Examining The Influence Of Corporate Greenwashing Through Social Media On Investors' Decision-Making And Underlying Behavioural Biases With Special Reference To Retail Investors

Abstract

The effectiveness of sustainable investing hinges on addressing greenwashing and empowering retail investors to safeguard themselves against such misleading tactics. This exploratory, mixed-methods study aims to examine the effects of corporate greenwashing on social media on retail investor decision-making with an emphasis on behavioral biases. By conducting a quantitative questionnaire with 370 retail investors and conducting interviews with 15 focused groups, the study finds that while investors are becoming more conscious of greenwashing, they still do not possess the means to discern between genuine sustainability claims. The study supports the notion that trust occupies a critical position in investment decisions, that perceived greenwashing undermines trust and, consequently, investment, and that a robust CSR image provided incredibly boosts trust. Overconfidence bias and herding bias were acknowledged as the main factors that magnified the effects of greenwashing on inexperienced investors. Implications for the findings include increased regulation of corporate sustainability reports, educating investors on greenwashing and behavior bias, and more accountability from companies on the social media platform. Thus, this research fits into the expanding literature on greenwashing and sustainable finance by presenting a study that is centered on the responsibility of social media in influencing retail investors. The insights from this study can help in designing specific strategies to safeguard investors, enhance efficiency, and direct capital to sustainable initiatives.