Does Voluntary Environmental Certification Undermine Market-Based Regulation in Greenwashing?

The concurrent implementation of multiple environmental regulation instruments may generate complex policy interaction effects and reshape firms’ incentives for greenwashing. Using panel data on Chinese listed firms from 2010 to 2021, this article examines the effect of the carbon emissions trading scheme (ETS) on firms’ greenwashing through a multi-time point DID model, with particular attention to the moderating role of the voluntary environmental regulation. The results show that ETS as a market-based environmental regulation can significantly curb greenwashing. However, ISO 14001 certification weakens this effect, thereby undermining the governance effectiveness of market-based regulation. Mechanism tests indicate that ISO 14001 intensifies financial constraints and information asymmetry under the ETS, while crowding out environmental investments and weakening the positive effects of green innovation, thereby reducing firms’ environmental incentives. This moderating effect is more pronounced among enterprises with high carbon emission intensity, heavy pollution, non-state-owned, and firms located in regions with a high level of foreign investment. These findings offer an implication for environmental policy mixes, the governance of corporate greenwashing, and broader green transformation.