Abstract
Environmental public interest litigation (EPIL) is an innovative judicial system for strengthening judicial protections and safeguarding social and public interests. However, the effect of EPIL on corporate greenwashing remains underexplored. To fill this gap, this study investigates the impact of environmental judicial reform on corporate greenwashing behavior and explores the underlying mechanism. Using data of China’s A-share listed companies between 2012 and 2017, we find that EPIL can effectively restrain corporate greenwashing behavior. This effect is more pronounced among state-owned enterprises, firms with limited media or analyst coverage, and those in highly polluted, competitive industries, firms in cities with stringent legal frameworks, weak environmental regulation and severe environmental pollution. Further, mechanism tests show that EPIL enhances judicial efficiency, strengthens government oversight, and heightens public engagement, and reshapes corporate environmental strategies, through which corporate greenwashing is reduced. This study contributes to the existing literature on the influence of formal institutions on greenwashing by shedding light on the significant role of environmental judicial reform in restraining corporate greenwashing behavior.
Introduction
The escalating concerns over environmental performance from governments and investors have led to the prevalence of corporate greenwashing behavior (Du 2015; Robertson et al. 2023). Greenwashing refers to the discrepancy between firms’ proclaimed environmental commitments and actual practices, indicating proactive environmental disclosure but poor environmental performance. Firms’ participation in greenwashing is to gain environmental legitimacy (Wu et al., 2020) or boost corporate value by constructing a positive environmental image (Du et al. 2021; Torelli et al. 2020). There are substantial studies show the consequences of corporate greenwashing, including undermined reputation (Szabo and Webster, 2021), diminished investor confidence (Gatti et al. 2021), and negative financial performances (Li et al., 2022), and stock price crash risk (Testa et al. 2018). As a result, the concerns for adverse impact motivate us to explore the mechanisms that could deter firms from engaging in greenwashing.
Existing research on the governance of greenwashing has primarily focused on external oversight mechanism and internal governance mechanism. The former includes government intervention (Sun and Zhang 2019), media attention (Li et al. 2023; Wang et al. 2023), and institutional investors (Yu et al. 2020, Chen et al., 2025) and public engagement (Wu et al. 2020; Zhou and Ding 2023) and consumer purchasing behaviors (Ioannou et al. 2023; Rahman and Nguyen‐Viet 2023). The latter involves board structure (Zahid et al. 2025), executive characteristics (Hussain et al. 2023; Deng et al. 2025) and internal scrutiny (Wang et al. 2023; Zhao et al. 2024c). Additionally, digital and green finance have been proven to curb corporate greenwashing by alleviating financial constraints (Zhang 2023a; 2023b). Corporate greenwashing has been increasingly recognized as a form of commercial misconduct, however, the effect of environmental judicial reform on greenwashing has been unexplored.
An effective environmental judicial infrastructure can serve as a deterrent to corporate greenwashing (Zhao et al. 2022; Gao et al. 2024; He and Wang 2024). On one hand, stringent enforcement of environmental law enhances the local governments accountability in environmental governance and disrupt collusion between government bodies and corporations (He et al. 2020; Chen et al. 2022). On the other hand, environmental justice serves to motivate enterprises to invest more in long-term environmental initiatives (Huang et al. 2022; Zhou et al. 2023). Environmental public interest litigation (hereafter, EPIL) emerged as an innovative legal mechanism for safeguarding environmental public interests (Li and Song 2024), which was implemented in 2015 across 75 cities in 13 provinces and ended in 2017. The innovation of EPIL is to designate procuratorial organs (prosecution agencies) as the primary agents for both administrative and civil public interest litigation and empowers them to oversee administrative agencies in fulfilling their environmental protection duties, exhibiting a prosecutorial-led model with distinct Chinese characteristics.Footnote 1 It addressed the problem lack of legal actors responsible for safeguarding public environmental interests and strengthened environmental law enforcement by allowing the public and procuratorates to play a more effective role in monitoring and supervising both polluters and agencies. For instance, Zhai and Chang (2018) find that there is a significant increase in the number of environmental public interest lawsuits initiated by the procuratorate and a notable reduction in pollution emissions in the pilot areas. Consequently, we hypothesize that the environmental judicial reform can mitigate corporate greenwashing.
To test our hypothesis, we examine the impact of EPIL on corporate greenwashing and its governance mechanisms using the data of China’s A-share listed companies from 2012 to 2017. China provides us an ideal quasi-natural experimental setting for several reasons. First, corporate greenwashing is prevalent in China. The lack of standards for corporate environmental disclosure enables companies to exaggerate their environmental performance, thereby sending misleading green signals to the market to attract consumers and investors. Second, the information asymmetry between companies and external stakeholders leads to the prevalence of greenwashing (Zhang 2022a). Third, prior the pilot of EPIL, there was no legal entity specifically designated to safeguard environmental public interests. Environmental justice circumvented the conflicts between ecological conservation and economic development within regions, overlooked public demands for environmental claims, which weakened the efficacy of environmental regulation policies. Prior research suggests that in the absence of legal oversight, stringent environmental regulations may exacerbate corporate greenwashing (Hu et al. 2023a; Tan et al. 2024). The EPIL pilot promotes effective collaboration between environmental justice and administration, enabling us to use the difference-in-difference approach to examine the effect of environmental judicial reform on corporate greenwashing.
We construct the measurement for EPIL and corporate greenwashing following prior literature. Specifically, based on Shen et al. (2023), we use linguistic tone derived from textual analysis of annual reports to construct a firm-level environmental disclosure index. The difference between firm-level environmental disclosure index and actual environmental performance is used to measure corporate greenwashing. The findings show that the EPIL pilot effectively curbs corporate greenwashing behavior, suggesting a significant decline in greenwashing practices among firms located in the EPIL pilot areas. The results remain significant after addressing endogeneity concerns and after a battery of robustness tests, including the parallel trend test, placebo test, PSM-DID, and alternative proxies for greenwashing, controlling for the confounding effects of other concurrent policies and regional factors. The inhibiting effect of EPIL on corporate greenwashing behavior is more pronounced among state-owned enterprises, firms with limited media or analyst coverage, and those in highly polluted, competitive industries, firms in cities with stringent legal frameworks, weak environmental regulation and severe environmental pollution. Further, mechanism analyses identify that EPIL enhances judicial efficiency, strengthens government oversight, and heightens public engagement, and reshapes corporate environmental strategies, through which corporate greenwashing is reduced.
This study contributes to existing literature in three significant ways. First, it shifts the research focus from government-led initiatives to the involvement of public authorities. Specifically, the EPIL dominated by the procuratorate as a means of environmental regulation broadens the scope of application for existing environmental regulation subjects. It further adds to the strand of literature on the influences of formal institutions on corporate greenwashing, including green finance (Zhang 2023b), low-carbon city (Zhang 2023c), environmental tax reform (Hu et al. 2023a), emissions trading scheme (Tan et al. 2024) and other external environmental governance (Sun and Zhang 2019; Yu et al. 2020; Li et al. 2023; Wang et al. 2023). While these studies typically focus on a specific formal institution, the impact of environmental judicial quality has been largely overlooked. Our findings offer new insights by showing that an improved environmental judicial system is critical in mitigating corporate greenwashing.
Second, this study clarifies the governance effect of the EPIL pilot, enriching existing research on the role of environmental justice. Prior research has largely focused on the New Environmental Protection Law and the establishment of environmental courts, assessing their impacts on outcomes such as emission levels (Zhao et al. 2022; Yuan et al. 2023), energy efficiency (He and Wang 2024), and corporate investment in environmental protection and green innovation (Yang et al. 2022; Qi et al. 2023). Our analysis extends this stream of studies by examining how EPIL, designed to strengthen environmental judicial and enforcement capabilities, influences environmental governance, specifically through reducing corporate greenwashing.
Third, this research highlights how environmental justice influences governments’ environmental policies, public engagement, and corporate practices. While existing research suggests environmental judicial quality impacts governmental initiatives (Zhang et al. 2019; Gao et al. 2024), systematic empirical validation has been limited. Mechanism analyses demonstrate that the environmental judicial reform fosters government and public oversight regarding environmental protection and corporate environmental investment. It offers valuable insights into EPIL practice and a useful reference for subsequent literature on legal systems and environmental protection.
Institutional background and hypothesis development
Institutional background
Challenges of environmental justice in China
Since the promulgation of the first Environmental Protection Law in 1989, China has undertaken great efforts to strengthen environmental legislation and enforcement. Such efforts include further revisions and subdivisions of environmental laws and the establishment of environmental courts. However, environmental pollution issues remain inadequately addressed, and environmental courts have remained largely underutilized, falling short of expected effectiveness.
The challenges in environmental law enforcement can be attributed to two factors. The first is the separation of environmental administration and judicial functions. Under China’s traditional environmental legal system, administrative departments are the primary enforcers, while environmental administration and judicial functions operate separately. It results in the low efficiency of environmental law enforcement in China. On one hand, the separation of environmental administration and environmental justice increases the risk of corruption. Collusion between administrative agencies and private enterprises often leads to superficial environmental enforcement to address environmental pollution. On the other hand, the effectiveness of environmental laws is overly reliant on administrative penalties, and the low cost of these penalties undermines their ability to provide a sufficient deterrent against environmental violations (Wang and Zhang 2024). In this context, the establishment of environmental courts serve primarily as symbolic gestures by local governments rather than effective tools of environmental governanceFootnote 2, leading to the volume of lawsuits filed and cases processed remains minimal. For example, environmental courts across 14 provinces and municipalities concluded zero cases in 2013, with some handling only civil and criminal cases unrelated to environmental disputes.
The second is the limited scope of litigation cases and vague plaintiff qualifications. Predominantly focused on criminal and civil cases initiated by administrative authorities, the courts handle limited number of environmental litigation cases. Meanwhile, the environmental issues fail to attract sufficient public attention and engagement. Despite amendments to the Civil Procedure Law in 2012 and revisions to the Environmental Protection Law in 2014 introducing EPIL provisions, critical matters like plaintiff eligibility and procedural guidelines remain unspecified, thereby undermining the effectiveness of the environmental civil public interest litigation system.
Environmental public interest litigation in China
China has moved towards establishing a more robust EPIL system to ensure local governments’ accountability in environmental governance. In 2015, the Standing Committee of the National People’s Congress passed the “Decision on Authorizing the Supreme People’s Procuratorate to Carry out Pilot Programs of Public Interest Litigation in Some Regions”. This decision mandated a two-year pilot program of public interest litigation in selected cities across 13 provinces (municipalities)Footnote 3, focusing on ecological environment and resource protection. In 2017, the National People’s Congress formalized the EPIL system by amending both the Civil Procedure Law and the Administrative Procedure Law. Notably, the laws specifically list the “protection of the ecological environment and resources” first among EPIL’s primary aimsFootnote 4, marking a national adoption of the public interest integration system. It suggests a significant legal precedent in environmental litigation.
While the concept of EPIL originated in developed countries, China’s EPIL pilot possesses its own distinct characteristics due to the special environmental issues. Specifically, unlike the “citizen system” in the United States regarding EPIL and its focus on environmental civil lawsuits, China designates procuratorial organs as the primary agents for public interest litigation and aims to safeguard social public interests and strengthen legal supervision via both administrative and civil environmental public interest litigations. Due to their insider status within the political system, relative independence from local governments, and extensive institutional resources, procurators maintain a delicate balance between holding executive agencies environmentally accountable and managing local governments’ resistance to the EPIL system. In contrast to Western countries, China’s prosecutorial-led model with rapid decision-making and strong execution capabilities has improved the efficiency of the implementation of environmental policies.
In China’s EPIL system, the environmental administrative public interest litigation, governed by the procuratorial organ, is a defining feature. In administrative litigation, procuratorial organs hold significant authority to supervise administrative enforcement in environmental governance. If a local procuratorate finds that an administrative authority has acted unlawfully or failed to act, it can issue procuratorial recommendations to that authority and file a lawsuit in the people’s courtFootnote 5. This mechanism encourages administrative agencies to use legal measures to protect public ecological interests and addresses gaps in administrative enforcement within environmental governance. Appendix C provides a detailed guiding case of environmental administrative public interest litigation that exemplifies the enhanced regulatory power of environmental justice over government environmental governance following the reform.
For civil public interest litigation, authorized organizations are empowered to file environmental civil public interest litigation alongside procuratorial organs, provided they have sufficient evidence. This broadening of potential plaintiffs is designed to more effectively counteract and remedy environmental pollution and its social impact, aiming for a more proactive prevention of environmental damage and compensation for affected public interests. To clarify the difference between administrative and civil public interest litigation, we also present a detailed description of these two types of EPIL in Appendix D.
During the period of EPIL pilot, there has been a substantial rise in the number of cases across environmental civil, administrative, and criminal proceedings in China (see Fig. 1). Procuratorial organs in pilot regions managed 6527 EPIL-related cases by 2017, indicating that EPIL exerts a positive influence on environmental justice and law enforcement. This initiative results in rehabilitating 129,000 hectares of contaminated lands, including arable fields, forests, wetlands, and grasslands, and the remediation of over 180 square kilometers of polluted water sources. Further, the actions taken compelled over 1700 non-compliant enterprises to implement corrective measures.Footnote 6 Consequently, we argue that EPIL has significantly enhanced the judicial oversight capacities of procuratorial organs and motivated local governments to strengthen their environmental governance endeavors, effectively curbing the polluting practices of enterprises.
This figure illustrates trends in environmental public interest litigation cases in China from 2011 to 2019. Following the introduction of the pilot policy in 2015, the total number of cases nationwide steadily increased year by year. After the pilot policy concluded in late 2017 and the public interest litigation system was implemented nationwide, the growth rate became even more pronounced, reflecting the strong progress of the system’s development.
Hypotheses development
The ineffectiveness of firms’ environment governance can be attributed to two primary reasons. First, weak environmental law enforcement. Prior to EPIL, a series of environmental regulations served as pivotal regulatory forces in corporate environmental disclosure and performance in China (Cui et al. 2022; Wang et al. 2022). According to Porter Hypothesis, well-crafted environmental regulations can facilitate firms’ competitiveness, reduce pollution emissions and improve environmental quality (Porter 1991; Ambec et al. 2013), such positive effect can be weakened by deficient local law enforcement (Du et al. 2022). In the Chinese context, since the authority for environmental enforcement is vested in administrative agencies, the effectiveness of environmental regulations depends critically on the enforcement efforts and proactiveness of local governments (Wang et al. 2022). The decentralized governance model has led local governments to neglect their environmental responsibilities (Gao et al. 2024) and inclined to exhibit selective, inconsistent, and symbolic adherence to central environmental directives (He et al. 2020; Chen et al. 2022). Meanwhile, local officials prioritize economic growth over environmental concerns to secure their career promotion or personal interests, leading to the long-standing collusion between local governments and a “free-rider” approach to pollution management (Li and Zhou 2005; Deng et al. 2019). Moreover, existing environmental regulations rely on a single enforcement mechanism, resulting in weak law enforcement (Hu et al. 2023a; Tan et al. 2024).
Second, the public inability to act as supervisors fosters a sense of detachment from environmental protection, weakening their personal responsibility and reducing their willingness to engage with environmental issues (Li and Song 2024). According to externality theory, corporate environmental misconduct is a classic example of a negative externality. It increases social costs, heightens the risk of market failure, and negatively affects public health, quality of life, and environmental integrity, ultimately harming societal environmental interests. While public involvement can serve as a collective force to mitigate these negative externalities, a weak judicial system and ineffective enforcement diminish this impact. In the absence of public oversight mechanism, enterprises are more likely to engage in reckless speculative and polluting behavior. Therefore, the role of judicialization in environmental governance is critically important. The hierarchical and professional of juridical institutions confer them a unique advantage in resisting undue illegitimate local interference and increases public engagement.
We argue that EPIL can achieve the synergy between environmental justice and law enforcement. Its far-reaching effects can serve as a modern national governance system and long-term institutional arrangements for enhancing corporate environmental governance (Gao et al. 2024; Zeng et al. 2024). On one hand, EPIL can strengthen independent and authoritative environmental judicial supervision of local governments, exert more effective regulations on corporate environmental practices. Theoretically, the hierarchical structure of EPIL system enables the higher procuratorates to practically micromanage their local subordinates, making it difficult for local actors to leverage political or personal connections to avoid environmental accountability. Such support emboldens the juridical institutions when dealing with local governments and can transform legal outcomes into political consequences for violators (Zhai and Chang 2018; Wang and Xia 2023). On the other hand, it opens public environmental appeal channels equipped with professional judicial personnel and specialized approval mechanisms and increases the pressure of public opinion on environmental disclosure and performance of companies (Berrone et al. 2013; Pan et al. 2023; Qi et al. 2023). Under such strict environmental justice and supervision, firms that persist in engaging in dishonest environmental practices are likely to incur higher operational costs, reputation damage, and may even risk funding shortages or bankruptcy (Yin et al. 2023; Zhou et al. 2023). Therefore, firms are deterred from engaging in opportunistic behavior in environmental disclosure, and compelled to reduce pollution emissions, pursue green innovation, and improve resource utilization efficiency to enhance their green competitiveness. As a result, we propose the following hypothesis:
H1: The EPIL pilot can effectively curb corporate greenwashing.
Next, we further explore four potential channels through which EPIL pilot program affects enterprises’ greenwashing behavior, that is, enhanced judicial efficiency, strengthened government oversight, and heightened public engagement, and reshaped corporate environmental strategies.
Enhanced judicial efficiency
A well-functioning judicial system plays a crucial role in environmental governance by reducing procedural delays, ensuring consistent application of environmental regulations and increasing the legal and financial consequences of corporate misconduct (Zhang et al. 2019; Wang and Zhang 2024). The EPIL pilot strengthens environmental judicial efficiency, ensuring that environmental laws are enforced more swiftly and effectively. By streamlining litigation processes, the EPIL pilot raises the cost of non-compliance, thereby discouraging firms from engaging in opportunistic environmental disclosures. Improved judicial efficiency reshapes firms’ assessments of legal and reputational risks associated with environmental misconduct. The introduction of EPIL has increased the number of environmental lawsuits and expedited case resolutions, significantly raising the probability of legal sanctions against firms that misrepresent their environmental performance. Confronted with greater litigation risks and stricter enforcement, companies are incentivized to align their disclosures with actual environmental performance, thereby mitigating corporate greenwashing.
In addition, enhanced judicial oversight strengthens investor and public confidence in environment governance. Prior to the EPIL pilot, regulatory uncertainty enabled firms to exaggerate sustainability commitments without substantial legal or reputational consequences. The EPIL pilot reduces ambiguity in regulatory enforcement and demonstrates a more assertive approach to environmental accountability. As a result, firms face stronger incentives to pursue substantive environmental initiatives rather than relying on symbolic compliance measures. Overall, we argue that the EPIL pilot mitigates corporate greenwashing by enhancing environmental judicial efficiency and reinforcing the credibility of environmental law enforcement.
Strengthened government oversight
Traditionally, environmental dispute resolution has relied on government administrative actions, limited by underdeveloped environmental laws. While the positive effect of government governance on corporate environmental performance is largely verified in previous studies (Yin et al. 2023; Zhao et al. 2024a), the lack of independence within environmental regulatory bodies severely undermines pollution control efforts. Environmental agencies’ decisions are often influenced by local officials’ career and economic goals, detracting from environmental protection roles (Zhang et al. 2019; He et al. 2020). EPIL empowered the procuratorial organs with judicial oversight to oversee local government environmental governance, reinforces environmental regulations, and dismantles the impunity for enterprise environmental misconduct. Consequently, we argue that EPIL strengthens the governmental oversight, and thereby curtailing corporate greenwashing.
Heightened public awareness
As an informal governance mechanism, social environmental accountability plays an important role in supervising corporate behavior (Greenstone and Hanna 2014; Ji et al. 2018). For instance, non-profit or social organizations can report environmental violations and take legal action, pressuring local governments to strengthen pollution control (Buntaine et al. 2021). The EPIL pilot paves more direct routes for public engagement in seeking environmental justice, and thus heightening public environmental protection engagement. Hence, we posit that the EPIL pilot increases public awareness of environmental accountability, and thereby reducing greenwashing.
Reshaped corporate environmental strategies
EPIL can reshape firms’ environmental strategies by steering them away from deceptive environmental practices. On one hand, implementing the EPIL system strengthens judicial oversight and increases penalties for environmental violations, raising the cost of non-compliance and reducing environmental violations. This shift toward stricter regulations and improved judicial efficiency pressures companies to prioritize substantive environmental governance and green innovation (Porter and Linde 1995; Cui et al. 2022; Yin et al. 2023). On the other hand, stakeholders encourage companies to adopt environmental initiatives in pursuit of positive media coverage, financial support, and to meet consumer demand for eco-friendly products (Nandy and Lodh 2012; Huang and Li 2017). Overall, EPIL enhances environmental governance by prompting firms to implement proactive strategies in response to increased scrutiny from media, financial institutions, and consumers (Yuan et al. 2023).
Based on the discussion above, we propose the following hypothesis:
H2: Enhanced judicial efficiency, strengthened government oversight, heightened public engagement, and reshaped corporate environmental strategies are four underlying channels through which EPIL curbs corporate greenwashing.
Empirical design
Sample selection
Our initial sample comprises all of China’s A-share listed firms over the period of 2012–2017. Since the EPIL pilot started from 2015 and was rolled out nationwide after 2017. This timeframe includes three years prior to the pilot and the three-year EPIL pilot phase (2015–2017), during which 75 cities were selected for the EPIL pilot. We obtain financial, green investment, and patent data from the CNRDS (Chinese Research Data Services Platform) and CSMAR (China Stock Market & Accounting Research Database) databases. Information on environmental administrative penalty cases is retrieved from the official case document websitesFootnote 7. The frequency of environmental terms in city government reports and the daily Baidu search index for these terms are obtained using web scraping techniques with a web crawler. In addition, ESG scores are sourced from the Huazheng and Bloomberg databases. Data on prefecture-level city characteristics are retrieved from the China City Statistical Yearbook. We exclude companies in the financial industries and those labeled as Special Treatment or Particular Transfer. All continuous variables are winsorized at the 1st and 99th percentiles to mitigate the impact of outliers. These steps yield a final sample of 11,076 firm-year observations.
Variable construction
Measurement for greenwashing
Extant studies measure corporate greenwashing by comparing ESG scores from different rating agencies, identifying discrepancies between reported environmental practices and actual performance. This method relies on the scores rated by Bloomberg to measure firms’ environmental disclosure indexes, which may lead to biases. First, it only evaluates a company’s completeness of environmental disclosure based on annual reports and sustainability reports, thus failing to detect the subjective intention of information disclosed due to the lack of standardized techniques and limited access to direct data from companies (Hu et al. 2023b). Second, it is difficult to quantify qualitative information such as improvements in environmental control processes or development of environmentally friendly products (Marquis et al. 2016; Wang et al. 2023). Hence, the level of corporate environmental disclosure and greenwashing needs further assessment.
To address the problems above, we follow Shen et al. (2023) to adopt a sentiment analysis to assess the level of corporate environmental disclosure through the tone of management’s communications. This method offers a more nuanced understanding of the intentions behind environmental disclosures, potentially revealing attempts at greenwashing between environmental disclosure and performance more effectively than traditional ESG score comparisons. Besides, sentiment analysis allows for capturing the subtleties of how environmental information is presented, providing a closer match to the concept of greenwashing. The steps for measuring environmental disclosure are outlined below:
First of all, we construct an environmental lexicon using a pre-trained word vector model from Tencent Artificial Intelligence Laboratory, encompassing over 12 million words and phrases. The environmental lexicon is compounded from expert-identified seed words and utilizes the cosine similarity approach to identify environmental terms. We only retain terms with a cosine similarity score above 0.5 to balance precision and comprehensiveness. Six independent groups manually refine this lexicon to remove duplicates and irrelevant terms, forming a refined environmental keyword dictionary.
Next, we follow Liao et al. (2023) to compile an environmental corpus of enterprises for each year by analyzing corporate annual reports. We adopt the “Jieba” Python module for text processing, which involves splitting clauses and words, segmenting the corpus, and analyzing the frequency of environmental terms.
Finally, we determine the tone of environmental disclosures using the Chinese sentiment dictionary developed by Jiang et al. (2021), combined with lexical counting methods from Price et al. (2012) and Durnev and Mangen (2020), to construct two sentiment measures of corporate environmental disclosure: GW_TONE1 and GW_TONE2. GW_TONE1 calculates the net sentiment ratio as the difference between positive and negative word counts relative to the total count of environmental words. GW_TONE2 measures the net sentiment against the total positive and negative word count. Higher values of GW_TONE1 and GW_TONE2 indicate a greater propensity for environmental disclosure manipulation by companies.
To quantify corporate greenwashing, we follow Zhang (2023b) to assess the discrepancy between environmental disclosure manipulation and actual environmental performance. Specifically, we use GW_TONE1Footnote 8 to gauge the extent of positive semantic content in disclosures and obtain environmental performance scores from the Huazheng database. From this data, we construct a measure of corporate greenwashing, GW_DIFF1, based on the following equations.
Where GW_TONE1 denotes the corporate environmental disclosure index defined as above, HZSCORE denotes the environmental performance scores for each enterprise from Huazheng database. The minimum and maximum of these two variables are used in Eqs. (1) and (2) to calculate the standardized value. GW_DIFF1 equals to standardized GW_TONE1 minus standardized HZSCORE, representing the difference between corporate environmental disclosure and actual environmental performance.
Measurement for EPIL pilot policy
We create an indicator variable (DID) to capture the policy effect of the EPIL reform. Specifically, DID equals one for firms headquartered in cities included in the EPIL pilot, during the period of 2015 and 2017, and zero otherwise.
Measurement for control variables
Following Hu et al. (2023a) and Zhang (2023a), we control for various factors potentially influencing corporate greenwashing. These controls include the natural logarithm of one plus total assets (SIZE), the natural logarithm of one plus firm’s listed years (AGE), debt-to-asset ratio (LEV), return on total assets (ROA), the ratio of net cash flow from operation to total assets (CASHFLOW), the ratio of market value of total assets to asset replacement cost (TOBINQ), the ownership percentage of the largest shareholder (TOP1), the natural logarithm of the number of board directors (BOARD), the percentage of independent directors on a board (INDEP), and whether CEO and chairman are the same people (DUAL). Detailed variable definitions are provided in Appendix A.
Model specification
Following Zhang and Gao (2022), we adopt the following difference-in-differences regression model to examine the impact of the EPIL pilot on corporate greenwashing.
Where i, j, and t denote firm, city, and year, respectively. GW_DIFF1 and DID are explained in detail in Section “Variable construction”. α1 gauge the impact of EPIL on corporate greenwashing behaviors. Controls are a set of control variables indicating firm characteristics. Detailed variable definitions are provided in Appendix A. In line with Zhang (2023c), we include firm-fixed effects (Firm FE), city-fixed effects (City FE), and year-fixed effects (Year FE) to account for the time-invariant unobservable characteristics of firms and cities potentially affecting corporate greenwashing, as well as to control for general time trends affecting all cities. Standard errors are clustered at the city level.
Empirical results
Descriptive statistics
Table 1 reports the descriptive statistics for our key variables. The mean value of GW_DIFF1 is −0.093, indicating a relatively minor difference between positive semantic disclosure content and actual environmental performance across the sample. However, there is considerable variability in GW_DIFF1, with values ranging from a maximum of 0.160 to a minimum of −0.073. The policy indicator, DID, stands at 0.225, suggesting that the EPIL pilot affects 22.5% of our sample observations. In addition, the distribution patterns of control variables align with prior literature (Zhang 2022a, 2022b; Hu et al. 2023a).
Baseline results
We investigate the impact of EPIL on corporate greenwashing based on Eq. (4). The baseline regression results are represented in Table 2. Column (1) shows the results of Eq. (4) excluding control variables, indicating a negative effect of the EPIL pilot on corporate greenwashing, evidenced by the coefficient of −0.291 for DID significantly at the 1% level. Upon including control variables in column (2), the coefficient for DID remains negative and significant, indicating a decline in greenwashing among firms in EPIL pilot cities following post-policy enactment. The coefficients for DID and adjusted R2 values (−0.291 vs. −0.268; 0.386 vs. 0.397) in the two columns are close to each other, indicating that incorporating firm-specific controls only marginally influences the effect of EPIL. The similarity suggests that the selection of cities for the EPIL pilot is independent of corporate decisions. Overall, the baseline results suggest that the EPIL can effectively curb corporate greenwashing, supporting Hypothesis 1.
Robustness tests
Parallel trend test
The parallel trend assumption is crucial for the validity of the DID approach. To verify that the control and treatment groups exhibit parallel trends without considering the effect of the EPIL pilot, we replace DID with a sequence of year dummies that capture the yearly effects of the EPIL, adopting the following dynamic equation.
Specifically, our focal point is the year immediately preceding the EPIL launch (PRE−1). Other year dummies denote three and two years before the EPIL pilot (PRE−3, PRE−2), the actual year of implementation (CURRENT0), and the first and two years following the pilot (POST1, POST2).
Figure 2 illustrates the coefficients of these year indicators alongside their 90% confidence intervals. The coefficient estimates for PRE−3 and PRE−2 are statistically insignificant, whereas the coefficients for CURRENT0, POST1, and POST2 are negative and significant. This trend around the policy’s implementation affirms the validity of the parallel trend assumption and suggests that the EPIL effectively mitigates corporate greenwashing immediately upon its introduction, maintaining this impact throughout the pilot phase.
This figure illustrates trends in the effect of the EPIL around its 2015 reform year. The base year is set as one year before the policy’s enactment, with each coefficient representing the effect of EPIL on corporate greenwashing relative to the base year. The horizontal axis uses a value of 0 to indicate that the registration city of firm i was designated as an EPIL pilot city in 2015. The horizontal axis time indicators, −3 and 2, denote three years before and two years after the pilot’s enactment, covering the period from 2012 to 2017.
Placebo test
To validate that our baseline finding is genuinely attributable to the public interest litigation intervention rather than coincidental, we conduct a placebo test. Specifically, we randomly assign the EPIL pilot cities and their corresponding implementation timings, constructing a pseudo-DID variable (PseDID) for affected firm-year observations. We perform the difference-in-differences analysis on the full sample by substituting the original DID with PseDID in Eq. (4). This procedure is repeated 1000 times, yielding 1000 Pseudo DID coefficients.
Figure 3 plots the distribution of these 1000 coefficient estimates obtained from the placebo test. Notably, the distribution centers around zero, starkly contrasting the actual DID coefficient from our baseline analysis (−0.268 in column 2 of Table 2). These results confirm the effect of the EPIL on corporate greenwashing, as identified in our baseline regression.
This figure illustrates the placebo test results for the impact of EPIL on corporate greenwashing behaviors. With 1000 simulated samples, the CSCS treatment variable (PseDID) is randomly assigned in each sample. The solid vertical line marks the mean value of the coefficients on PseDID from the simulated samples, whereas the dashed vertical line indicates the actual coefficient value (−0.268) for DID, as reported in column 2 of Table 2.
PSM-DID
We employ the propensity score matching method (PSM), following Zhao et al. (2022), to address endogeneity concerns arising from differences in observable characteristics between EPIL-treated and non-treated firms. Specifically, we match the EPIL-treated firms based on firm-level characteristics controlled in Eq. (4) (SIZE, AGE, LEV, ROA, CASHFLOW, TOBINQ, TOP1, BOARD, INDEP, DUAL) using 1:1 and 1:3 nearest-neighbor methods, then proceed with the DID estimation. The unreported balance score tests show that after PSM, the covariates exhibit a significant reduction in their mean values. The results of PSM-DID are displayed in Table 3. Following propensity score matching, the DID coefficients remain negative and significant in both columns, indicating that our results are robust.
Alternative proxies for greenwashing
To mitigate the bias stemming from measurement errors, we adopt three alternative measures to assess corporate greenwashing. Specifically, we introduce three alternative measures as substitutes for GW_TONE1 in Eqs. (1) and (3) to reassess the discrepancy between environmental disclosure and actual performance. First, we use the difference between the counts of positive and negative words relative to their combined total (GW_TONE2). Second, acknowledging that sentences can more naturally convey attitudes—complete expressions with definitive positive or negative evaluation (Shen et al. 2023), we consider using an entire sentence as the smallest textual unit for measurement. This approach involves categorizing sentences as either positively or negatively towards environmental friendliness, with GW_SETENCE calculated as the proportion of positive environmentally friendly sentences out of the total environmentally friendly sentences. Moreover, we employ the dominating greenwashing measurement in extant studies (e.g., Hu et al. 2023b; Zhang 2023b), which incorporates the environmental scores from Bloomberg as the benchmark to weigh the extent of each firm’s environmental disclosure. After incorporating these variables into Eqs. (1) and (3) as replacements for GW_TONE1, we use three alternative metrics for corporate greenwashing, including GW_DIFF2, GW_DIFFS, and GW_ESG.
The results presented in Table 4 show that the DID coefficients remain their negative significance across all columns, suggesting that measurement biases do not overturn our baseline findings.
Controlling for the confounding effect
We conduct a robustness test to account for the confounding effects of other concurrent policies around 2015 that can potentially skew our baseline findings. Previous studies have shown that the New Environmental Protection Law (hereafter, NEPL) increases the cost of environmental violations and enforces strict administrative penalties for pollution and opportunistic behaviors by firms, thereby incentivizing more robust environmental protection efforts (Yang et al. 2022; Huang et al. 2023). To eliminate this potential confounder, we introduce a control variable, EPLAW, representing the effect of the NEPL, to Eq. (4). Specifically, EPLAW equals one in 2015—the year the NEPL was officially enacted—and for subsequent years for firms in high pollution industries,Footnote 9 and zero otherwise.
Second, we consider the staggered introduction of environmental courts across various regions in China. Although these courts have shown limited efficiency in delivering environmental justice prior to the EPIL reform, they potentially enhance government oversight, sway public opinion, and influence corporate behavior (Qi et al. 2023). To consider their impact, we incorporate a control variable, ECOURT, in Eq. (4). This dummy variable is assigned a value of one in the year an environmental court was established at the city level and for each following year, and zero otherwise.
Third, establishing ecological civilization zones may also skew our baseline results, as cities designated as such zones likely impose environmental obligations on local businesses, encouraging them to engage more actively in environmental governance. To account for this effect, we include another control variable, ECZONE, which equals one for firms located within an ecological civilization zone during a given year, and zero otherwise.
Finally, our analysis extends to policies specifically designed to reduce pollution emissions, such as initiating the low-carbon city pilot in 2012 and introducing the emission trading scheme in 2013. To capture the impact of these initiatives, we introduce and incorporate two dummy variables (LCC and ETS, corresponding to each policy) into Eq. (4).
Column (1) of Table 5 reports the results after adjusting for the potential confounding impacts of other environmental policies. Including all policy-related variables, the coefficient on DID continues to exhibit a significant and negative value, affirming the robustness of our baseline results against possible confounding factors. Additionally, the coefficients for EPLAW are significantly negative, whereas the coefficients for ECOURT coefficients are insignificant. These results highlight the pivotal role of a precise legislative framework, swift judicial processes, and stringent law enforcement in shaping corporate environmental practices.
Controlling for regional variables
Considering the influence of local conditions on corporate behaviors, we incorporate variables reflecting three aspects of regional characteristics: population size, economic development indicators (GDP per capita, GDP growth rate, local fiscal expenditure, and industrial composition), and environmental pollution levels (emissions of SO2, wastewater discharge, and dust). Detailed definitions of these regional variables are shown in Appendix A. Column (2) in Table 5 presents the results after accounting for regional conditions. Even with the addition of these regional variables, the DID coefficient continues to be significantly negative, confirming the credibility of our baseline results.
Different subsamples
We use two different subsamples to further ensure the robustness of our results. First, municipalities typically receive more policy support and exhibit higher levels of economic development compared to other cities, therefore, we remove all firms whose registration cities are municipalities. Second, we also remove all samples belonging to municipalities, provincial capitals and special economic zones to alleviate the biases caused by their unique nature. Table 6 presents the regression results using different samples, the coefficients of DID remain negatively significant in both columns, suggesting that the typical characteristics of cities could not affect our baseline results.
Mechanism analyses
This subsection examines the channels through which the EPIL reform may curtail corporate greenwashing. Building on the discussion in Section “Hypotheses development”, we propose four potential mechanisms: (1) enhanced judicial efficiency, (2) strengthened governmental oversight, (3) heightened public awareness, and (4) reshaped corporate environmental strategies. To investigate these mechanisms, we follow Huang et al. (2022) and Gao et al. (2024) to employ a grouped regression approach by dividing our sample into two distinct subsamples based on the median value of each mediating variable, taken one year before the commencement of the EPIL pilot, i.e., in 2014.
Enhanced judicial efficiency
We contend that the EPIL reform may mitigate corporate greenwashing by enhancing environmental legislation and the judicial processes, thereby improving the efficiency of environmental justice and enforcement. To address this impact, we use the number of environmental litigation cases (ECASE) to measure environmental justice levels (Huang et al. 2022) and categorize firms into two groups accordingly. Firms in regions with ECASE counts above the median are considered part of the high-judicial efficiency group, while those below the median form the low-judicial efficiency group.
Panel A of Table 7 presents the findings for our first mechanism. Across both groups, the DID coefficients are consistently negative, indicating a reduction in greenwashing. However, the effect is more pronounced and statistically significant in the low-judicial efficiency group, with a notable difference in DID coefficients between the two groups at the 1% level. These results underscore the significance of judicial efficiency as a crucial mechanism through which EPIL reform influences corporate greenwashing.
Strengthened government oversight
Previous studies articulate that enhanced commitment and accountability from governments in environmental regulation can prompt companies to adopt practices that fulfill their environmental responsibilities (Zhang et al. 2019). The EPIL pilot not only enhances judicial oversight over local governments to reduce the risk of collusion, but also ensures the enforcement of environmental subsidies and administrative penalties, and thereby deterring greenwashing.
To test this hypothesis, we follow Zhao et al. (2022) and Gao et al. (2024) to employ the frequency of environmental protection-related terms in government reports (ETERM) and the number of environmental administrative cases resulting in environmental penalties in a city (EPENALTY) as indicators of government oversight in environmental regulation. The results presented in Panel B of Table 7 show that the DID coefficients in columns (1) and (3), corresponding to groups with lower levels of government supervision, are either insignificant or only marginally significant. In contrast, these coefficients turn significantly negative in groups with higher supervision levels. The disparity in DID coefficients between these group pairs is significant at the 10% and 1% levels, highlighting the effectiveness of EPIL pilot to reduce corporate greenwashing through heightened government oversight.
Heightened public awareness
Public awareness of environmental protection is crucial in the interplay between the EPIL pilot and corporate greenwashing. Evidence suggests that public awareness significantly affects corporate behavior and strategy, leading to modifications in corporate environmental practices. The EPIL reform enhances the public capability to assert their rights legally by enabling prosecutorial bodies and social organizations to bring civil environmental lawsuits. This effect, in turn, heightens scrutiny of environmental pollution and corporate actions, potentially reducing greenwashing through increased public environmental awareness.
To evaluate public awareness as a driving mechanism, we measure public attention to environmental issues using the Baidu search index for environmental terms (Zhou and Ding 2023) and the number of environmental petitions by citizens. (Wu et al. 2018) as indicators (ESEARCH, EPETITION)Footnote 10. Panel C of Table 7 displays the findings, showing that the DID coefficients remain consistently negative in groups segmented by high and low levels of public awareness, achieving significance in groups with initially low public awareness. Furthermore, the disparities in DID coefficients between these two groups are significant at the 1% level in both tests, validating the role of public awareness as a mechanism through which EPIL influences corporate greenwashing.
Reshaped corporate environmental strategies
The internal governance perspective suggests that the EPIL reform can curb corporate greenwashing by reshaping firms’ environmental strategies. The EPIL reform represents a shift toward a more environmentally oriented market system, transitioning from purely administrative to legislative environmental regulation. Additionally, it signals a growing trend of capital flow towards green industries and projects (Zhao et al. 2024b). This shift provides incentives for firms to invest in environmental improvements, reducing compliance costs and boosting profitability (Zhang et al. 2019; Zhou et al. 2023), and ultimately enhancing environmental performance and reducing greenwashing.
Following Zhang et al. (2019) and Qi et al. (2023), we use the level of environmental investment (EINVEST) and the number of granted invention patents (EIPATENT) as metrics to examine if the EPIL impacts corporate greenwashing by altering environmental strategies. Regression results in Panel D of Table 7 show that the DID coefficients are significantly negative only in the subsamples with lower levels of environmental investment and green innovation. Additionally, the differences in DID coefficients between low and high groups are significant at the 1% levels in both tests, showing the effectiveness of EPIL reform in reducing greenwashing by promoting corporate sustainable practices.
Heterogeneity analysis
In this section, we further explore the heterogeneous effects of the EPIL pilot on corporate greenwashing, analyzing variations across firm, industry, and regional dimensions. For all analyses, we divide the sample into two distinct subsamples based on the median value of each mediator one year before initiating the EPIL pilot.
Heterogeneity analysis at the firm level
State ownership: SOEs versus Non-SOEs
State-owned enterprises (SOEs), due to their access to preferential policies and greater social responsibility expectations, may be more prone to greenwashing (Gao et al. 2024). Conversely, non-state-owned firms facing tighter financial constraints may adopt opportunistic strategies to secure subsidies from eco-friendly policies. These contrasting arguments provide an opportunity to examine the differential impacts of the EPIL reform on SOEs and non-SOEs.
We divide the samples into two subsamples according to state ownership. Panel A of Table 8 shows that the DID coefficient remains significantly negative for both subsamples, with a more pronounced impact observed within the SOE subsample. Moreover, the differences in DID coefficients between the two subsamples are statistically significant, indicating a stronger effect of the EPIL reform on mitigating corporate greenwashing in SOEs.
The results may be attributed to the following reasons. Before the EPIL pilot, SOEs frequently engaged in high-pollution activities without facing government penalties owing to the benefits of policy advantages. In contrast, non-state-owned firms, lacking such protection, were less likely to partake in environmentally harmful practices. As a result, SOEs are prone to resort to greenwashing strategies to cultivate a public image of environmental responsibility. Following the EPIL reform, the strengthened environmental judicial system disrupted the protective shield that local governments had extended to SOEs. This shift led to administrative penalties for non-compliant SOEs, forcing them to transparently disclose their environmental information and enhance the propensity of them to engage in green contribution.
Media and analyst coverages: high versus low
As stated in our hypothesis development, the EPIL pilot can effectively curb corporate greenwashing through heightened external oversight. Therefore, we predict that the EPIL may exert a more significant impact on firms under less external oversight prior to the pilot. To explore this impact, we focus on two primary forms of external supervision: analyst coverage and media scrutiny. Analyst coverage provides timely evaluations of firms, reducing the information gap between the public and enterprises. Media scrutiny, on the other hand, can expose corporate misconduct, especially when firms attempt to conceal negative information or exaggerate their environmental performance. Consequently, we posit that firms under more intense scrutiny from analysts and media are less prone to greenwashing prior to the EPIL pilot, given the heightened risk of exposure.
Following Dyck et al. (2008) and Wang and Zhang (2024), we employ the number of negative media reports and the count of analysts following a company to gauge market discipline. We divide the samples into two groups based on the median values of these two factors. The findings in Panel B of Table 8 show that the DID coefficients are significantly negative in groups with low media or analyst coverage levels, whereas they turn insignificant or less negative for those with higher scrutiny. The significant differences between these two subsamples are significant, affirming our predictions.
Heterogeneity analysis at industry level
Pollution-heavy versus clean production sectors
The impact of EPIL on corporate greenwashing will differ between pollution-heavy industries and cleaner production firms. Firms within pollution-heavy industries face greater challenges, such as stringent environmental regulations and elevated costs for pollution management, compared to their counterparts in cleaner industries. Moreover, these firms are under greater pressure to improve their environmental performance to leverage the benefits of various environmental policies (Zhang 2022a). Consequently, we conjuncture that the EPIL reform exerts a stronger negative impact on pollution-heavy firms.
We follow Xiong et al. (2025a, b) to categorize our samples based on industry type: pollution-heavy versus cleaner production. The categorization results are detailed in Panel A of Table 9. The results reveal that the DID coefficients for the pollution-heavy firms are more negative and significant compared to the cleaner production firms. Moreover, the difference in DID coefficients across these categories is significant at the 1% level. These findings indicate that the EPIL reform’s deterrent effect on greenwashing is notably stronger among firms in pollution-heavy industries than those operating in cleaner production.
Industry competition: high versus low
Prior research has documented that market competition significantly influences business strategies (Huang et al. 2023). For environmental practices, Zhang (2022b) suggests that firms in highly competitive industries potentially use greenwashing to enhance competitiveness. Therefore, we contend the EPIL would have a stronger negative effect on firms in highly competitive environments.
We use the Herfindahl-Hirschman Index (HHI) proposed by Giroud and Mueller (2010) to measure market competition and examine its relationship with greenwashing. Our analysis, detailed in Panel B of Table 9, categorizes firms into two groups based on whether they are in industries with above or below the median level of competition. As predicted, firms operating in highly competitive industries exhibit a significant decrease in greenwashing behaviors. Additionally, the variation in DID coefficients between the groups facing high and low levels of competition is statistically significant, indicating EPIL’s effect on reducing corporate greenwashing is more pronounced in highly competitive industries.
Heterogeneity analysis at the regional level
Legal environment: strong versus weak
The effectiveness of the EPIL pilot in improving environmental litigation outcomes is likely contingent on the strength of local legal institutions, with judicial efficiency likely higher in regions where the rule of law is strong. A favorable legal environment can help quickly foster the environmental judiciary’s role, applying increased pressure on firms and thus exerting a more effective effect on inhibiting corporate greenwashing.
Following Zhou et al. (2023), we measure the regional legal environment using two proxies: the number of lawyers and the justice index. Based on these measures, we divide our samples into two exclusive groups: those in cities with the rule of law metrics above the median are considered to be in a better legal environment, while the rest are in a lesser legal environment. The findings in Panel A of Table 10 reveal that DID coefficients are significantly more negative in regions with a stronger legal infrastructure. Furthermore, the differences in DID coefficients across each pair of groups are statistically significant. The evidence supports our argument that a robust legal environment enhances the impact of the EPIL reform.
Regional environmental regulation: high versus low
The stringency of local environmental regulations can substantially influence how local governments identify and respond to greenwashing behavior. In cases where the regulatory system is incomplete, there is a heightened risk of uncertainty in the evaluation process of corporate legitimacy. This regulatory ambiguity can impede local governments from effectively evaluating corporate environmental performance (Wei et al. 2017), hence making it less likely for corporate environmental irresponsibility to be exposed. Conversely, when local environmental regulations are more stringent, governments can gain the ability to evaluate a company’s environmental practices against established regulatory standards (Wei et al. 2017), which increases the likelihood of identifying greenwashing strategies. Furthermore, stringent local environmental regulations result in more severe government penalties, thereby diminishing the profitability of employing greenwashing strategy. Therefore, we conjuncture that EPIL may have more significant impacts on regions with weaker environmental regulation.
We partition our samples into two subsamples to examine this heterogeneity based on whether the firm’s headquarters are in cities where the Pollution Information Transparency Index (PITI)Footnote 11 has been implemented. In cities under PITI, public access to environmental information is enhanced, leading to greater environmental awareness and participation in environmental initiatives. The heightened public engagement pressures firms to adhere to stricter regulations, potentially reducing corporate greenwashing (Ding et al. 2022). Panel B of Table 10 presents the corresponding results. The DID coefficients are significantly more negative in the subsample not mandated to disclose environmental information. Furthermore, the difference in DID coefficients between the two subsamples is significant, indicating that the intensity of regional environmental regulation plays a role in moderating the effects of EPIL on corporate greenwashing.
Environmental pollution intensity: high versus low
The intensity of regional environmental pollution may significantly influence the EPIL reform’s effectiveness in curbing corporate greenwashing. Firms located in severely polluted regions often exhibit weaker environmental awareness and contribute notably to environmental degradation, leading to inferior environmental performance. Therefore, these firms may resort to greenwashing to obscure their poor environmental performance. Therefore, we predict that the influence of the EPIL will be more pronounced in regions with higher levels of environmental pollution.
We employ the entropy weight method by Liu and Lin (2019) to quantify regional environmental pollution levels.Footnote 12 Results presented in Panel C of Table 10 show that the DID coefficients are significantly negative across both high- and low-pollution subsamples, with a more pronounced effect observed in firms in the more polluted environments. Moreover, the variation in DID coefficients across these two subsamples is statistically significant, indicating that the severity of regional environmental pollution moderates the EPIL reform’s impact on corporate greenwashing.
Conclusion
Using the EPIL pilot as an exogenous policy intervention, this study evaluates its effectiveness in curbing greenwashing among Chinese listed companies from 2012 to 2017. We find a significant reduction in greenwashing, particularly among state-owned enterprises, firms under less scrutiny by analysts and media, and those in more polluted and competitive industries or regions with robust legal frameworks and higher pollution levels. Furthermore, our study identifies four mechanisms driving these results: improved judicial efficiency, increased government oversight, increased public awareness, and reshaped corporate environmental strategies. The empirical evidence shows that EPIL plays an irreplaceable and important role in reducing corporate greenwashing behavior.
This study extends the current literature by addressing the pressing issue of corporate greenwashing, a deceptive practice of exaggerating environmental initiatives, amid a notable gap in empirical research on its governance and impact on sustainable growth. Besides, it emphasizes the critical role of environmental justice in governance, which has yet to be thoroughly explored due to data availability.
This study also offers several policy implications for transitional and emerging economies, particularly those lacking robust environmental legal frameworks. First, since the significant role of environmental justice in corporate environmental governance, it is imperative to establish a sound environmental judicial system and standardized law enforcement process to regulate corporate environmental behavior and promote sustainable development. Second, leveraging government oversight is essential in environmental governance. This involves enhancing the involvement of local authorities and preventing collusion between governmental bodies and corporations. Additionally, it is necessary to fortify the litigation system and broaden public participation in environmental judicial governance to effectively deter corporate misconduct. Third, it is essential to encourage corporate involvement in environmental protection for combating greenwashing. Specifically, governments should foster a conducive environmental ethos where the benefits of participating in eco-friendly initiatives outweigh potential penalties for engaging in opportunistic behaviors.
Data availability
The data used in this paper are obtained from the CSMAR Database and CNRDS Database. The website is available at https://www.gtarsc.com/ and https://www.cnrds.com/Home/Login, respectively. However, access to these data is subject to restrictions and requires a license. Interested parties can obtain the data with the permission of CSMAR and the CNRDS Database.
Notes
Prosecutors-led model can expedite decision-making and enforcement processes, swiftly addressing environmental issues and achieving protection goals, particularly in cases of major environmental violations where legal measures need rapid implementation (Li and Song 2024).
According to the investigation, six of the nine targeted regions selected to expand environmental courts were already facing significant pollution challenges. For instance, the creation of environmental courts in Kunming and Yuxi, cities within Yunnan province, was a direct response to the arsenic contamination crisis in Yangzihai.
The distribution of pilot cities of EPIL is shown in Appendix B.
Civil Procedure Law of the People’s Republic of China, Article 55, available at: http://www.npc.gov.cn/zgrdw/englishnpc/Law/2007-12/12/content_1383880.htm; Administrative Procedure Law of the People’s Republic of China, Article 25, available at: http://www.npc.gov.cn/zgrdw/englishnpc/Law/2007-12/12/content_1383912.htm.
In 2018, the Supreme People’s Procuratorate and the SPC jointly announced the “Interpretation on Several Issues Concerning the Application of Law for Cases Regarding Procuratorial Public Interest Litigation”, which further specifies that a procuratorate should issue a procuratorial recommendation when it finds that a government agency has acted illegally or failed to perform its duty with regard to eco-environmental protection. If an agency fails to comply with the recommendation within two months, the procuratorate can bring an administrative lawsuit against it and compel the agency to rectify its alleged wrongdoing.
The policy impacts of the public interest litigation pilot are presented by the document of work summary of The Supreme People’s Procuratorate of the People’s Republic of China, the original text can be referred to: https://www.spp.gov.cn/zdgz/201707/t20170701_194471.shtml.
The detailed information can be obtained from https://pkulaw.com/.
We use GW_TONE2 to capture the level of positive semantics in robustness tests.
We employ the classification of the 14 industries identified by the Ministry of Environmental Protection in China as heavily polluting. These sectors encompass thermal power, iron and steel, cement, electrolytic aluminum coal, metallurgy, building materials, mining, chemical industry, petrochemicals, pharmaceuticals, light industry, textiles, tannery.
The environmental petitions encompass various actions where citizens, legal entities, or other organizations communicate environmental concerns to competent environmental administrative bodies through letters, emails, faxes, phone calls, visits, and other means. These communications may include suggestions, opinions, or complaints, and are processed by the appropriate environmental administrative departments in accordance with legal procedures.
In 2008, two professional environmental non-governmental organizations, the Institute of Public and Environmental Affairs (IPE) and the Natural Resources Defense Council (NRDC), jointly published the pollution information transparency index (PITI) to evaluate the degree of pollution information transparency across 113 prefecture-level cities in China. Being listed in the PITI list compels a city to release more information about pollution sources.
We take the emissions of Sulfur dioxide, smoke and dust, wastewater and solid waste as factors in calculating the pollution index.
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Acknowledgements
Jiacai Xiong gratefully acknowledges the financial support from National Natural Science Foundation of China (Grant No. 72162019), National Social Science Foundation of China (Grant No. 23AZD085), Social Science Fund of Jiangxi Province (Grant No. 21YJ30). Lijuan Xiao gratefully acknowledges the research grants supported by the Youth Project of Jiangxi Provincial Social Science Foundation (Grant No. 24GL43).
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Author 1 (JX): visualization, validation, supervision, software, project administration, methodology, investigation, funding acquisition, data curation, conceptualization. Author 2 (ZY): writing–review & editing, writing–original draft, visualization, validation, software, methodology, investigation, formal analysis, data curation. Author 3 (LX): writing–review & editing, writing–original draft, visualization, validation, supervision, methodology, investigation, conceptualization. Author 4 (YZ): writing–review & editing, writing–original draft, visualization, validation, supervision, methodology, investigation, conceptualization.
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Xiong, J., Yang, Z., Xiao, L. et al. Environmental judicial reform and corporate greenwashing: evidence from China’s environmental public interest litigation pilot. Humanit Soc Sci Commun 12, 1635 (2025). https://doi.org/10.1057/s41599-025-05203-1
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DOI: https://doi.org/10.1057/s41599-025-05203-1
