The Effect of Greenhushing and <scp>ESG</scp> Disclosure Assurance on Investors' Judgements

ABSTRACT Prior research documents that investors respond favourably to firms' environmental, social, and governance (ESG) initiatives. However, a growing number of firms engage in greenhushing, where firms with positive ESG performance withhold or downplay their ESG progress to avoid accusations of greenwashing. Drawing on expectancy violation theory in communications research, we predict that greenhushing negatively affects investors' judgements, and that ESG disclosure assurance attenuates this effect. Using a two‐period experimental setting, we find that investors are less willing to invest in the second period when greenhushing is present. However, we find a similar reaction when greenhushing is absent, providing no evidence of a greenhushing effect. Instead, the ongoing absence of ESG disclosure assurance drives the negative reaction, with the relative effects of assurance present and absent becoming stronger in the second period than in the first period. Overall, we find no evidence that greenhushing violates investors' expectations about ESG disclosure practices.