From the Abstract: This paper studies the optimal design of green disclosure requirements to support firms’ transition to greener technologies. In a dynamic model with socially responsible investors, we model green transition as a multi-step process. Our analysis establishes an important link between the design of green disclosure requirements and the underlying characteristics of the technologies driving the green transition. We show that government-mandated “greenwashing” which entails deliberately obscuring firms’ actual greenness, can create mis-valuation subsidies that help overcome early transition bottlenecks. Dynamic green disclosure requirements that become more stringent over time can further incentivize transition. Stricter requirements in the future can enhance the effectiveness of lax requirements in early periods and vice versa. Our results can be applied to recent initiatives to establish mandatory green disclosure requirements.
