Mandatory ESG disclosure and greenwashing: evidence from a quasi-natural experiment in China

Against the global push for sustainability, mandatory Environmental, Social, and Governance (ESG) disclosure has been widely adopted to enhance corporate transparency. However, its effectiveness in emerging markets with weak institutional enforcement remains uncertain. This study exploits Hong Kong’s 2016 mandatory ESG reporting mandate as a quasi-natural experiment and employs a difference-in-differences (DID) design to examine its impact on greenwashing among Chinese firms listed on both the A-share and the H-share markets over the period 2013–2021. We find that mandatory disclosure significantly increased greenwashing by 0.755 points, equivalent to 168% of the absolute sample mean. Grounded in the fraud triangle framework, we further identify three underlying mechanisms intensified external pressure, regulatory arbitrage opportunities, and internal rationalisation through tone manipulation. Overall, our findings suggest that, in the presence of weak enforcement, disclosure mandates may inadvertently encourage symbolic compliance over substantive actions, yielding important implications for both corporate ethics and regulatory policy.