Faculty across Wharton discuss greenwashing, Arctic ice caps, and more during Penn Climate Week.

Wharton Climate Prof — the high-energy rapid-fire interdepartmental presentations Iron Chef-style showcase of Wharton faculty’s climate-oriented research — came in with fresh urgency during University of Pennsylvania’s annual Climate Week. This year, nine faculty members representing departments like Legal Studies & Business Ethics, Finance, and Accounting showcased the intersection of their areas of study in business with the growing body of research seeking to answer big questions about climate change. Beginning next year, Wharton will also offer two ESG majors for MBA students and one undergraduate concentration for professionals seeking a path toward sustainable business.

In 5 minutes or fewer, professors presented on climate & social inequality, projections on the future of the Arctic’s ice caps, green public finance, government regulations, and so much more. Throughout the showcase, throughlines between individual professors’ areas of research emerged, showing how Wharton faculty look at the same issue from different perspectives and come to unique, related conclusions.

At the 2022 Wharton Climate Prof, two faculty members touched on greenwashing, the public relations practice of portraying a company’s product line or business practices as environmentally friendly, whether or not they actually are. Here is how two Wharton professors approach the issue:

Sarah Light: Consumers Need the Truth, Good or Bad

“Do we actually have an accurate picture of what’s happening on the ground in the marketplace?” Prof. Sarah Light, associate professor of business ethics and legal studies, examines greenwashing from the concern that, without accurate information regarding firm greenness, the marketplace may be distorted. She pointed out that firms considered to be practicing green business are popular with environmentally concerned consumers. So, if a consumer chooses a product because the manufacturer claims it is the recyclable option on the market when it isn’t really recyclable, then there is a problem.

Similarly, she cited research that shows how the public is less favorable of regulations on firms or industries they consider green. So, if a company has marketed itself as a green company and the government wants to enact regulations to guarantee those green practices or otherwise experience regulation, people across the political spectrum are less likely to support that regulation because they think the firm is already performing a social good. But what if they aren’t?

Light and her colleagues study the intersection of greenwashing and the First Amendment, which guarantees people and organizations with a right to free speech. She pointed out that speech is regulated often: perjury, or lying in court, is a crime because the court relies on witnesses to tell the truth. Customers rely on firms to tell the whole truth about their green practices, or lack thereof, to make properly informed choices. So, when the SEC steps in to mandate that companies disclose their green plans, Light calls it akin to compelling a court witness to tell the truth.

Light’s focus on greenwashing carries into the classroom, where she teaches multiple courses pertaining to the intersection of climate, business, and the law. Whether she’s teaching Climate and Environmental Leadership in Action, Business, Social Responsibility, and the Environment, or Environmental Management: Law and Policy, greenwashing is part of a suite of ethical challenges Light encourages students to parse through.

Mirko Heinle: Going Green Motivates Greenwashing, Too

“Why is an accountant here?” Prof. Mirko Heinle, associate professor of accounting, is curious how firm and fund managers make choices, especially green choices. In a world where investors simply cannot know everything about the marketplace, investors who care about green outcomes have to find investment opportunities that are clearly labeled green. Green investors might pay a little more to buy shares in green firms. So, to attract these investors, managers have an incentive to provide both a high quantity of information to investors and to make that information look attractive. That’s greenwashing!

“We typically see greenwashing as something that is morally bad, as something we need to avoid that’ll dampen our desired effects and make everybody worse off. Typically, I would say that in an equilibrium model, greenwashing tends to be a natural outcome of providing incentives,” Heinle argued. For Heinle, greenwashing and meaningful change may actually go hand-in-hand. Firms will compete to have more information that attracts green investors. One incentive for going green is that you get to tell everybody you’re going green. For firms and their investments, that can mean profit. The incentive to lie reduces as investors demand more information and competitors provide theirs.

The impact of information and incentives on climate concern in capital markets comes up regularly in Dr. Heinle’s course Climate and Financial Markets. The complex networks of financial markets have a forward role to play in forming a green economy, but only if everyone has the facts and invests accordingly. How do we get information where we need it to go? How do we factor it into our models?

— Devon Chodzin

Posted: November 3, 2022

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