industry will alter their CSR to a greater extent because they risk more potential backlash and scandals than other industries. In model 4 the moderator and the interaction effect of the variable are added. First of all, model 3 shows that the coefficient of dirty industries is 7.724, and is not statistically different from zero, Z = 1.62, p > 0,05. Therefore, dirty industries do not have a significant effect on CSR. Secondly, there is a significant difference between the effects of accusations of greenwashing on firms’ corporate social responsibility towards firms active in dirty industries,
in respect to accusations towards firms active in other industries. When an interaction is added the interpretation of the coefficient changes. The effect of accusations on corporate social responsibility is now based on the coefficient of accusations, as well as the effect of the interaction coefficient. In model 4 the regression coefficient of accusations is 21.476, and is statistically different from zero, Z = 3.18, p < 0.01. This is the coefficient in case the
moderator variable is zero, and therefore the case in other industries. In dirty industries, the coefficient of accusations is now calculated based on the coefficient of accusations as well as the coefficient of interaction. The coefficient of interaction is -19.617, and is statistically different from zero, Z = -4.02, p < 0.001. Therefore, the coefficient of accusations in case of dirty industries is 21.476 plus the coefficient of interaction (-19.617), and therefore 1.859. Therefore, accusations of greenwashing towards firms active in other industries lead to a greater effect on corporate social responsibility practices than accusations towards dirty industries. Therefore, firms within the dirty industry do not alter their CSR to a greater extent but to a smaller extent. Hypothesis 2 is consequently not supported (see, table 2 and 3).
Hypothesis 3
Radical activist groups continuously raise the bar for companies, and spend most of their time and resources deinstitutionalizing the current best corporate social responsibility practices of firms (Den Hond & De Bakker, 2007). Radical activist groups tend to push further than reformative groups in corporate social responsibility change. Therefore, it is expected that radicals will alter the CSR practices of a company to a greater extent than reformative activist groups. In model 6 the moderator variable and the interaction effect between the moderator variable and independent variable is added. First of all in model 5, the moderator variable, namely radical activists, has a negative regression coefficient of -2.043
accusations of greenwashing on firms’ corporate social responsibility has a different effect for radicals than for reformative activist groups. As in model 4, the effect of accusations on corporate social responsibility is not only based on the coefficient of accusations, but also the coefficient of the interaction. In model 6 the regression coefficient of accusations is -1.527, and is statistically different from zero, Z = -5.95, p < 0.001. This is the coefficient of accusations in case that the moderator variable is valued as zero. This is the case when the activist group is reformative. If the activist group is radical, the coefficient of accusations has to be added to the interaction coefficient. The interaction effect of activists and accusations on the corporate social responsibility of a firm has a regression coefficient of 1.203, which is statistically different from zero, Z = 5.71, p < 0.001. The effect of accusations of radicals is therefore -0.324 (-1.527+1.203). Consequently, accusations of greenwashing by activists, either reformative or radical have a negative effect on the corporate social responsibility practices by firms. Furthermore, the negative effect of accusations of reformative activists is bigger than those of radical activists. Hypothesis 3 is therefore not supported (see, table 2 and 3).
Table 2: Random effects for Corporate Social Responsibility
**Correlation is significant at the 0.01 level (2-tailed)
Table 3: Random effects for Corporate Social Responsibility
Model 4 Model 5 Model 6
Variables Coefficient SE Coefficient SE Coefficient SE
Return On Asset -0.031 0.087 0.928** 0.362 1.042** 0.103 Size 0.002** 0.003 0.003** 0.002 0.003** 0.001 Risk 0.219** 0.042 0.001 0.060 0.047** 0.018 Accusations 21.476** 6.748 -0.228 0.242 -1.527** 0.256 Industry 8.246 4.794 Interaction Moderator 1 -19.617** 4.879 Activist Group -2.043** 0.437 -4.01** 0.385 Interaction Moderator 2 1.203** 0.230
**Correlation is significant at the 0.01 level (2-tailed)
Model 1 Model 2 Model 3
Variables Coefficient SE Coefficient SE Coefficient SE
Return On Asset -0.028 0.089 -0.024 0.089 -0.016 0.088 Size 0.002** 0.003 0.002** 0.003 0.002** 0.003 Risk 0.229** 0.043 0.224** 0.043 0.222** 0.043 Accusations -4.148 2.290 -4.098 2.292 Industry 7.724 4.769 Interaction Moderator 1 Environmental Group Interaction Moderator 2
5. Discussion & conclusion
The quest for companies to act responsible for their effects on society and environment has skyrocketed in recent years. When firms implement CSR initiatives, it can lead to higher financial performance, increase in reputation and customer satisfaction. Therefore, firms are boasting about the corporate social responsibility initiatives that they have implemented. However, in some cases firms are not only boasting but also lying about the CSR initiatives that they have implemented. Firms are stating positive information regarding their
environmental and social performance, which is not in line with their actual performance. Activists try to hold firms that are greenwashing accountable and accuse those firms of greenwashing. It is salient to understand if accusing firms of greenwashing will alter the CSR initiatives by firms.
Main findings
There has been substantial discussion about the effects of accusations of greenwashing on firms’ corporate social responsibility practices. Several studies state that activists are able to pressure greenwashing firms and demand change (Lyon & Maxwell, 2011), influence and pressure companies (Delmas & Burbano, 2011), and compel organizations to alter policies or practices (McDonnell & King, 2013). Activists have an impact on the strategic decision-making of firms (Durand & Georgallis, 2018). However, other studies claim that the increase in scrutiny leads to firms being afraid for a public backlash and therefore being less open in their corporate social responsibility strategy (Lyon & Maxwell, 2011; Nyilasy,
Gangadharbatla & Paladino, 2012). Even more, it is stated that firms bolstering their position through pro-social claims, perceive to be shielded from movement attacks and do not react at all (McDonnell & King, 2013). This study found consistent results with prior research stating that firms will not increase their corporate social strategy practices (Lyon & Maxwell, 2011;
Nyilasy, Gangadharbatla & Paladino, 2012; McDonnell & King, 2013). More specifically, this study shows that in general, accusations of greenwashing have no significant effect on the amount of corporate social responsibility of firms, which suggests that firms do not take accusations of activist groups seriously, and therefore keep following their own strategic decision-making, without being influenced by others.
Moreover, prior studies have been debating about the influence of activists on high polluting industries. These studies stated that firms within the high polluting industries face more media attention, governmental regulations, activism, and are transparent and disclose more environmental information (Berrone & Gomez-Mejia, 2009; Delmas & Toffel, 2008; Lyon & Maxwell, 2011; Delmas & Terlaak, 2001; Cho & Pattern, 2007). However, this studies extents the research of influence of activists on high polluting industries, by
researching what the effect is of accusations of greenwashing of activists on firms’ corporate social responsibility practices within dirty industries. This study shows that accusations of greenwashing have a significant effect on the corporate social responsibility for firms within dirty industries and other industries. In contrast with previous literature, this study shows that accusations of greenwashing have a smaller effect on firms active within the high polluting industries. This suggests that firms, with a big environmental footprint, are not able to alter their corporate social responsibility strategy as much as firms active in other industries. This could be the case because of the their significant environmental footprint, causing the fact that dirty industries are not able to be as social responsible as other industries can.
Furthermore, studies have shown that activists groups can differ in ideological stance (Haines, 1984). Activists can be either radical or reformative. Studies have shown that radical activists are direct, discredit the firm, inflict material damage, and are unwilling to collaborate with firms to find solutions (Horton, 2003; Den Hond & De Bakker, 2007; Derville, 2005). Radicals tend to continuously raise the bar for companies and only see corporate social
responsibility practices positively when it is entirely satisfactory in their eyes (Derville, 2005; Den Hond & De Bakker, 2007). However, other studies stated that typical radical activists do not get support (Bashir, Lockwood, Chasteen, Nadolny & Noyes, 2013). And reformative activists, who are willing to collaborate with targeted films, are able to exert more influence (Den Hond & De Bakker, 2007). This study expands the debate between the influence of radical and reformative activists on decision-making of firms, by looking at the influence of accusations of greenwashing made by these activists groups. This study shows that
accusations of greenwashing of both activist groups have a negative effect on the corporate social responsibility practices of targeted firms. And whereas prior research states that radicals have a bigger impact (Horton, 2003; Den Hond & De Bakker, 2007; Derville, 2005), this study shows that reformative activists have a bigger influence, through accusing firms of greenwashing, on firms’ corporate social responsibility strategy.
Implications
This study empirically tests the effects of accusations of greenwashing on firms’ corporate social responsibility. It extends current literature concerning the effects of activists of firms’ decision-making and corporate social responsibility, by demonstrating under what conditions activists actually compel corporate social responsibility change. The study shows that
accusations of greenwashing have a significant effect on corporate social responsibility initiatives implemented by firms under specific conditions. This demonstrates that activists have to take certain conditions into account such as the pollution level of the industry in which the targeted firm is active, and the ideological stance of the activists groups itself. Prior research states that activists hold greenwashing firms accountable, spread information about incidents, exert pressure, compel change and have an impact on the strategic decision-making of firms (Delmas & Burbano, 2011; McDonnell & King, 2013;
And based on prior literature it is expected that through accusations of greenwashing by activists firms will alter their corporate social responsibility initiatives (Delmas & Burbano, 2011; McDonnell & King, 2013; Durand & Georgallis, 2018). This study shows that accusing firms of greenwashing only under certain conditions leads to an increase in corporate social responsibility practices. First of all, this study shows that firms that are accused of
greenwashing, which are active in high-polluting industries, do increase their corporate social responsibility. However, this study shows that firms that are accused of greenwashing active in other industries increase their corporate social responsibility to a greater extent than firms active in high polluting industries. This result is in contrast to prior research stating that high polluting industries are more easily identified and punished for greenwashing, expected to minimize their environmental footprint, and are more pressured to change environmental practices by activists and governments (Walker & Wang, 2012; Lyon & Maxwell, 2011; Berrone & Gomez-Mejia, 2009; Delmas & Toffel, 2008). Secondly, this study shows that accusations of greenwashing by activists groups, who can be identified as either reformative or radical, can lead to a decrease in corporate social responsibility practices by firms. This result is in contrast to research that states that radicals are able to exert pressure and intended change in firms’ decision-making (Den Hond & De Bakker, 2007; Derville, 2005; King, 2008). And research stating that reformative activists are able to compel intended change with targeted firms, through collaboration and less radical approaches (King, 2008; Den Hond & De Bakker, 2007). This study shows that both these activists groups are not able to achieve the intended change namely, firms addressing environmental issues.
Activists’ main goal is to make the world a better place. Firms that are environmental or social damaging attain attention from activists, which try to hold those firms accountable and pressure them to address such issues. In case of greenwashing, one of the practical
corporate social responsibility in certain circumstances. Particularly, when accusations of greenwashing from activists groups are addressed to firms active in dirty and other industries, it leads to an increase in corporate social responsibility. And therefore, activists have to keep addressing greenwashing issues towards firms as it leads an increase in corporate social responsibility. Even more, this study shows that firms that are greenwashing do not have to be attacked radically or reformative, in order to initiate positive change. Activist groups with a reformative and radical ideological stance do not achieve an increase in corporate social responsibility, when accusing firms of greenwashing. This study shows the exact opposite. When reformative and radical activists groups accuse firms of greenwashing it leads to a decrease in corporate social responsibility. Therefore, activists with a clear radical or
reformative ideological stance will benefit of not accusing firms of greenwashing, as accusing will lead to disadvantageous effects.
Limitations and future research
This research is based on a quantitative empirical research design, in which data is collected through databases available online. Through convenience sampling the 100 first companies of the S&P 500 are selected. Therefore, there is a possibility that based on the convenience sampling method the results of this research are only applicable on these certain 100
companies and not on the entire population. This is due to the fact of an increase in selection bias and sampling error that occurs with a non-random sampling method. Even more, due to the fact that 100 companies of the S&P 500 are used as a sample, the results could be only applicable to big companies or companies with the United States, therefore the external validity of this research decreases.
Secondly, the internal validity of this research is affected through time limitation and the instrumentation of the data collection. Due to the time limit for this research, there was no
opportunity to read every article relevant to greenwashing in LexisNexisNL. Therefore, the search terms had to be narrowed down and this could have lead to missing relevant articles. This could lead to a measurement error, because there could a difference between the measured amount of accusations of greenwashing and the actual amount of accusations of greenwashing. Even more, interpretation of the articles and descriptions of the websites had to be done manually; this leads to a decrease in internal validity, as the instrumentation of the amount of accusations and descriptions of websites could have been inaccurate.
For future research, first of all iterating this study with a more strict and valid way of measuring the amount of accusations of greenwashing could show if the results of this study are reliable. Even more, selecting a different sample could make the study external valid. Furthermore, studying if accusations of greenwashing leads to firms stop spreading
environmental claims could be an interesting topic for future research. Besides, researching effective ways to contest greenwashing can have practical implications for activists groups.
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7. Appendix
Appendix A
LexisNexisNL usage:
1). The following terms were used as a primary search:
“Company X AND (greenwash*)” with *meaning every variation of the word.
2). The second search was used to find all articles with any relevance to greenwashing: “Company X AND (greenwash* OR mislead* OR misled* OR hypocr*). With *meaning every variation of the word. However some companies led to more than a 1000 hits. Therefore, words like social AND environmental were included to narrow the articles.
Appendix B
Coding specific activist groups.
As stated in the methodology section, radicals seek change by confronting companies and working on issues without collaboration with companies. Reformative groups work with companies and within a network system to solve environmental problems (Den Hond & De Bakker, 2007: Hoffman, 2008). Hoffman makes a distinction between activist groups based on centrality in the corporate network and diversity of sector ties (2008). The centrality in the corporate network means if activists put themselves in the core of the corporate network of in the periphery of the network (Hoffman, 2008). Radicals are disconnected from companies, whereas reformative activists are at the core of the network and are willing to collaborate. Based on this distinction I coded in the following manner.
First example: Greenpeace.
Greenpeace is a global, independent campaigning organization that uses peaceful protest and creative communication to expose global environmental problems and promote solutions that are essential to a green and peaceful future” (Greenpeace, n.d.). In this section it describes first of all that it is an independent organization and therefore more in the periphery of the corporate network. Even more, the website of Greenpeace states; “Greenpeace challenges the systems of power and privilege that destroy the environment and place disproportionate burdens on vulnerable communities. Greenpeace does not solicit contributions from government or corporations, nor will we endorse political candidates.” (Greenpeace, n.d.). This text shows that Greenpeace is disconnected from other companies and are not willing to corporate or solicit any contributions from governments or corporations. Therefore, this activist group is coded as radical.
Second example: Forestethics.
The website states the following: Stand.Earth formerly Forestethics “Hold those companies accountable through high-profile events, demonstrations, and discussions with the
executives”. They call this strategy the markets campaigning. “Most of the hundreds of companies we communicated with wanted nothing to do with the destruction. They either stopped selling the products or insisted their suppliers make them from something more sustainable” They showed that a “track record of helping corporations and governments change their policies and behaviours to be inclusive, forward thinking, and responsible. Companies and governments are made up of people, and most people opt to do the right thing when encouraged to do so and see a pathway. We work with key individuals and groups within larger organizations to help them find their way towards more liveable solutions and keep them accountable to their commitments” (Stand.Earth, n.d.). This activist group works with companies and within a network system to solve environmental problems. Forestethics are at the core of the network and are willing to collaborate with firms and helping them to
become sustainable. Therefore Stand.Earth, formerly Forestethics, can be coded as a reformative-activist group.
Third example: Friends of the earth.
The website of Friends of the earth describes themselves as the following: “We are the world’s largest grassroots environmental network, uniting 75 national member groups and some 5,000 local activist groups on every continent” (Friendsoftheearth, n.d.). Through confrontation like “To engage in vibrant campaigns, raise awareness, mobilize people and build alliances with diverse movements, linking grassroots, national and global struggles” it tries to solve environmental issues (Friendsoftheearth, n.d.). Friends of the earth have a decentralized and democratic structure, in which it allows every member to participate in decision-making (Friendsoftheearth, n.d.). Lastly, they state: “Our international positions are informed and strengthened by our work with communities, and our alliances with indigenous peoples, farmers’ movements, trade unions, human rights groups and others”
(Friendsoftheearth, n.d.). This activist group is a bit harder to code. However, Friends of the earth is using confrontation to solve environmental problems. Furthermore, Friends of the earth are not collaborating with corporations to make them more sustainable or solve environmental issues. Friends of the earth are only building alliances with other activists. Therefore, they are positioning themselves at the periphery of the corporate network, and through their radical social change confrontations they are coded as radical.
