Does green finance really inhibit extreme hypocritical ESG risk? A greenwashing perspective exploration

This paper investigates the link between green finance development and firms' environmental, social, and governance (ESG) performance quality based on a firm-level panel dataset from 2014 to 2020. The risk of extremely hypocritical ESG disclosures greatly matters to sustainable growth. Empirical evidence indicates that the development of green finance can play an effective role in motivating ESG performance by mitigating firms' reactions in alleviating greenwashing. We find evidence supporting moderating effects of green finance on increasing firms' green innovation activities, profitability, and reducing financial constraints level. In addition, the improvement effect of green finance on corporate greenwashing performance is more pronounced in state-owned firms, pollution-intensive firms, and firms with a higher level of environmental regulation than publicly listed corporations. Overall, this paper provides a timely assessment of the social value of green finance in emerging markets with a novel connection to ESG.