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HONG KONG SAR –\u00a0Media \u00a0<\/p>\n Titled Corporate Social Responsibility in Supply Chain: Green or \u00a0<\/p>\n “It is just not enough for \u00a0<\/p>\n To gauge greenwashing behaviour, the \u00a0<\/p>\n To rule out the alternative “For example, people google \u00a0<\/p>\n Just as theorised, Prof. Wu and his \u00a0<\/p>\n Who Does Greenwashing?<\/b><\/p>\n In terms of firm size and market \u00a0<\/p>\n Firms that are more concerned about \u00a0<\/p>\n The researchers also found that more \u00a0<\/p>\n The study highlights that if a “If the ‘bright’ side to CSR is Short-term Benefit<\/b><\/p>\n Showing off a “green” \u00a0<\/p>\n Why is that? Prof. Wu explains that \u00a0<\/p>\n “Everyone wants to drive a \u00a0<\/p>\n Real-world Implications<\/b><\/p>\n Prof. Wu and his co-authors point \u00a0<\/p>\n The researchers also say that since, \u00a0<\/p>\n To enhance the effectiveness of \u00a0<\/p>\n For managers, the researchers advise \u00a0<\/p>\n “For investors, they should Reference:<\/b><\/p>\n Shi, Yilin and Wu, Jing and Zhang, Yu, Corporate \u00a0<\/p>\n This article was first published in the China
\nOutReach<\/a>\u00a0– 10 June
\n2021 –\u00a0<\/b>The days of
\nrunning businesses solely for profit are long gone. Businesses, large or small,
\nmust make considerable efforts to be socially responsible and eco-friendly. A past survey<\/a>
\nshows that 91 percent of global consumers expect businesses to address social
\nand environmental issues, and 90 percent of them would boycott a company if it
\nwere engaged in irresponsible business practices. In other words, corporate
\nsocial responsibility (CSR) is not only a buzzword, but vital for businesses to
\nbe successful nowadays. However, it is not always easy to tell whether a
\ncompany is really doing good or just faking it, and as a recent research study
\nlooks at depth, some firms would voluntarily publish their supply chain
\nrelationships with “green” suppliers to to present a CSR image that
\nfails to represent the whole truth.<\/p>\n
\nGreenwashing?<\/a>, this research study is the first
\nto examine greenwashing behaviour of firms by looking at the voluntary
\ndisclosure of their suppliers. It was co-conducted by Jing
\nWu<\/a>, Assistant Professor in the
\nDepartment of Decision Sciences and Managerial Economics at The Chinese
\nUniversity of Hong Kong (CUHK) Business School, Yilin Shi, an incoming PhD
\nstudent at the CUHK Business School, and Prof. Yu Zhang at Peking University.
\nThe researchers found greenwashing to be common in the more than 40 countries
\nwho are the world’s major economies. The team looked at around 7,600 public
\nmanufacturing firms globally and observed over 12,000 unique firm-supplier-year
\nrelationships from 2003 to 2017.<\/p>\n
\nfirms to show the ‘green’ image of themselves to the world to demonstrate their
\nefforts in CSR. Our results show that firms now selectively reveal their
\n‘green’ suppliers to win customer trust,” Prof. Wu says.<\/p>\n
\nresearchers first calculated a score for each of the companies in the sample
\nbased on their environmental performance. They found consistent evidence that a
\nsuppliers’ environment score is positively related to how likely their partner
\nfirm would disclose its supply chain relationship. Specifically, a
\none-standard-deviation increase in a supplier’s environment score would lead to
\na 4.2 percent higher chance of being disclosed by their customer firm. In
\naddition, firms tend to not reveal their less eco-friendly suppliers.<\/p>\n
\nexplanation that firms may have chosen to disclose their relationship with a
\ncertain set of suppliers based on other favourable characteristics and that
\nthese suppliers also happen to possess strong CSR credentials, the researchers
\ntested if firms displayed greenwashing behaviour more when their local weather
\nwas abnormally hotter, an indicator of global warming.<\/p>\n
\nmore about global warming in extremely hot days and even retail investors would
\nsell stocks of firms that produce more carbon emissions and buy stocks of more
\neco-friendly firms,” Prof. Wu explains. “The same goes for our study.
\nWe think that if firms greenwash because they are concerned about their CSR
\nimage, then such behaviour would be more prominent in extreme weather
\nconditions.”<\/p>\n
\nco-authors found that firms are significantly more likely to fake good CSR
\nimage by greenwashing in extremely hot weather. “We also find that when
\nother environmental concerns trigger people’s attention to climate warming,
\nsuch as wildfire outbreaks, local firms are also more likely to greenwash their
\nimages,” Prof. Wu adds.<\/p>\n
\nshare, the study found that small firms and those with less market share and
\nusually lower CSR scores are more likely to greenwash in presenting a good CSR
\nimage. This is because unlike large firms, small firms may not have the
\nresources to invest in substantial CSR efforts and they may need to leverage
\nthe power of their supplier’s images. For firms facing intensive competition,
\nfaking a green image without making real CSR efforts can be a convenient
\nstrategy. When small firms are under competitive pressure, a good CSR image may
\nhelp them to stand out from their rivals.<\/p>\n
\ntheir public image and reputation are also more likely to conduct greenwashing.
\nIn particular, firms that spend significantly more on advertising are found to
\nbe more aggressive in supply chain greenwashing, as the strategic disclosure of
\ntheir “green” suppliers would help build a better CSR image.<\/p>\n
\nprofit-hungry firms are likely to engage in supply chain greenwashing.
\nAccording to the study, firms seeking to chase a higher return on assets (ROA)
\ntend to hide their “brown” or less environmentally-friendly suppliers
\nto avoid being punished for having a low CSR affiliation. The same is true for
\nfirms that are owned more by institutional investors. A firm with a good CSR
\nimage is a profitable asset in investors’ portfolios, and therefore firms might
\nwant to maintain a positive image for institutional investors. On the other
\nhand, some institutional investors might not care about greenwashing at all as
\nlong as it brings in profits.<\/p>\n
\nsupplier has more institutional ownership, then a firm using this supplier is
\nmore likely to selectively disclose the relationship based on the latter’s
\nenvironmental performance. This is because a relationship with a supplier with
\ngood CSR credentials and large institutional ownership will receive more public
\nattention, which would benefit the firm using this supplier in terms of
\npublicity and recognition.<\/p>\n
\na world where firms are seeking to lower their carbon footprint, then what our
\nstudy shows is the ‘dark’ side and how smaller and weaker firms are using it to
\ngreenwash their public image,” Prof. Wu says.<\/p>\n
\nimage is not the only benefit that the firms can get out of greenwashing. The
\nresearchers found that sales in firms that disclose their suppliers with good
\nenvironment ratings increased when compared with sales of the firms that
\ndisclose their “brown” suppliers. However, such an improvement in
\nsales was short-lived. Similarly, disclosing “green” suppliers could
\nhave a positive effect on a firm’s ROA, but the effect would diminish in the
\nlong term.<\/p>\n
\nthe public can be slow in familiarising themselves with the manufacturing
\nprocess of products or the details of supply chains, so it is easy for firms to
\nlure people with their seemingly “green” efforts in the supply chain.
\nBut, in the long run, the general public would realise that what the firms did
\nwas a mere publicity stunt. Therefore, the boosted sales and ROA would not
\nlast.<\/p>\n
\nTesla, but not all of them know how the cars are made and where the parts come
\nfrom. If a manufacturer tells the public that they only work with eco-friendly
\nsuppliers, then people might just fall for it,” Prof. Wu says. “Just
\nlike how retail customers are now increasingly sceptical of so-called ‘green’
\nproducts, the public would become sophisticated enough to tell whether the
\nfirms are dedicating real efforts in protecting the planet. It just takes
\ntime.”<\/p>\n
\nout that there is a way to put a damper on firms’ greenwashing behaviour. In
\nexamining environment-related disclosure regulations around the world launched
\nbetween 2003 and 2016, they found that supply chain greenwashing typically
\nreduces after CSR reporting and disclosure regulations are tightened.<\/p>\n
\nmore often than not, environmental legislation tends to focus on the green
\ncredentials of a company’s own production and operations and pay less attention
\nto its suppliers, it can be easy for firms to hide environmentally polluting
\nproduction processes in complex supply chains.<\/p>\n
\nregulations, they suggest countries expand their scope in requiring the
\ndisclosure of suppliers. This way, firms would not be able to only disclose the
\n“green” suppliers and hide the bad ones. Policymakers should also
\nconsider improving the transparency of supply chains in the current regulatory
\nframework and they should always beware of firms’ strategic and selective
\ndisclosure to boost a “green” image.<\/p>\n
\nthem to bear in mind that higher profits, either in the form of sales or ROA,
\nbrought about by greenwashing practices only last for a very short term. When
\npeople find out that a firm engaged in greenwashing their CSR efforts and with
\nno actual interest in being socially responsible, then the short-term gains
\nwould likely disappear.<\/p>\n
\nmake an effort to detect when strategic disclosure of ‘green’ suppliers purely
\nfor CSR image purposes is happening, and realise that only truly greener supply
\nchains can improve firms’ capital market valuation in the long term,”
\nProf. Wu comments. “The public can also get in on the action and help out
\nby monitoring any suspicious supply chain greenwashing behaviour.”<\/p>\n
\nSocial Responsibility in Supply Chain: Green or Greenwashing? (July 25, 2020).
\nAvailable at SSRN: https:\/\/ssrn.com\/abstract=3700310<\/a> or http:\/\/dx.doi.org\/10.2139\/ssrn.3700310<\/a><\/p>\n
\nBusiness Knowledge (CBK) website by CUHK Business School: https:\/\/bit.ly\/3fFpu3S<\/a>.<\/p>\n