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The Impact of Greenwashing on Customer Satisfaction and Business Performance

Overview

A research paper by Ioannis Ioannou (London Business School), George Kassinis (University of Cyprus), and Giorgos Papagiannakis (University of Peloponnese) examined how perceived greenwashing affects customer satisfaction and ultimately, business performance. The study provided empirical evidence that when companies fail to deliver on their environmental promises, customers perceive this as corporate hypocrisy, which negatively impacts their satisfaction with the company's products and services. Published in the Journal of Business Ethics, the researchers analysed data from 202 U.S. companies between 2008-2016.


The researchers found that companies perceived to be greenwashing suffer an

average 1.34% drop in their American Customer Satisfaction Index (ACSI) score. This may seem small, but in the competitive landscape where companies compete within a narrow range of satisfaction scores, such a decline can significantly impact financial performance, with previous research showing that even minor changes in customer satisfaction directly affect earnings per share and return on investment. Interestingly, the study also found that a company's reputation for product quality or innovation can partially mitigate the negative effects of greenwashing on customer satisfaction. Companies with strong capability reputations experienced only a minimal, statistically insignificant drop in customer satisfaction (0.30%) when perceived to be greenwashing, whilst those with low capability reputations saw their customer satisfaction drop by 2.40%.


Key Findings

  1. Greenwashing Negatively Impacts Customer Satisfaction: When companies fail to implement their stated environmental goals, customers perceive this as corporate hypocrisy, which directly affects their satisfaction with the company's products and services.

  2. The Gap Between Promises and Actions Matters: The negative impact is primarily triggered by corporate policies exceeding the corresponding implementation actions. It's better to promise less and deliver fully than to overpromise and underdeliver.

  3. Capability Reputation Provides a Buffer: Companies with strong reputations for product quality or innovation experience less severe negative effects from perceived greenwashing than those with weaker reputations.

  4. Customers Are Aware: Experimental evidence confirms that customers are highly likely to be aware of gaps between green product innovation policies and implementation, and they perceive such gaps as corporate hypocrisy.


Mind the Perception Gap

Companies should recognise that consumer perceptions of greenwashing may differ from reality. Even well-intentioned sustainability efforts can be perceived as greenwashing if poorly communicated, whilst some actual greenwashing may go unnoticed. This highlights the importance of transparent, consistent communication backed by verifiable actions.


Business Applications

  1. Consistency is Key: Managers should ensure alignment between their environmental promises and their ability to deliver. The research suggests it's better to set modest goals that can be achieved than ambitious ones that cannot.

  2. Don't Rely on Brand Reputation: While a strong capability reputation may temporarily buffer negative effects of greenwashing, this shouldn't be seen as permission to greenwash. The buffer effect may be temporary, particularly as customer expectations for corporate responsibility continue to evolve.

  3. The Protection Is Temporary: While strong capability reputation provides a buffer against

    greenwashing accusations, this protection likely diminishes with repeated incidents. Companies with strong reputations should not become complacent, as research suggests that greenwashing can eventually contaminate and erode even the strongest brand reputations over time.

  4. Monitor the Gap: Companies should continuously monitor and manage the gap between their stated environmental goals and their implementation actions to avoid being perceived as hypocritical.

  5. Implement Accountability Measures: Companies should establish internal accountability frameworks that regularly assess alignment between sustainability commitments and actual implementation. This might include sustainability scorecards, independent third-party verification, or stakeholder advisory panels that provide objective feedback on environmental performance. For instance, Unilever's Sustainable Living Plan includes independent verification of environmental claims and measurable targets with public reporting.

  6. Quality First: For companies with low product quality, attempting to compensate through environmental commitments is a risky strategy. If they fail to execute on such goals and are perceived to be greenwashing, they have no safety net to fall back on.

  7. Consider Industry Context: The impact of greenwashing varies significantly across industries. Companies in sectors with high environmental visibility (e.g., energy, consumer goods) face greater scrutiny and potentially steeper satisfaction declines when perceived as greenwashing. Companies should ensure the integrity of their data and benchmark their environmental communications against industry standards and consumer expectations specific to their sector.


Conclusion

This groundbreaking research provides compelling evidence that greenwashing has tangible negative impacts on business performance through reduced customer satisfaction. This confirms that environmental commitments are not just about reputation management but directly affect customer experience with products and services. As Professor Ioannou and his co-authors emphasise, "a company's messaging and implementation of social goals must always be the same shade of green."


As consumer awareness and regulatory scrutiny of environmental claims continue to increase, the business case for authentic environmental action becomes stronger. Companies must ensure their environmental goals are realistic and achievable rather than merely aspirational or marketing-driven.


When Damage Is Done: Companies facing greenwashing accusations should respond with transparency rather than defensiveness. Acknowledge legitimate concerns, provide evidence of actual environmental progress, and commit to measurable improvements with clear timelines. Rebuilding trust requires consistent, verified environmental performance over time that closes the gap between promises and actions.


This research makes a significant contribution to the growing body of work on sustainable business practices, demonstrating that greenwashing's negative effects go beyond reputational damage to directly impact a key driver of financial performance: customer satisfaction. The findings highlight the importance of integrity and consistency in corporate sustainability efforts.


For more details on this research, see the full paper "The Impact of Perceived Greenwashing on Customer Satisfaction and the Contingent Role of Capability Reputation" in the Journal of Business Ethics.

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