Greenwashing vs. Authentic ESG: How Mismatching Corporate Communication and Actual ESG Metrics Impacts Brand Equity

Abstract

Environmental, Social and Governance (ESG) has emerged as a key factor for corporate reputation, stakeholder trust, consumer perceptions and brand equity. Concurrently, sustainability communication has grown at a fast pace with a major risk of greenwashing when corporate sustainability statements are more robust than the respective ESG results. This study investigates the influence of the ESG communication gap on the brand equity and looks at whether the brand credibility and stakeholder trust mediate between greenwashing and brand equity relationship. This study is of a quantitative and cross sectional type. The data was gathered using a structured questionnaire from 420 consumers with prior exposure to corporate sustainability, or ESG communications. Perceived sustainability claims were used to measure corporate communication and an ESG performance assessment was used to measure actual ESG performance. An index of communication–performance gap was created to reflect the level of perceived greenwashing. The measures of brand equity were brand awareness, perceived quality, brand associations, brand loyalty, and overall brand value perceptions. The data analysis technique used was descriptive, reliability analysis, correlation analysis, multiple regression, mediation analysis and structural equation modeling (SEM). The findings show that there is a strong negative correlation between the ESG communication–performance gap and brand equity. Greenwashing also has a tremendous negative impact on brand credibility and trust among stakeholders. The outcomes of the greenwashing-behaviour in the context of brand equity are highly mediated by brand credibility and stakeholder trust. However, consistency between sustainability communication and its measurable ESG performance is strongly linked to brand equity and is a characteristic of authentic ESG. The results suggest that sustainable communication that is backed by measurable environmental, social, and governance performance leads to better brand results. Based on the study, the findings contribute to signaling theory, stakeholder theory, legitimacy theory and literature on brand equity by showing that the value generated through the ESG communication is dependent on their perception of the credibility of the underlying signal.