In a significant pivot that reverberated across the financial world, BlackRock co-founder Larry Fink announced in 2023 that he had ceased using the term "ESG," deeming the acronym for environmental, social, and governance "weaponized" by both the far left and the far right. This move by the head of the world’s largest asset manager, overseeing more than $10 trillion in assets, was not, however, a retreat from sustainability considerations. Instead, BlackRock affirmed its continued focus on the risks and opportunities presented by the low-carbon transition, an approach the firm maintains is "consistent with its fiduciary duty." This strategic recalibration, according to Wharton professor Serguei Netessine, serves as a prime illustration of a growing phenomenon in corporate sustainability: greenhushing.
"He famously changed the language while saying his underlying investment approach would not change," Netessine observed, highlighting the subtle yet profound shift in corporate communication. "The vocabulary had become different." Netessine, a professor of operations, information and decisions and senior vice dean for innovation and global initiatives at Wharton, is the lead author of a new working paper titled "Value of Silence: Determinants and Consequences of Greenhushing." This groundbreaking research delves into the intricate relationship between a firm’s sustainability actions and its public communication, revealing that companies which communicate less than what is externally observed about their environmental efforts — a practice dubbed greenhushing — experience higher subsequent abnormal stock returns. Conversely, firms that exaggerate their sustainability work through extensive communication not backed by observable action — a phenomenon known as greenwashing — tend to suffer lower subsequent abnormal stock returns.
"Greenwashing is when you talk more than you do, and greenhushing is when you do more than you talk," Netessine concisely defined, underscoring the core distinction. These findings suggest a sophisticated market response where investors place a greater emphasis on verifiable conduct rather than the sheer volume of environmental communication. Crucially, the study clarifies that silence alone does not generate value; greenhushing is a relative gap. Limited communication is only rewarded when it is demonstrably backed by robust, externally observed environmental conduct. Co-authors of the paper include Sonam Singh, a marketing professor at the University of South Florida’s Muma College of Business; Ashwin Malshe, a marketing professor at the Carlos Alvarez College of Business at the University of Texas at San Antonio; Yakov Bart, a marketing professor at Northeastern University’s D’Amore-McKim School of Business; and Anatoli Colicev, chair of marketing, strategy, and analytics at the University of Liverpool.
The ESG Landscape: From Promise to Politicization
To fully appreciate the significance of greenhushing, it’s essential to understand the evolving trajectory of ESG. The concept of socially responsible investing (SRI) has roots stretching back decades, with early investors shunning companies involved in industries like tobacco or apartheid-era South Africa. However, ESG gained widespread traction in the early 2000s, propelled by growing awareness of climate change, social inequalities, and corporate governance failures. Organizations like the United Nations Principles for Responsible Investment (UN PRI), established in 2006, played a pivotal role in mainstreaming ESG considerations within investment frameworks, advocating for the integration of these factors into investment analysis and decision-making.
By the 2010s, ESG had become a powerful force, with trillions of dollars flowing into funds and strategies that explicitly considered environmental, social, and governance metrics. Corporations began to proactively report on their ESG performance, recognizing its importance for attracting capital, managing risks, and enhancing brand reputation. Larry Fink and BlackRock were at the forefront of this movement, with Fink’s influential annual letters to CEOs often emphasizing the critical importance of climate risk and sustainability for long-term shareholder value. His 2020 letter, for instance, declared that climate risk was investment risk, signaling a significant shift in mainstream finance.
However, this rapid ascent was not without its challenges. Over the past few years, the term "ESG" became increasingly "weaponized," as Fink described. From certain political factions, particularly on the far right, ESG investing faced accusations of being "woke capitalism," prioritizing social and political agendas over pure financial returns and potentially breaching fiduciary duties to shareholders. Critics argued that ESG mandates were politically motivated and detrimental to industries like fossil fuels, leading to legislative pushback in some U.S. states that sought to restrict state pension funds from using ESG criteria in their investment decisions. Simultaneously, from environmental activists and some investors on the far left, ESG was criticized for being insufficient, a form of "greenwashing" where companies made grand pronouncements without delivering meaningful change. This dual pressure created a challenging environment for corporations and asset managers navigating the sustainability landscape.
Larry Fink’s statement in 2023 was a direct response to this politicization. While BlackRock reiterated its commitment to helping clients navigate energy transition risks and opportunities, the deliberate avoidance of the "ESG" acronym itself signaled a strategic move to depoliticize its core investment approach. This is precisely where Netessine’s concept of greenhushing provides critical analytical framework: BlackRock’s underlying conduct remains consistent with sustainability principles, but its communication strategy has evolved to be more subtle, less confrontational, and focused on tangible fiduciary responsibilities rather than potentially contentious labels.
Unpacking "Greenhushing": The Value of Understated Action
The Wharton study offers a robust empirical foundation for understanding this evolving dynamic. While traditional disclosure theory posits that greater transparency and more information from companies should reduce information asymmetry and lead to higher stock valuations, Netessine’s research suggests that this relationship has become more nuanced, particularly in the context of sustainability.
The Study’s Groundbreaking Methodology:
The researchers embarked on the first large-scale study to quantitatively measure the misalignment between corporate environmental conduct and managerial communication. Their approach meticulously combined two distinct data streams:
- Managerial Communication: The team analyzed over 30 million sentences extracted from the earnings calls of 3,727 U.S. firms between 2005 and 2021. Earnings calls are particularly valuable as they represent direct, unscripted (to some extent) communication from senior management to investors and analysts, offering insights into their priorities and messaging strategies regarding environmental issues. The volume of environmental discussion in these calls served as the proxy for communication intensity.
- External Conduct Assessment: To gauge actual environmental conduct, the study utilized TruValue Labs’ environmental Pulse Scores. These scores are not self-reported by companies but are derived from the valence (positive or negative) of recent public information about firms’ environmental policies, actions, and outcomes. This information is meticulously gathered from a wide array of independent sources, including news outlets, regulatory filings, and civil-society reports. By relying on external, third-party assessments, the study circumvented the inherent bias of self-reported corporate data, providing a more objective measure of a company’s real-world environmental impact.
By comparing the volume of environmental discussion in earnings calls with these external Pulse Scores, the researchers were able to quantify the "conduct-communication gap." A positive gap (more observed conduct than communication) indicated greenhushing, while a negative gap (more communication than observed conduct) indicated greenwashing.
Key Findings and Financial Impact:
The results were compelling and offered clear evidence of market preference:
- Greenhushing’s Premium: In their most fully adjusted model, the study found that a one-standard-deviation increase in greenhushing was associated with a 2.29 percentage point increase in three-month cumulative abnormal returns. For an average sample firm, this translates to an approximate financial gain of $238 million. "Abnormal returns" signify performance that exceeds what would be expected given the firm’s risk profile and market conditions, indicating that investors are actively rewarding this understated approach.
- Greenwashing’s Penalty: Conversely, an equivalent shift towards greenwashing was associated with a 2.29 percentage point decrease in three-month cumulative abnormal returns. This demonstrates that exaggerating sustainability efforts can actively erode shareholder value, reinforcing the market’s skepticism towards unsubstantiated claims.
Netessine succinctly summarized the core takeaway: "Investors appear to reward credibility. If outside evidence shows you are doing something, you don’t get an extra reward for talking about it. Investors seem to care more about the walk than the talk." This underscores a critical evolution in investor behavior, moving beyond superficial rhetoric to demand verifiable, tangible action. The study also emphasized that greenhushing is not merely about silence; it is about substantiated silence. The limited communication only generates value when it is robustly supported by strong, observable environmental conduct. Without the underlying actions, silence would likely be perceived as inaction or indifference.
The Strategic Underpinnings of Silence
The study’s findings appear counterintuitive when viewed through the lens of traditional disclosure theory, which typically advocates for maximum transparency to reduce information asymmetry and foster trust. However, the researchers identified a significant shift, noting that the measured conduct-communication gap was modestly but significantly larger after 2017. This period marks what the authors refer to as a "more politicized disclosure regime," where the costs associated with making environmental claims began to outweigh the perceived benefits of transparency.
The Rising Costs of Communication:
Netessine elaborated on the strategic reasons why management might choose to communicate relatively little about their sustainability efforts:
- Political Criticism: In an increasingly polarized environment, any environmental claim, regardless of its merit, can become a target for criticism from various political spectrums. Companies might seek to avoid becoming embroiled in ideological debates.
- Regulatory and Legal Scrutiny: Heightened awareness of greenwashing has led to increased regulatory oversight and a surge in legal challenges. Making ambitious public commitments can attract unwanted attention from regulators like the SEC or consumer protection agencies, as well as class-action lawsuits from disgruntled investors or consumers alleging misleading claims. The risk of litigation for unsubstantiated claims has become a tangible threat.
- Unrealistic Expectations: Publicly committing to ambitious sustainability goals can create unrealistic expectations among stakeholders, including customers, employees, and NGOs. Failing to meet these lofty promises can lead to reputational damage and a loss of trust.
- Competitive Disadvantage: In competitive industries, companies might develop sustainable practices that also yield operational efficiencies, cost savings, or innovative product advantages. Revealing these strategies prematurely through extensive communication could provide competitors with valuable insights, eroding their competitive edge. For example, a firm that develops a new, more sustainable manufacturing process that also cuts costs might prefer to keep the details quiet to maintain its market advantage.
Firm Characteristics Driving Greenhushing:
The study also identified specific firm characteristics that make greenhushing more likely:
- Greater Financial Leverage: Firms with higher levels of debt may be more sensitive to risk. They might be less inclined to make public commitments that could attract scrutiny or imply future capital expenditures, preferring to manage risks quietly and focus on core financial stability. Their limited room for error makes them cautious about any communication that could backfire.
- More Competitive Industries: Companies operating in highly competitive sectors are more likely to engage in greenhushing. In such environments, strategic information is a valuable asset. Keeping quiet about sustainable practices that provide a competitive advantage, whether through cost reduction, product differentiation, or process innovation, allows these firms to capitalize on their efforts without tipping off rivals.
These factors paint a picture of companies making rational, strategic decisions to manage their public image and mitigate various risks, even if it means foregoing the public relations boost of overt sustainability messaging.
Implications for Corporations, Investors, and Regulators
The findings of Netessine’s study carry profound implications for a wide array of stakeholders in the financial and corporate ecosystems.
For Corporate Strategy and Communication:
The paramount message for corporate executives and communication teams is the imperative of authenticity and aligning action with communication. Rather than viewing sustainability as a mere marketing opportunity, companies must integrate it into their core business model. "Our conclusion is don’t let communication run ahead of conduct," Netessine stated. "You should manage your environmental communication the same way you manage your financial communication. Don’t make claims you can’t support." This calls for a nuanced communication strategy that emphasizes verifiable facts and tangible outcomes over aspirational rhetoric. Companies are already adjusting their environmental language to build credibility while minimizing risk. The focus should shift from "saving the penguins" to demonstrating how sustainable practices contribute to business results, operational efficiency, risk reduction, and long-term value creation. This means framing sustainability within the context of financial performance, resilience, and innovation.
For Investors and Analysts:
The study serves as a crucial wake-up call for investors, underscoring the need for enhanced due diligence. Relying solely on corporate press releases, sustainability reports, or even ESG ratings that might be heavily influenced by self-reported data is no longer sufficient. Investors must look beneath the surface, prioritizing externally observed conduct and independent verification. "Don’t confuse communication intensity with quality. And don’t invest in rhetoric," Netessine advised, urging investors to "investigate the gap between rhetoric and reality." This means valuing data from sources like TruValue Labs, independent auditors, and environmental performance metrics that can be objectively assessed. For sophisticated investors, greenhushing companies might even represent undervalued opportunities – firms doing solid work but flying under the radar, offering a potential premium for those who identify their genuine efforts.
For Regulatory Bodies:
The emergence of greenhushing and the penalty for greenwashing present complex challenges for regulators. There is a growing global push for standardized ESG disclosures, exemplified by initiatives from the International Sustainability Standards Board (ISSB) and the European Union’s Corporate Sustainability Reporting Directive (CSRD). These efforts aim to make corporate sustainability reporting more comparable, reliable, and transparent. However, the study suggests that overly prescriptive disclosure mandates, if not carefully designed, could inadvertently encourage greenhushing by increasing the perceived costs and risks of public statements. Regulators face the delicate task of mandating meaningful and verifiable disclosures without stifling genuine sustainability efforts or pushing companies into strategic silence. The focus must be on mandating reporting of actual performance metrics and verifiable actions, rather than just narrative claims. Furthermore, robust enforcement mechanisms against misleading claims remain critical to maintain market integrity.
The Future of Sustainable Business Communication
The landscape of sustainable business communication is undeniably maturing. The era of enthusiastic, often unsubstantiated, pronouncements about environmental commitment appears to be giving way to a more measured, evidence-based approach. While the term "ESG" may continue to be debated and even avoided in some corporate circles, the underlying principles of environmental stewardship, social responsibility, and robust governance remain fundamental drivers of long-term value creation and risk management.
Ultimately, the market is signaling a clear and unequivocal preference for demonstrable action over mere rhetoric. Companies that genuinely integrate sustainability into their core operations, achieving tangible environmental and social outcomes, are being rewarded, even if they choose to communicate these achievements with a surprising degree of subtlety. This shift encourages a deeper, more authentic engagement with sustainability, pushing companies to move beyond superficial claims and focus on creating real-world impact that stands up to external scrutiny. The silent sustainability revolution is not about doing less, but about doing more, and talking smarter.
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