Corporate claims about environmental performance have increased rapidly in recent years, as has the incidence of greenwash, that is, communication that misleads people into forming overly positive beliefs about an organization’s environmental practices or products. References to greenwash in the literature have grown rapidly since the term was introduced more than 2 decades ago, with a sharp increase in articles since 2011. We review and synthesize this fragmented and multidisciplinary literature, showing that greenwash is a broad umbrella term that encompasses a variety of specific forms of misleading environmental communication. More research is needed that identifies and catalogues the varieties of greenwash, theorizes and models their mechanisms drawing on existing social science research, and measures their impacts on corporate performance and social welfare.

We present an economic model of greenwash, in which a firm strategically discloses environmental information and a non-governmental organization (NGO) may audit and penalize the firm for failing to fully disclose its environmental impacts. We show that disclosures increase when the likelihood of good environmental performance is lower. Firms with intermediate levels of environmental performance are more likely to engage in greenwash. Under certain conditions, NGO punishment of greenwash induces the firm to become less rather than more forthcoming about its environmental performance. We also show that complementarities with NGO auditing may justify public policies encouraging firms to adopt environmental management systems.

We extend the economic theory of regulation to allow for strategic self-regulation that preempts political action. When political "entry" is costly for consumers, firms can deter it through voluntary restraints. Unlike standard entry models, deterrence is achieved by overinvesting to raise the rival's welfare in the event of entry. Empirical evidence on releases of toxic chemicals shows that an increased threat of regulation (as proxied by increased membership in conservation groups) indeed induces firms to reduce toxic releases. We establish conditions under which self-regulation, if it occurs, is a Pareto improvement once costs of influencing policy are included.