Climate Policy Uncertainty and Selective Investment Greenwashing: Evidence from the U.S. Capital Market

This study investigates how climate policy uncertainty (CPU) shapes corporate greenwashing behavior in the United States, focusing on selective disclosure and selective investment greenwashing. Motivated by the limited understanding of how climate policy uncertainty affects both disclosure- and investment-based greenwashing, particularly in the U.S. capital market, this study addresses a critical gap in the literature. Using panel data for publicly listed U.S. firms from April 2005 to November 2024, this study develops a dynamic rolling correlation metric to detect inconsistencies between firms’ environmental investment claims and their realized environmental performance. The empirical results reveal that higher CPU levels significantly increase both selective disclosure and selective investment greenwashing, suggesting that firms respond to policy ambiguity by emphasizing symbolic rather than substantive environmental actions. These findings imply that policy instability weakens external monitoring mechanisms and encourages firms to prioritize reputation signaling over genuine environmental performance. Mechanism analyses indicate that unpredictable regulatory tightening and declining participation by environmentally oriented institutional investors intensify greenwashing incentives. Furthermore, transparency and CSR orientation moderate these effects, with highly transparent and CSR-committed firms exhibiting weaker greenwashing responses to policy uncertainty. This study contributes to the literature by introducing a novel dynamic correlation-based measure of selective investment greenwashing and providing one of the first U.S.-focused empirical analyses jointly examining both dimensions of greenwashing. The study also offers practical value: it helps regulators design more stable and comparable disclosure rules, helps investors and analysts detect symbolic sustainability claims, and provides researchers with a replicable measure of investment-based greenwashing. These findings underscore the need for more stable climate policies, enhanced disclosure standards, and stronger monitoring mechanisms to reduce symbolic sustainability practices in the U.S. capital markets.