Greenwashing under Environment Social Government Rating Systems: Theoretical Foundations, Mechanisms, and Empirical Research

Abstract

Nowadays, as people pay increasing attention to environmental governance issues, the Environment, Social, Governance (ESG) rating system has developed rapidly. This rating system has played a significant role in guiding capital towards sustainable investments. However, the widespread occurrence of greenwashing undermines the credibility of its rating system. Therefore, this article will review the theoretical framework, mechanisms, and empirical research results of greenwashing through ESG ratings, revealing the contradictions between enterprises and the rating methodology, and indicating that greenwashing is not only a strategic choice at the enterprise level but also a structural problem rooted in the flaws of the rating system. Additionally, by examining the theories of legitimacy, institutions, agency, and signals, this article integrates internal and external perspectives and further explains mechanisms such as selective disclosure, symbolic compliance, rating arbitrage, supply chain transfer, and absence of external supervision. Empirical research reveals that phenomena such as inconsistent ratings, market misunderstandings, and regulatory gaps have exacerbated greenwashing. The review concludes by calling for improved data quality, strengthened regulatory efforts, and the construction of a comprehensive theoretical framework to guide future research and policymaking.