Fostering Sustainability Integrity: How Social Trust Curbs Corporate Brownwashing in China

Abstract

This study explores the role of social trust, a critical informal institution, in mitigating corporate brownwashing—the strategic concealment of positive environmental performance. Drawing on a panel of 15,081 firm-year observations from Chinese A-share listed firms between 2010 and 2022, we operationalize brownwashing as a strategy where firms demonstrate substantive environmental compliance (i.e., no environmental penalties) while simultaneously practicing symbolic verbal conservatism (below-median environmental disclosure). Our empirical analysis reveals that higher regional social trust significantly curbs the propensity for firms to engage in brownwashing. This effect is not only statistically significant but also economically meaningful: a one-standard-deviation increase in social trust is associated with a 1.85 percentage point decrease in the likelihood of brownwashing. This effect operates through two key channels: enhancing stakeholder monitoring and reinforcing internal governance for environmental accountability. The impact of trust is significantly amplified under specific conditions: its role is more pronounced where formal sustainability regulations are weaker, highlighting trust as a crucial informal pillar of the sustainability governance architecture, and its inhibitory effect is strengthened when firms face higher reputational risks tied to their environmental performance. This study makes several contributions: it provides broad, cross-industry evidence on a key challenge in sustainability reporting; offers empirical support for the “trust fidelity” theory in the context of environmental disclosure; and develops a ‘channel-amplifier’ framework that advances our understanding of the complex institutional interplay required to foster corporate environmental transparency.