Conference Programme

Information transparency is central to well-functioning green markets, yet stricter standards may discourage firms from engaging in environmentally oriented activities. We study the Federal Trade Commission’s Green Guides, which tightened substantiation requirements for environmental marketing claims and improved communication between firms and consumers. This regulatory change plausibly increased transparency in green product markets, allowing us to identify its causal effects on firms’ green business disclosure, green innovation, and real outcomes. We develop a novel firm-level measure of green business engagement by applying large language models and supervised classifiers to 10-K Item 1 (Business) disclosures to identify substantiated green products and services. Following the Green Guides, firms with weak environmental fundamentals reduce green business disclosure, consistent with more cautious claims and greenhushing. In contrast, firms previously outside the coverage of third-party environmental rating agencies, as well as close product-market rivals, increase green disclosure, suggesting that improved transparency lowers signaling costs and facilitates credible repositioning into green markets. Importantly, enhanced transparency is associated with increased genuine green innovation. Finally, firms with greater exposure to green business benefit from improved market information, exhibiting higher markups and profitability.