Green Leader or Green Liar ? Differentiation and the role of NGOs.

This paper addresses how corporate environmentalism can be a means of differentiation and of green-washing. Since consumers can seldom directly observe a firm's environmental quality (a problem not easily solved through eco-labeling), published environmental reports and advertising can mislead them. As a result, the role of the NGO becomes both crucial and ambiguous. On the one hand, by helping to increase consumer awareness, NGOs enlarge the market share of green differentiated firms. On the other hand, the risk that consumers will punish a firm perceived to be supplying inaccurate environmental information may bring about the paradoxical result of discouraging differentiation efforts.