GREENWASHING AND ENVIRONMENTAL MARKET FAILURE: INFORMATION ASYMMETRY AND CONSUMER TRUST IN SUSTAINABLE CONSUMPTION
https://doi.org/10.65725/JCMCE/2/4/017
JOURNAL OF CONTEMPORARY TRENDS IN MANAGEMENT, COMMERCE AND ECONOMICS (JCMCE)
ISSN: 3108-3501
Volume 2 Issue 4, October -December 2026
Abstract:
The growing demand for sustainable products has encouraged firms to use environmental claims such as “eco-friendly,” “green,” and “sustainable.” While genuine green marketing can promote responsible consumption, misleading or unsubstantiated claims can lead to greenwashing, creating a potential form of market failure. This paper examines greenwashing through the perspectives of Information Asymmetry Theory, Signalling Theory, Consumer Choice Theory, and Environmental Economics. Since firms generally possess more information about their environmental performance than consumers, information gaps can make sustainability claims difficult to verify. Misleading claims may distort consumer choices, disadvantage genuinely sustainable firms, and reduce market efficiency. The study also focuses on the impact of greenwashing on consumer trust. Repeated exposure to misleading environmental claims may increase consumer scepticism and weaken confidence in green products, sustainability labels, and corporate environmental initiatives. The paper further highlights the importance of environmental governance through transparent disclosure, credible certification, independent verification, standardised environmental information, and effective regulation. These mechanisms can reduce information asymmetry and improve the credibility of environmental claims. The paper develops a conceptual relationship between information asymmetry, greenwashing, consumer trust, market efficiency, and environmental governance. It argues that effective governance can protect consumers, encourage genuine sustainable practices, and strengthen the functioning of sustainable markets. Addressing greenwashing is therefore important for building consumer confidence, promoting fair competition, and supporting sustainable production and consumption.
Authors: Swetha P, Dr. G. Karunamoorthi
Keywords: Greenwashing, Market Failure, Information Asymmetry, Consumer Trust, Signalling Theory, Consumer Behaviour, Environmental Governance.