Using Blockchain and Smart Contracts to Combat Greenwashing in Environmental Disclosures

Abstract

SYNOPSIS This study examines widespread greenwashing practices in corporate environmental disclosures and the potential of blockchain and smart contracts to address this problem. We define six types of greenwashing risks in environmental disclosures: misconduct, selective disclosure, misclassification, hollow promise, in name only, and misleading presentation. To combat greenwashed disclosures, we propose a comprehensive framework that integrates blockchain and smart contracts to create automated controls and provide tamper-resistant audit evidence. On the basis of this framework, we design and implement smart contracts on blockchain to combat greenwashing practices in Shell plc’s environmental disclosures. This study provides automatic, real-time, and secure greenwashing risk controls with early warnings for auditors and regulators. In addition, it introduces new audit tasks such as using blockchain information to verify environmental disclosures; creates novel opportunities for environmental experts to set rules for greenwashing; and offers insights on greenwashing risk detection, market monitoring, and policy development for regulators. JEL Classifications: M41; M42.