Regulating Greenwashing: Spillover Effects of Sustainable Financial Disclosure Regulation

This paper investigates the spillover effects of Sustainable Financial Disclosure Regulation(SFDR) in reducing greenwashing. To quantify greenwashing, the paper employs a pre-trained NLP model called FinBERT to analyze public statements by companies. Using a Difference-in-Differences (DiD) approach, the paper finds that SFDR can effectively reduce greenwashing not only in the financial sector but also in non-financial sectors. The paper then presents theoretical models to understand the channels through which SFDR influences the non-financial sector. Finally, the paper tests the theoretical models by utilizing the eligibility to SFDR as an IV and establishing a causal relationship between the greenwashing risk in different sectors.