Detecting greenwashing through environmental performance: evidence from corporate disclosures and environmental violations in Malaysia

Lu, Li Heng (2025) Detecting greenwashing through environmental performance: evidence from corporate disclosures and environmental violations in Malaysia. Final Year Project, UTAR.

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Abstract

Environmental concerns such as climate change have intensified pressure on companies to demonstrate credible sustainability practices. However, this pressure has also increased the risk of greenwashing, where firms overstate their environmental commitment in disclosures without corresponding operational improvements. This study examines the determinants of greenwashing among Malaysia’s top non-financial public-listed companies from 2019 to 2024. A novel Greenwashing Score is developed by comparing the positive sentiment of sustainability report narratives, derived using machine-learning techniques, with firms’ actual environmental ratings. Using a sample of 82 firms and panel regression analysis, the study investigates whether environmental performance, disclosure quality, and environmental violations influence the degree of “talk–walk” decoupling. The results show that substantive environmental performance, particularly emissions management and resource-efficient practices, significantly reduces greenwashing. In contrast, disclosure quality indicators such as readability and financial statement disaggregation, as well as recorded environmental violations, do not meaningfully explain greenwashing behaviour. Furthermore, the introduction of stricter sustainability reporting requirements in 2022 does not significantly alter these relationships. Overall, the findings indicate that genuine environmental action is the strongest predictor of credible sustainability communication in the Malaysian market. The study contributes to ESG literature by offering a replicable measure of greenwashing and providing practical insights for regulators, investors, and firms seeking to enhance sustainability reporting integrity.

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