Greenwashing or Going Green? An Empirical Analysis of the Drivers and the Effects of Carbon Offsets and Renewable Energy Certificates on Firm Performance

Carbon offsets and renewable energy certificates (RECs) are widely used instruments that help firms mitigate their greenhouse gas emissions (GHG). This paper investigates which internal firm characteristics are associated with investments in carbon offsets or RECs and how these purchases impact firms’ performance. Based on data from publicly traded firms in North America and Europe from 2012-2022, this paper uses a propensity score matching approach to analyze the effects of these investments on firms’ environmental scores, GHG emissions, and financial performance. Additionally, this paper employs an instrumental variable approach to examine whether board gender diversity increases carbon offset or REC purchases. The findings reveal that firms that purchase carbon offsets or RECs face higher environmental scores and higher GHG emissions, suggesting corporate greenwashing behavior. This paper also demonstrates that these purchases lead to higher sales, profitability, and assets, but lower Tobin’s Q for REC buyers. Lastly, this paper finds that a greater presence of women on the board does not lead to greater purchases of carbon offsets or RECs.